Borden, Inc

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IN THE MATTER OF BORDEN, INC.

FINAL ORDER, OPINIONS, ETC., IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 8978. Complaint, July 2, 1974 — Decision, Nov. 7, 1978 This order, among other things, requires a New York City firm to cease attempting to hinder, restrain or eliminate competition in the processed lemon juice market by granting improper price reductions and promotional allowances to its customers; or by selling its product, Realemon, below cost or at unreasonably low prices.

Appearances For the Commission: W.M. Rice, K.H. Richman, John M. Peterson, Robert C. Goldberg and William J. Tabor.

For the respondent: Elroy H. Wolff, David J. Lewis, H. Blair White and Charles W. Douglas, Sidley & Austin, Chicago, Ill. and Washington, D.C. .

Complaint The Federal Trade Commission having reason to believe that Borden, Inc., hereinafter referred to as Borden or respondent, has violated Section 5 of the Federal Trade Commission Act (15 U.S.C. 45), and that a proceeding in respect thereof would be in the public interest, issues this complaint, stating its charges as follows: I. DEFINITIONS PARAGRAPH 1. For the purposes of this complaint the following definitions shall apply:

(a) “Reconstituted lemon juice” means a product manufactured by adding water to a lemon concentrate base, which product, either bottled or canned, can be stored without refrigeration for long periods of time. .

(b) “Realemon” refers to the brand name of the reconstituted lemon juice product of Realemon Foods which is part of the Borden Foods Division of Borden, Inc.

Il. RESPONDENT Par. 2. Borden is a corporation organized and existing under and Complaint 92 F.T.C.

by virtue of the laws of the State of New Jersey with its executive offices located at 277 Park Ave., New York, New York. [2] Par. 3. Realemon Foods is a part of the Borden Foods Division of Borden, Inc. Borden acquired Realemon-Puritan Co., Chicago, Illinois, in 1962. As a separately operated entity in the Borden Foods Division, Realemon Foods processes, packs, distributes, and sells reconstituted lemon juice.

Par. 4. In 1972, Borden’s total sales exceeded $2 billion, net income after taxes was approximately $66 million, and total assets were approximately $1.3 billion. In 1973, Realemon Foods’ total sales were approximately $28 million. Realemon Foods’ sales of reconstituted lemon juice were approximately $22 million and substantially all of its net income of $3.5 million was derived from such sales. Ill. NATURE OF TRADE AND COMMERCE Par. 5. The relevant market is the sale and distribution, for resale, of reconstituted lemon juice in the United States and regions thereof. Par. 6. Borden, through Realemon Foods, dominates the reconstituted lemon juice market. In 1972, industry sales of reconstituted ‘lemon juice were approximately $25 million; Borden accounted for approximately 90 percent of such sales. In 1973, industry sales of reconstituted lemon juice were approximately $25 million; Borden accounted for approximately 80 percent of such sales. Par. 7. Approximately 20 firms are presently engaged in the reconstituted lemon juice market. Of these 20 firms, only five firms, in addition to Borden, sell a full range of bottle sizes of reconstituted lemon juice. After Realemon Foods, the next largest firm accounted for approximately five percent of sales of reconstituted lemon juice in 1972 and twelve percent of sales in 1973. IV. JURISDICTION Par. 8. In the course and conduct of its business, Borden has sold or caused to be sold reconstituted lemon juice to customers located throughout the United States. There is now and has been for many years a constant substantial flow of Borden’s Realemon reconstituted lemon juice in [3] “commerce” as that term is defined in the Federal Trade Commission Act. Except to the extent that competition has been hindered, frustrated, lessened and eliminated by the acts and practices hereinafter alleged in this complaint, Borden has been and is in competition with other corporations, partnerships, individuals or firms engaged in the sale and distribution of reconstituted lemon juice.

669 Complaint Vv. ACTS AND PRACTICES Par. 9. Borden, the largest processor, distributor and seller of reconstituted lemon juice in the United States, has used its dominant position, size and economic power to frustrate the growth of smaller reconstituted lemon juice processors and distributors; to reduce their opportunities for business survival; and to prevent, hinder, or lessen competition in the processing, distribution and sale of reconstituted lemon juice. Thus, Borden has been, and is now, engaging in various monopolistic or other unfair acts, practices or methods of competition in maintaining-a monopoly in the processing, distribution or sale of reconstituted lemon juice.

More particularly, respondent, since at least 1965, has adopted and placed into effect and carried out various policies, acts and practices to lessen, restrain, eliminate and prevent the distribution or sale of reconstituted lemon juice by others engaged in the processing, distribution and sale of such product in the United States. Among such monopolistic policies, acts and practices, respondent engaged in the following:

(a) Granting selective price reductions which have resulted in different net prices among Borden’s Realemon customers; (b) Selling its reconstituted lemon juice below its cost or at unreasonably low prices under circumstances where the effect was, and is, to injure, suppress or destroy competition in the processing, distribution or sale of reconstituted lemon juice; [4] (c) Granting selective promotional allowances or concessions under circumstances where the effect was, and is, to injure, suppress or destroy competition in the processing, distribution or sale of reconstituted lemon juice;

(d) Disparaging personnel and products of its competitor. (e) Erecting barriers to entry into the reconstituted lemon juice market through extensive trademark promotion and advertising which has artificially differentiated Borden’s reconstituted lemon juice from comparable products of its competitors; (f) Inducing selected customers to reduce their retail prices on Borden’s reconstituted lemon juice by granting special price reductions and/or special promotional allowances or concessions on Borden’s reconstituted lemon juice.

VI. EFFECTS Par. 10. Borden has engaged and is engaging in acts, practices and Initial Decision 92 F.T.C.

methods of competition as hereinbefore alleged, the effects of which have included:

(a) Monopolizing the reconstituted lemon juice market; (b) Preserving, maintaining, and furthering a highly concentrated market structure;

(c) Hindering, restraining, foreclosing and frustrating competition in the reconstituted lemon juice market;

(d) Increasing entry barriers in the reconstituted lemon juice market;

(e) Depriving consumers of the benefits of free and open competition. [5] VI. VIOLATIONS Par. 11. Through each act or practice, hereinbefore alleged in Paragraph 9(a)-(f), respondent has maintained monopoly power over the production, distribution or sale of reconstituted lemon juice in the relevant market in violation of Section 5 of the Federal Trade Commission Act.

Par. 12. Respondent, through unfair methods of competition, has restrained trade and maintained a noncompetitive market structure in the distribution and sale of reconstituted lemon juice in the relevant markets in violation of Section 5 of the Federal Trade Commission Act.

INITIAL DECISION BY DANIEL H. HANscom, ADMINISTRATIVE LAW JUDGE Aucustr 19, 1976 I STATEMENT OF THE CASE Allegations of Complaint The complaint in this proceeding issued in July 1974 charging respondent Borden, Inc. with maintaining monopoly power over the marketing and [2] sale of reconstituted lemon juice through Realemon Foods, a unit of its Borden Foods Division, in violation of Section 5 of the Federal Trade Commission Act. More specifically, the complaint charged respondent Borden with using its dominant position, size and economic power to frustrate the growth of smaller reconstituted lemon juice marketers, to reduce their opportunities for survival, and to prevent, hinder and lessen competition in the BORDEN, INC. 673 669 Initial Decision sale of reconstituted lemon juice. As a consequence of the foregoing and other enumerated acts and practices, respondent Borden was charged with (a) monopolizing the reconstituted lemon juice market, (b) preserving, maintaining, and furthering a highly concentrated market structure, (c) hindering, restraining, foreclosing, and frustrating competition in the reconstituted lemon juice market, (d) increasing entry barriers in the reconstituted lemon juice market, and (e) depriving consumers of the benefits of free and open competition.

The “relevant market,” as indicated, was alleged to be the marketing and sale of reconstituted lemon juice in the United States and regions thereof. Industry sales of reconstituted lemon juice were ~ stated to be approximately $25,000,000 in 1978, and respondent’s Realemon brand was alleged to account for approximately 80 percent of such sales.

Borden’s answer, filed August 22, 1974, denied all allegations of unlawful competitive conduct or that it had violated Section 5 of the Act. Respondent denied that reconstituted lemon juice was a relevant product market, that it had engaged in any of the specific acts and practices alleged, or that it had restrained trade or maintained a noncompetitive market structure in the sale of reconstituted lemon juice. [3] Procedural History Pretrial proceedings commenced shortly after the filing of Borden’s Answer with a conference held August 28, 1974, and continued thereafter with extensive discovery and trial preparations by both sides. A number of motions were filed and ruled upon by the law judge, and several additional pretrial conferences were held to iron out various problems which developed. Hearings on the merits were originally scheduled for February 18, 1975, but that date proved to be impractical and they were reset for May 27, 1975. The case-inchief commenced on that date in Chicago, Illinois, and thereafter hearings were held there and in Washington, D.C. and Los Angeles, California.

The trial required in all seven weeks of actual hearings, including rebuttal which was concluded on February 3, 1976. Many industry and other witnesses were called, and both sides presented extensive expert economic and marketing testimony. Complaint counsel called Dr. Michael Mann, Professor of Economics at Boston College and former Director of the Bureau of Economics of the Commission, and Drs. Warren Greenberg and Daniel P. Kaplan, economists from the Commission’s Bureau of Economics. Respondent Borden called Dr. 674, FEDERAL TRADE COMMISSION DECISIONS Initial Decision 92 F.T.C.

William. F. Massy, Professor of Business Administration and Vice- Provost for Research at the Graduate School of Business, Stanford University, and Dr. Morton Kamien, Professor of Managerial Economics at the Graduate School of Management, Northwestern University. In all 74 witnesses testified. When hearings were completed the transcript amounted to 6,189 pages, and twelve binders of exhibits had been accumulated numbering several thousand pages. The record was closed February 23, 1976. The initial decision was originally due May 21, 1976, but the complexity of this matter combined with another decision then being completed by the undersigned necessitated extensions of time which were granted by the Commission. [4] The proceeding is now before the undersigned for decision based upon the allegations of the complaint, the answer, the evidence and the proposed findings of fact, conclusions and legal authority filed by both sides. All proposed findings of fact, conclusions and arguments not specifically found or accepted herein, are rejected. The law judge, having considered the entire record, and all the contentions of respondent Borden and complaint counsel, makes the following findings and conclusions, and issues the order set out at the end hereof:

I FINDINGS OF FACT Respondent 1. Respondent Borden is a New Jersey corporation with its executive offices at 277 Park Ave., New York, New York. Among its divisions is the Borden Foods Division which is headquartered in Columbus, Ohio (Complaint and Answer, Paragraph Two; Dillon, Tr. 4840).

2. The Realemon-Puritan Company, based in Chicago, Illinois, was acquired by Borden in 1962, and thereafter has been operated as Realemon Foods, a separate unit of the Borden Foods Division. The principal product’ of Realemon Foods is Realemon brand of reconstituted lemon juice (Complaint and Answer, Paragraphs Three and Four).

3. Respondent Borden, Inc. is a major U.S. corporation with total sales of over $2 billion annually, total income after taxes of $66 million in 1972 and assets of around $1.3 billion. In 1973, total sales of Realemon Foods were approximately $28 million of which $22 669 Initial Decision million was reconstituted lemon juice (Complaint and Answer, Paragraph Four). [5] 4. At all times relevant herein, Borden has sold reconstituted lemon juice in various parts of the United States and was, and is now, engaged in “commerce” as “commerce” is defined in the Federal Trade Commission Act (Complaint and Answer, Paragraph Eight).

Market Definition As a predicate for determining whether respondent Borden, as charged in the complaint, has “maintained monopoly power over the production, distribution or sale of reconstituted lemon juice,” it is obviously necessary first to identify both the “relevant geographic market” and the “relevant product market.” Geographic Market 5. The geographic market within which to test the allegations of the complaint is the United States as a whole. Respondent Borden’s Realemon bottled lemon juice is marketed nationally and competed with similar products in most of the country. Although valid geographic submarkets may exist, the record clearly establishes the existence and validity of a national geographic market (see, for example, CX 1, pp. 638-39; CX 2, pp. 660, 678, 707; CX 3, p. 740; CX 258).

Product Market 6. From the inception of this proceeding the composition of the relevant product market has been a paramount issue. Respondent Borden has contended throughout that any relevant market definition must include fresh lemons at a minimum. A major part of the case was devoted to documentary and testimonial evidence, some of it highly complex econometric analysis, on this issue. Complaint counsel, on the other hand, maintain that, although the “outer boundaries” of a broad product market may include [6] fresh lemons, a variety of practical factors, including product characteristics and “economic and commercial realities,” establish that “processed lemon juice,” described later herein, constitutes a valid submarket. After thorough consideration of the evidence and applicable legal principles on this question, the law judge, in accordance with the findings and reasoning set out hereinafter, has concluded that complaint counsel’s contention is correct and that processed lemon Initial Decision 92 F.T.C.

juice is, at the least, a proper submarket within which to test respondent Borden’s competitive conduct.

Fresh Lemons 7. Little need be said about fresh lemons, they are known to all. Unlike other citrus fruit, however, fresh lemons are used mainly for their juice and as a garnish. Fresh lemons grow the year around, and are available at all seasons (Lee, Tr. 5079; Bohrens, Tr. 5071). California is a principal producer, although lemons are also grown elsewhere, including Arizona and Florida. Fresh lemons are perishable in a relatively short time. Estimates of the shelf-life of unrefrigerated lemons ranged from 5 to 7 days up to three or four weeks (Goldberg, Tr. 2630; Heller, Tr. 5018; Greenberg, Tr. 1202- 1203; Imming, Tr. 4603), and under refrigeration at the proper temperature, six to eight weeks (Lemmerman, Tr. 981). Dollar sales of fresh lemons approximate $200,000,000 yearly (Fey, Tr. 3970). Processed Lemon Juice 8. Processed lemon juice includes the following different vari-eties: reconstituted lemon juice, frozen reconstituted lemon juice, processed fresh lemon juice, frozen fresh lemon juice, and imitation lemon juice (Dr. Greenberg, Tr. 2801). As indicated earlier, the complaint. alleged the relevant product [7] market to be “reconstituted lemon juice,” but during the proceeding, and later in proposed findings and briefing, complaint counsel shifted to “processed lemon juice” which describes a slightly broader product market. Significant market share data is in terms of processed lemon juice (CX 239), although most of the evidence offered by complaint counsel relates to reconstituted lemon juice. Bottled reconstituted lemon juice, which is the product marketed by respondent under its Realemon brand, is overwhelmingly the dominant type of processed lemon juice, and comprises the bulk of the processed lemon juice category (see the testimony of Dr. Greenberg, particularly Tr. 2794 through 2806, Tr. 2846-47, CX 239, and CX 1 through 4 generally). Whether the relevant market is formulated in terms of “reconstituted lemon juice” or “processed lemon juice” makes no material difference in the outcome of this proceeding. Both of the foregoing terms, as well as “bottled lemon juice,’ were used to describe the industry in respondent’s Realemon Marketing Plans (CX 1-4), and have been used in writing this decision.

9. Reconstituted lemon juice is manufactured by adding water, a preservative or preservatives, and lemon oil to pure lemon juice BORDEN, INC. 677 669 Initial Decision concentrate which is purchased in bulk, often in tank cars, by large producers such as Borden. The ingredients are mixed according to a simple, well-known formula, using uncomplicated, relatively inexpensive equipment of the sort employed by any juice bottling operation (Hansfield, Tr. 132-135; Kendall, Tr. 535, 539; Wolcott, Tr. 635-636, 661; Delaney, Tr. 679-680; Peters, Tr. 1784-85). After manufacture, the product is packaged for consumer use in glass bottles ranging from 8 to 32 ounces in size (Hansfield, Tr. 2336; Kendall, Tr. 533-34; Delaney, Tr. 681, 693; Peters, Tr. 1785; Saving, Tr. 2510). In recent years a small volume has been marketed in plastic green or yellow lemon-shaped squeeze containers (Peters, Tr. 1786). [8] A. Distinct and Unique Characteristics Differentiate Processed Lemon Juice from Fresh Lemons 10. Processed lemon juice has a variety of distinct and unique characteristics which differentiate it from fresh lemons. Convenience 11. Processed lemon juice is readily, in fact, instantly, available for use as an ingredient for cooking or as an additive, as in the case of iced tea, for example. Borden’s Realemon lemon juice may be kept for long periods in the refrigerator, up to six months or even a year (Lemmerman, Tr. 980; Goldberg, Tr. 2630; Greenberg, Tr. 1202). An ounce of Realemon bottled lemon juice is about the equivalent of the juice of one fresh lemon (CX 3, p. 753"), meaning that a quart bottle is essentially the equivalent, ready to use, of close to 32 fresh lemons. 12. Fresh lemons, in contrast, must be squeezed for use requiring time and work, and necessitating cleanup afterward. Additionally, since fresh lemons are perishable, they must be used within a relatively short time after purchase or allowed to go bad, and, if to be available when needed, must be constantly replenished. 13. Realemon over the years has promoted the advantage of its bottled lemon juice from the standpoint of convenience. As early as 1953, long prior to its acquisition by respondent Borden, Realemon emphasized in its advertising the convenience of lemon juice in a bottle over the trouble to the user of squeezing fresh lemons to obtain lemon juice (RX 192-194). This theme has been continued during intervening years to the present time. [9] 14. A few examples will convey the emphasis which Realemon ' Borden document numbers stamped on documents when turned over to the Commission's staff have generally been used in this decision to refer to pages within multi-paged exhibits. Initial Decision 92 F.T.C.

gave in its promotional efforts to the convenience of bottled lemon juice over squeezing lemons for their juice. In an ad in Readers Digest in August 1956, Realemon showed a TV personality staging a contest over his “Breakfast Club” TV show demonstrating the time taken to squeeze enough lemons to provide the 16 ounces of lemon juice contained in that size of bottled lemon juice (RX 196, 215). Ads run in Business Week, U.S. News and World Report, and Newsweek during 1960 recounted the original founding of the Realemon company and the convenience of having ready-to-use lemon juice available in the kitchen without the time, fuss and bother of squeezing lemons (RX 198). Fifteen years later, in 1975, a program for national TV broadcasting featured the “convenience and availability” of Realemon over “produce,” ie, fresh lemons (RX 546). ;

15. The convenience of processed lemon juice over fresh lemons has been generally recognized in the industry (Delaney, Tr. 689; Conrady, Tr. 3481; Crane, Tr. 3460; Fey, Tr. 3968; Foorman, Tr. 5046- 48; Gordon, Tr. 3398; Rose, Tr. 4628; Silver, Tr. 3431; Toms, Tr. 3115; Wardell, Tr. 3304). The following are representative of the testimony of producers, brokers and distributors, and supermarkets. The Division Manager of the Product Sales Division of Sunkist Foods stated with respect to bottled or processed lemon juice that “basically you’re working with a convenience item” (Delaney, Tr. 689). A Grand Rapids, Michigan, food broker testified that bottled lemon juice was differentiated from fresh lemons by “[c]onvenience primarily, because Realemon would stay in the refrigerator for months where fresh lemons would have to be used immediately on purchase or before they spoil in a short time” (Conrady, Tr. 3481). The Executive Vice President of a medium-size New York City area supermarket chain testified that “undoubtedly” [10] there was a “classification of consumers who will only buy the reconstituted product because of its convenience factor, no question about it” (Rose, Tr. 4628-29).

16. Purchasers and consumers believe bottled lemon juice to differ substantially from a convenience standpoint from fresh lemons. A survey by the Center For Advanced Marketing Practice, conducted in May 1972 for the Realemon Foods unit of respondent Borden, explored “consumers’ attitudes toward usage of lemon juice—both packaged commercial and fresh” and reported the following, ReaLemon’s bottled lemon juice being referred to as “commercial” (CX 286, p. 7682):

The outstanding reason for use of the commercial lemon juice is convenience. First of all, it is always there. The housewife does not have to worry about having fresh BORDEN, INC. 679 669 Initial Decision lemons on hand when she needs lemon juice, she does not have to make a special trip to the store when lemons are required, she does not have to keep lemons on hand that may spoil and get thrown away. The bottle stays in the refrigerator and is handy for any spontaneous use.

17. The corporate policies and marketing strategies of ReaLemon, as indicated, were based, among other factors, upon the advantage from a convenience standpoint of bottled lemon juice over fresh lemons. The Realemon Marketing Plan for 1973 stated (CX 3, p. 752):

Consumer Focus Group Sessions conducted in May 1972 in Chicago and New Jersey indicate that the user of bottled lemon juice is a convenience oriented consumer. (11) This is juxtapositioned against the fresh lemon user who is willing to sacrifice convenience for real/perceived flavor preference. See also the Realemon Marketing Plan for 1974 (CX 4, p. 851). Taste 18. There is a substantial, if not drastic, difference between the taste of reconstituted lemon juice and juice obtained from fresh lemons, differentiating these two products from each other. Respondent’s 1972 Marketing Plan succinctly stated this fact (CX 2, p. 673): Processed lemon juice is processed lemon juice and is not as good as the fresh equivalent in its taste qualities.

See also Realemon Marketing Plans for 1973 and 1974 (CX 3, p. 752; CX 4, p. 867). The latter noted that it was difficult to convert fresh lemon users to bottled lemon juice because they perceived “a great advantage in the taste of fresh lemons which far outweigh [sic] any convenience or economic factors.”

19. The study prepared for respondent Borden by the Center For Advanced Marketing in 1972, already mentioned, evaluated a number of marketing factors bearing on bottled lemon juice. With respect to difference in taste between bottled lemon juice and juice squeezed from fresh lemons, the study informed Borden (CX 286, p. 7673):

The superior flavor of fresh lemon juice, the distasteful flavor of the commercial, is the chief reason for its use by the fresh users. The taste of the commercial is considered in no way comparable to the [12] fresh. The fresh is thought to be sweet and true tasting; the commercial is described as being different, imitation, funny tasting.

The foregoing conclusion was based on group interviews with a number of women. The group interview technique was utilized “to elicit spontaneous reactions from the respondents” (CX 286, p. 7657), Initial Decision . 92 F.T.C.

and the following specific comments of women interviewed were reported to Borden’s Realemon management (CX 286, pp. 7673-74): It’s like night and day. You just can’t compare the flavor. I really mean the taste is so very different from fresh lemon. You just can’t get the same taste synthetically that you do with something fresh. They are processing it. They’ve done something to it. It’s not the same thing as the fresh. It’s nothing like a real lemon. It’s like all the imitation products. It has a funny taste. If I put the bottled lemon in tea I can’t get the right flavor I want. If I use fresh lemon it’s right any time.

When we make lemonade with the fresh, the lemons have a sweetness to it and we hardly have to use any sugar.

When it’s fresh the flavor is stronger and truer and when it’s canned or bottled the flavor is not the same.

It doesn’t taste as good as fresh lemons. It really doesn’t. It has a strong acidy taste. (13] The fresh lemon is not as bitter. The bottled is stronger, more tart. I think the concentrated is a little strong. It’s a little different taste. Fresh lemon is the real lemon. I don’t know what they put in the bottles but it makes it a little different.

I can take a slice of fresh lemon and eat it but I can’t drink lemon juice from a bottle of reconstituted. It’s much too tart and there’s a bitterness to it. A fresh lemon has the tartness but not the same strong tartness. It’s bitter whereas a lemon is sour.

I made lemonade with the bottled stuff and the children wouldn’t drink it. It was too strong.

Fresh lemons make a better lemonade but of course it’s not as convenient. It’s fresher tasting, not quite as tart.

' It has a canny taste, a tin taste. It leaves an aftertaste in your mouth. Most bottled things have chemicals added to it [sic] and you pick that up, the chemical taste.

The industry recognized the substantial difference in palatability of bottled lemon juice and lemon juice squeezed from fresh lemons (see Imming, Tr. 4603; Fey, Tr. 3969; Crane, Tr. 3466; Foorman, Tr. 5047; Robison, Tr. 5029; Heller, Tr. 5017). [14] Shelf-life and Spoilage 20. As already stated, bottled lemon juice and fresh lemons are BORDEN, INC. 681 669 Initial Decision very different products from the standpoint of freedom from spoilage. Fresh lemons are perishable commodities, and spoil within a relatively short time depending upon conditions (Heller, Tr. 5018; Goldberg, Tr. 2630; H. Greenberg, Tr. 1203; Lemmerman, Tr. 980; Rose, Tr. 4629; RX ~ 314).

21. In contrast, bottled lemon juice may be kept for a year or more without spoiling (Peters, Tr. 1790). Lack of Utility for Certain Uses 22. Processed lemon juice cannot be used for many of the purposes for which the public uses fresh lemons. When a restaurant or housewife wishes to garnish a dish with a slice of lemon, to present a beverage or iced tea with a lemon wedge, or to decorate ‘a drink with a twist of lemon peel, obviously fresh lemons must be used (see Robison, Tr. 5022, 5026-27; Toms, Tr. 3112-18; Swartzberg, Tr. 2997; Edelman, Tr. 3230; Thomas, Tr. 3271; Lundell, Tr. 3360-61; Fey, Tr. 3959; Silver, Tr. 3431; Conrady, Tr. 3480; Bentley, Tr. 3288; Rose, Tr. 4628; CX 286, p. 7669).

23. In the restaurant industry, fresh lemons are commonly used in serving meals and beverages because of the visual appeal to the patron, which processed lemon juice cannot supply (Robison, Tr. 5082; Lundell, Tr. 3334-35; Bentley, Tr. 3289; Edelman, Tr. 3236; Stipulation, Tr. 6200; Massy, Tr. 5254). Similarly, householders, or some of them, use fresh lemons on occasions where appearance is important. The survey conducted for respondent by the Center For Advanced Marketing Practice found this to be true, reporting to respondent (CX 286, p. 7679): [15] Commercial lemon juice is generally not considered appropriate for company. Even those who might use the bottled for their own tea, feel that fresh lemon should be used for entertaining because it looks nicer.

Presence of Additives in Bottled Lemon Juice 24. Bottled lemon juice contains additives which prevent spoilage and impart to the product the long shelf-life of a year or more mentioned earlier. The preservatives used have at times been 3/100ths of 1% sodium benzoate and 1/40th of 1% sodium bisulphite (RX 238-239). At other times, 1/30th of 1% sodium bisulphite (RX 248) and 1/50th of 1% sulphur dioxide have been used (RX 251). The presence of these additives, particularly sulphur dioxide, substantially differentiates bottled lemon juice from the juice from fresh lemons. Borden’s Realemon president wrote in the 1972 Marketing Plan (CX 2, p. 674):

Initial Decision 92 F.T.C.

The biggest potential problem facing REALEMON, aside from competition, is the use of Sulphur Dioxide as a preservative, as mentioned earlier. While the level used in the juice could not be considered in itself harmful, there has been considerable adverse publicity given to Sulphur Dioxide in the past couple of years, as people’s awareness of air pollution has grown. Should they identify our preservative as being one and the same with the gas present in the air, we could have problems. Sulphur Dioxide does have, if nothing else, a very obnoxious odor, and yet at the same time, based on our own [16] experience as well as a two-year study by the Syracuse Research Centre, is the only preservative that works effectively on lemon juice. If we were unable to continue using it, we would not have a product that could be considered satisfactory to the consumer.

B. Substantial Retail Price Differences Prevail Between Processed Lemon Juice and Fresh Lemons 25. Very substantial price differences prevail between processed bottled lemon juice and lemon juice obtained from fresh lemons. The Realemon Marketing Plan for 1973 stated that juice from fresh lemons cost between three (8) and five (5) times as much as Realemon bottled lemon juice (CX 3, p. 753). Since respondent’s Realemon lemon juice commands a premium price, as discussed later in this decision, the cost to the public of juice from fresh lemons was relatively even greater in the case of other brands of bottled lemon juice. For example, the 1973 Marketing Plan of respondent reported that the most recent Nielsen survey found a 1%¢ price differential between Realemon and another brand of processed lemon juice (32 oz. size). Based on this figure, fresh lemon juice cost four (4) to seven (7) times more per ounce than non-premium bottled lemon juice (CX 3, p. 753). Respondent’s labels state that an ounce of Realemon lemon juice is the equivalent of one fresh lemon (RX 238- 266), and ReaLemon’s chief executive testified to this effect (Peters, Tr. 4570).

26. In 1975, as an adjunct to nationwide TV advertising, respondent distributed brochures to the retail food industry which stated (RX 546, p. 6):

In a recent National survey [Nielsen], Dec. 11, 1974 to Jan. 8, 1975, the [17] price of fresh lemons averaged out at 12.8¢ each. (One lemon has about one ounce of juice depending upon the size—storage time—type—season, etc.) The average price per ounce for REALEMON came to 2.8¢ per ounce. 12.3¢ for fresh lemons _ 2.8¢ for REALEMON and the juice is extracted for her. . .it’s available when she needs it. . .in volume. . .for her cooking-baking, tea, fish, salads, and many household uses.-. . . - Based on the foregoing, the cost of fresh lemon juice was about four BORDEN, INC. 683 669 Initial Decision - (4) times the cost of respondent’s Realemon, and correspondingly more than the cost of competing brands of bottled lemon juice. 27. Promotional literature used by respondent Borden stated in the late 1960’s that “the lemons you’d squeeze to fill a quart bottle of Realemon would cost about 5 times as much” (RX 375; Lundell, Tr. 3157). Again, the lower price of other bottled lemon juices would have produced a correspondingly more expensive figure for fresh lemon juice.

28. Fresh lemons fluctuate in price on a weekly, or even, at times, a daily basis. The Executive Vice President of a supermarket chain in the New York City area testified that the price of fresh lemons fluctuated, as follows (Rose, Tr. 4623-24): probably, on a week-to-week basis. A lot depends on not only the supply available from the field but the supply in transit to any given area at [18] any given time, or the cold storage holdings that might be involved in any given area or any given time. , As a witness previously pointed out, the supermarket is nothing more than a transitory place. It is a place where products are stored for resale, and the hope is that it is a very immediate resale especially on the perishable products so that we would hope to turn lemons over twice a week, I would guess, so you would hope never to have lemons on hand for more than three or four days at any given time. If there is a large glut on the market of lemons, in a market, if there is a large supply of lemons in the market at any given time, the price is going to go very, very. low. If lemons, for some reason, as a produce buyer told me, if a train company can’t get through to New York, the price of lemons would go sky high in one day. It is very difficult to say.

In contrast, the price of bottled lemon juice changes at infrequent intervals, there being, for example, only one or two price increases on Realemon between 1970 and 1974 (CX 37-54). 29. Notwithstanding the large price differential between fresh lemons and processed lemon juice, the two products continued sideby-side in the marketplace, and $200,000,000 or more worth of fresh lemons continued to be sold annually, as stated earlier, many times the volume of processed lemon juice (Fey, Tr. 8970). Fresh lemons, in short, have not been driven from the marketplace. This circumstance alone is [19] strong evidence that fresh lemons and processed lemon juice are not in the same relevant market. As Dr. Mann testified (Tr. 6130, 6186-87):

It seems to me that any product that sells at a quarter of the price of the other, and yet, doesn’t sweep it out of the marketplace and, in terms of purchasing, shifting to other purchasers, it is so difficult for me to believe that the two products are viewed as very close substitutes even when I look at it in that kind of common-sense way. : Initial Decision 92 F.T.C.

Q. Does the erosion of the market which was said to exist for Realemon after the entry of a low priced seller demonstrate to you that no other product competes with bottled lernon juice but another bottled juice? ; A. Well, it is very supportive because another bottle of lemon juice comes in and has an impact on the market which leads to response on the part of Realemon, and it affects the market shares and it affects price behavior, but in the case of lemons versus reconstituted lemon juice, you have a price differential, a substantial price differential, reconstituted lemon juice being in the neighborhood of one quarter of the equivalent juice content of lemons and yet, lemons aren’t driven out of the marketplace.

There seems to be no-concern on the part of the marketers of lemons that the [20] price differential is unsustainable, without worry, that they are going to find themselves with nobody to sell to.

Q. Could a price differential that large be explained by quality and taste perception differences by consumers? A. Isuppose it could, but it would suggest to me that taste and quality differences were so extensive that they are really separate commodities. C. Processed Lemon Juice Producers Priced Their Product in Competition with Competing Brands of Processed Lemon Juice—Not Fresh Lemons , Realemon 30. In pricing its processed lemon juice respondent Borden focused its attention on the prices of other brands of processed lemon juice, writing in its 1971 Marketing Plan that because of the inroads of competition “starting in 1970” price increases appeared to be “out of the question” (CX 1, p. 645). The plan went on to state that the spread between the price of respondent’s Realemon processed lemon juice and competitive brands, 15¢ to 20¢ per unit, precluded any possibility of price increases to offset higher costs (CX 1, p. 649). The 1972 Marketing Plan observed that Realemon commanded a premium over “competitive offerings” as high as “25 to 30 cents per unit” (CX 2, p. 665) but noted that the most serious threat was the “low priced competition” (CX 2, p. 671). The 1973 Marketing Plan referred to the same problem stating that “new distribution” had been secured by “competitive brands” at the retail level, that “price sensitivity” had been exhibited at the consumer level, and that this “may be the [21] single most important area of the 1973 Realemon Plan” (CX 8, p. 781). The 1974 Marketing Plan noted that the “stability of the Realemon franchise” was significantly endangered by Golden Crown, “a price oriented competitive brand” (CX 4, p. 853). The plan reviewed the price spread between Realemon and Golden Crown processed lemon juice throughout the United States (CX 4, p. 878), and stated that price increases were planned to compensate for cost increases, but only outside “the highly competitive Golden Crown markets concentrated in Region 1 and part of Region 2” (CX 4, p. 878).

BORDEN, INC. 685 669 Initial Decision processed lemon juice brands. The 1971 Plan, after listing dollar amounts for the years 1967 through 1970 for advertising and promotions, the latter increasing relative to the former, stated (CX 1, p. 646): ;

The figures reflecting a considerable change in the ratio of advertising to promotion are in direct relation to the advent of competition starting in 1967. [Emphasis added.] By “competition” in the foregoing quotation Borden manifestly referred to other processed lemon juices inasmuch as fresh lemons have always been marketed. The 1972 Marketing Plan stated (CX 2, p. 700):

REALEMON’S trade promotions can be considered most effective, as they generate considerable volume at the time they are being presented. In addition, this now has become an important tool in dulling the efforts of competition who are priced from 20 to 30 cents per bottle less than REALEMON, at those times when REALEMON is not being promoted.

[22] The 1973 Marketing Plan noted three major opportunities for improving performance in 1973, among them the following (CX 8, p. 817):

The use of market-by-market deal levels with higher levels in competitive markets than now.

The “basic plan” envisaged different promotional payments in “highly competitive,” “moderately competitive” and “low competitive” markets (CX 3, p. 828), indicating that other processed lemon juice brands were the competitive concern of Borden’s Realemon management, not fresh lemons. See also, in this connection, CX 4, p. 858. That promotional payments were geared to compete with other brands of processed lemon juice rather than fresh lemons was confirmed by industry members. An Jowa food broker testified (Wardell, Tr. 3318):

Q. Did Realemon ever offer promotions in regard to reduced prices on fresh lemons? A. In regard to reduced prices on fresh lemons? Q. If there was a special being offered for the sale of fresh lemons, Mr. Wardell, did the Realemon Company respond to that with one of their own promotions? A. No, sir.

The Grocery Buyer for a large Texas supermarket chain testified (Thomas, Tr. 3274): [23] Q. From your knowledge, Mr. Thomas, did the Realemon Company ever alter their promotions or offer new promotions due to the price changes of fresh lemons? A. No, I can’t honestly say that they ever initiated changes because of the prices of fresh lemons.

Initial Decision 92 F.T.C.

32. The lack of sensitivity between fresh lemon prices and sales of processed lemon juice is indicated by the following testimony of the Realemon Foods’ president (Peters, Tr. 4557): Q. If fresh lemon prices are up this year as you indicated, have you noticed what kind of trend, if any, there has been in the sale of reconstituted lemon juice? A. They remain flat. I’m at a loss to understand why, but we could either assume that advertising is ineffective or competition is really chewing us up. Q. How about reconstituted lemon juice sales as a whole, not just Realemon? A. They also have been pretty flat.

Other Processed Lemon Juice Marketers 33. Other processed lemon juice marketers priced their brands in competition with other processed lemon juice brands, particularly Realemon, [24] not fresh lemons (Kendall, Tr. 546-47; Westcott, Tr. 615-16; Wolcott, Tr. 649; Delaney, Tr. 686-89; Hansfield, Tr. 158-59, 161, 2344). Fluctuations in the retail price of fresh lemons had little or no effect upon the price of bottled or processed lemon juice. The manager of the Product Sales Division of Sunkist Foods testified (Tr. 689):

Q Mr. Delaney, is there considerable price interaction between fresh lemons in the supermarket and reconstituted lemon juice? A. In my opinion, no.

The president of another regional producer of processed lemon juice testified (Kendall, Tr. 546):

Q. Is there a close correlation between retail fresh lemon prices and retail processed lemon juice prices? :

A. Do you mean, do they move up and down together or apart, this sort of thing? No. [Processed] Lemon juice prices are primarily, as I said earlier, predicated on cost and promotions, et cetera.

The president of Golden Crown processed lemon juice testified (Tr. 157):

Q. Mr. Hansfield, the day to day selling of Golden Crown Reconstituted Lemon Juice, with whom are you in competition? A. The primary competitor in the reconstituted lemon juice is Real Lemon. I mean, they are the market. [25] Q. In day to day sales procedures, are you in competition with fresh lemons? A. No. We give no credence to fresh lemons at all. The Sales Manager of a regional brand of bottled lemon juice testified (Wolcott, Tr. 616):

DYLYLIN, LLINU. vue 669 Initial Decision If fresh lemons went down considerably we would not adjust the price of lemon juice to meet that competitive situation. No, we wouldn’t. D. Retail Food Store Buyers Placed Orders for Processed Lemon Juice Without Regard for the Prevailing Price of Fresh Lemons and Vice Versa 34. Retail grocery and supermarket buyers did not consider the price of fresh lemons in making decisions on the purchase of processed or bottled lemon juice for resale. The grocery buyer for a Wisconsin chain of 80 retail food stores testified (Ellenson, Tr. 1963): Q. Mr. Ellenson, in making buying decisions concerning Realemon lemon juice, do you consult the price and quantity information concerning fresh lemons at Godfrey stores? A No, sir.

Q. Why not? A. It’s two different worlds you’re talking about, a concentrate against the pure natural product. [26] The head buyer for one of the nation’s largest supermarket chains, -Acme Markets, Inc., testified (Moreland, Tr. 1024-25): Q. While you were in the position of head buyer, did you discuss on a regular or on any kind of a basis with the produce buying department purchases of lemons or the price of lemons in making your decisions concerning Realemon lemon juice purchases? A. No.

The head of the Grocery Division of another large supermarket chain, Penn Fruit, testified (Greenberg, Tr. 1190): Q. Do you consider the price or the instore movement of fresh lemons when you purchase reconstituted lemon juice? A. No. We have no conversations with the Produce Department. They do their own merchandising.

The Grocery Buyer Merchandiser for still another supermarket chain, Food Fair Stores, with supermarkets throughout the East Coast, testified to the same effect (Friedland, Tr. 1494): Q. Do you ever consider the price or instore movement of fresh lemons when you purchase reconstituted lemon juice? A. No.

Q. Do you feel these 2 products compete with each other’? [27 ] Initial Decision 92 F.T.C.

A. No, I don’t.

The head buyer for a Pennsylvania Grocery Cooperative testified similarly (Leahy, Tr. 850):

Q In determining the quantity of lemon juice that you purchase, do you, in any way, consult the price of fresh lemons in your member stores or the quantity of lemons in your stores? A. No. When you come right down to it, they are two different products. The Director of Grocery Purchasing for Giant Food, Incorporated, a large chain of supermarkets in the Baltimore-Washington-Richmond area, did not believe there was any price sensitivity from the consumer’s standpoint between fresh lemons and bottled lemon juice, and did not think the price of fresh lemons affected the price of bottled lemon juice (Manos, Tr. 1521-22). This supermarket official - stated (Tr. 1522):

If lemons are priced high, I don’t think that a customer who is normally buying lemon juice, buying lemons, would rush over to buy lemon juice, necessarily, nor do I believe if lemons were being given away at a low price, would they stop buying [bottled] lemon juice.

See also to the same effect Gerace, head merchandiser for the leading supermarket chain, Tops Markets, in the Buffalo, New York, area, Tr: 2032; Goldberg, Director of Grocery Purchasing for a 187 | member retailer-owned cooperative, Tr. 2628-29; Lemmerman, Vice- President in charge of grocery purchasing for a 104 store supermarket chain, Supermarkets General, [28] serving six states in the Northeast, Tr. 978-75; Springer, a purchasing agent for a Buffalo, New York, grocery wholesaler, Tr. 1862; Bentley, a Houston, Texas, food broker, Tr. 3294; and Silver, a Pittsburgh, Pennsylvania, food broker, Tr. 3434.

35. Conversely, the retail food store produce buyer of the largest or second-largest supermarket chain in the United States did not give consideration to the current price of processed lemon juice on the shelves of the chain’s stores when placing orders for fresh lemons. The National Director of Produce Merchandising for the A&P testified (Watson, Tr. 6203):

Q. In making your decision as to what demand or how many fresh lemons to buy, did you consult the grocery buyer, check his supply or his price of [bottled] lemon juice? A. No.

E. In Their Business Operations Respondent Borden’s Realemon Management, Sales Personnel and Brokers Considered Pro- WU aera, ant, 669 Initial Decision cessed Lemon Juices and Brands Thereof To Be the Competitive Product Market Marketing Plans Respondent Borden’s Realemon Foods prepared annual “Marketing Plans,” referenced and quoted from earlier herein, in the fall of each year to chart business courses for the ensuing year. These are reliable business records, written by management. After revisions and redrafting, and discussion with Borden headquarters’. executives, they were issued [29] by the Realemon Foods president for planned Realemon marketing the following year (Peters, Tr. 1754- 55). Marketing Plans for 1971, 1972, 1973 and 1974 are in the record as exhibits (CX 1-4).

36. Although the advertising efforts of Realemon over the years have been geared to persuading the consuming public that the unique characteristics of bottled lemon juice, already discussed, for example, convenience, economy, relative non-perishability, etc., justified its use instead of fresh lemons, Borden management looked upon other processed lemon juice brands as constituting the competitive product market, not fresh lemons. This is revealed clearly in the Borden Realemon Marketing Plans for the years 1971 through 1974 (CX 1-4).

37. In 1971, viewing the competitive situation, Borden’s ReaLemon management noted that its market share of processed lemon juice nationally was 92 percent at the beginning of 1970, but had slipped to 88.2 percent by August of that year. Although concluding that this loss was not great, the Marketing Plan pinpointed certain key markets as “danger spots.” Milwaukee, St. Louis, Buffalo, Chicago, Cincinnati, Dayton and Columbus were identified as “now” having “Golden Crown Brand Lemon Juice for competition.” Philadelphia was described as “under the siege” of competition from Seneca, another regional bottled lemon juice producer. Looking at the situation generally, the Marketing Plan observed (CX 1, p. 640): There are presently 10-12 competitors vieing for the bottled lemon juice business. Of these, three are presently causing the most difficulty, Golden Crown, Seneca, and Tropic Fresh.

The latter was a Florida producer which had “attained modest success in the Southeast.” The Marketing Plan went on to note (CX 1, p. 642): [30] ReaLemon’s other competition, while many in number, has not been of major proportions although it does include big names such as Sunkist and Vitapakt. Initial Decision 92 F.T.C.

Both of the latter are brands of bottled lemon juice sold in California and the Southwest. In calculating its “market” share, Borden used the bottled or processed lemon juice industry, not that industry’s sales plus fresh lemon sales.

38. The 1971 Marketing Plan states that in the past Realemon bottled lemon juice had been the “total market,” that media and promotional expenditures had been highly successful in attracting new users and increasing uses with present buyers, and that the long range objective was to expand the size of the “total market,” as follows (CX 1, p. 649):

Realemon has now become a protective umbrella over all lemon juice activity. The long range objective therefore, is to expand the size of this umbrella and thus the total market.

The “total market” in the Realemon view was thus processed lemon juice.

39. The short range objective given in the 1971 Marketing Plan was to prevent the price spread between Realemon bottled lemon prices and those of competitors “from increasing,” in order to preserve respondent’s “market share close to its present level” (CX 1, p. 649):

Market share is the key, since industry or total market growth will be reflected more toward Realemon than its competitors by virtue of ReaLemon’s present 90% market share. [31] 40. Turning to sales and profits, the 1971 Marketing Plan viewed other processed lemon juice marketers as ReaLemon’s competition, rather than fresh lemons. Borden’s 1971 Plan stated (CX 1, p. 645): Prior to the time of serious, effective competition, Realemon had been able to raise prices in direct proportion to costs and its desire to increase profits. Further:

Starting in 1970, when competition began to make serious inroads into ReaLemon’s market share as a direct result of attacking in the most vulnerable area, price, further price increases appear to be out of the question. The whole issue is further complicated by the current problem of consumerism. With the cost of living going up as it has, many advertised brand names are being passed up in favor of cheaper, unknown offerings. Retailers are taking on items competitive to Realemon, and now the consumer, much more aware of costs/values, may be hesitant about spending 15- 20¢ more per unit.

The Marketing Plan stated that in contrast to prior years the spread between the price of Realemon bottled lemon juice, and the prices of BORDEN, INC. 6y1 669 ' Initial Decision competing bottled lemon juices, precluded “any possibility of price increases to offset higher costs” (CX 1, p. 649). 41. Discussing promotional pricing activity the 1971 Marketing Plan stated that Realemon again would be specifically attacking the problem of the retail price spread between Realemon and competition, and [32] noted that in “general terms, competitive activity exists in the Eastern half of the United States” (CX 1, p. 656). Promotional pricing was planned to amount to as much as $1.20 per case, or 10¢ per bottle in the East but limited to “60 to 75 cents per case” in the West (CX 1, p. 657).

42. From the foregoing, it is evident that respondent Borden’s -Realemon management did not look upon the product market within which it operated as including fresh lemons, but only other bottled and processed lemon juice products. Because of the fact that fresh lemons are marketed nationally in a dollar volume far greater than processed lemon juice, it is obvious that, if fresh lemons were in truth a component of the product market along with processed lemon juice, respondent Borden would not have had the market power prior to 1970 “to raise prices in direct proportion to costs” and “its desire to increase profits” (CX 1, p. 645). It is additionally evident that if fresh lemons were a component of the product market within which Borden’s Realemon brand of processed lemon juice competed, Borden management would not, and could not have written that “[iJn general terms, competitive activity exists in the Eastern half of the United States” (CX 1, p. 656). Further, Borden could not realistically have engaged in dual geographic levels of promotional pricing, using $1.20 per case in the East and a much smaller figure “60 to 75 cents per case” in the West (CX 1, p. 657). 43. Similarly, the 1972 Marketing Plan viewed Borden’s product competition to be other processed lemon producers. Although Borden’s Realemon president continued the historic approach of Realemon of looking upon fresh lemon users as a source to convert to the use of bottled lemon juice by stressing “ease, convenience and economy,” other brands of processed lemon juice were regarded as the day-to-day [33] product competition (CX 2, pp. 682-684). As a prelude to evaluating competition faced by Realemon bottled lemon juice, Realemon Foods’ president wrote with respect to the “market” in which Realemon operated (CX 2, p. 669): Historically, REALEMON has been the market in the sales of processed lemon juice. At the present time with a 90% market share, REALEMON can still be considered the market.

Initial Decision _ 92 F.T.C.

Identifying competition, Borden’s Realemon president then stated along the lines of the 1971 Plan just quoted (CX 2, p. 671): REALEMON presently has in excess of 10 competitors, three of whom have been causing real problems. These are Golden Crown, Seneca, and Tropic Fresh. Further (CX 2, p. 674):

Our competition has restricted its efforts for the most part, to the 32 ounce or quart size, which has been our feature size in the major metropolitan areas of the Northeast and North Central. The gains they have made thus far have been largely at one another’s expense, although they have captured a segment of our market as well. Should they expand their efforts into a full array of sizes, our problems could begin to multiply at a more rapid rate.

44. Promotional efforts to maintain Realemon as the “featured brand at the retail level” (CX 2, p. 679) were directed at competing processed lemon juice producers, not fresh lemons. When respondent Borden’s 1972 Realemon Marketing Plan noted that since “competition” was priced “far under us,” it obviously referred to other brands of bottled lemon [34] juice, as it did when it referred to ReaLemon’s trade promotions as having “now become, in addition to their other features, a tool or lever against competition” (CX 2, p. 688). Likewise, when respondent’s Realemon president stated in the 1972 Plan that a national advertising program was necessary to strengthen ReaLemon’s position in those markets where “competition” had made “sizeable inroads,” the reference was to competing processed lemon juice brands (CX 2, p. 688).

45. The “Basic Platform” of ReaLemon’s promotional efforts announced in the 1972 Plan was to use three annual promotions “offinvoice” to cause supermarkets to feature Realemon, and to “narrow the gap between competitors prices and our own” (CX 2, p. 690). The 1972 Marketing Plan further stated (CX 2, p. 690): The consumer faced with the dilemma of buying an unknown, untried brand, but nevertheless offered at prices far below that of REALEMON, must be persuaded and motivated to continue buying the No. 1 brand. Again, the target of these references was not fresh lemons, but competing brands of processed lemon juice. 46. The 1973. Realemon Marketing Plan (CX 38), like the Plans for prior years, did not look upon the “market” as consisting of both processed lemon juice and fresh lemons, and respondent’s management did not consider and calculate ReaLemon’s market share as a percentage of such a market. Instead, the 1973 Plan, as prior Plans, viewed the product “market” to be processed lemon juice, and the competitive problem the maintenance of ReaLemon’s [35] historic BORDEN, INC. 693 669 Initial Decision dominance in that market with approximately 90 percent of sales. As before, although the objectives of respondent’s advertising strategy included enlargement of the overall processed lemon juice market by conversion of fresh lemon users to the use of RealLemon (CX 8, pp. 787-88), the purpose or aim of respondent’s specific promotions was directed at competing processed lemon juice producers (see, for example, CX 3, p. 792).

47. The 1973 Marketing Plan stated (CX 3, p. 738): During 1972 the competitive environment in the lemon and lime juice category has been significantly. altered versus previous years. A comparison of SAMI data between 1971 and 1972 indicates the emergence of Golden Crown as the dominant factor within this segment.

Looking at the “competitive position” of the Realemon brand of bottled lemon juice, the 1973 Plan referred to the distribution inroads made by Golden Crown (CX 8, p. 767), and then identified other processed lemon juice brands in various areas (CX 8, p. 768): Other Competitive Brands All other competitive products tend to have regional distribution with the major areas as follows:

(1) SENECA - New York City, Philadelphia, Baltimore/Washington, Norfolk and Cleveland (2) SUNKIST - Los Angeles, San Francisco and Phoenix [36 ] (3) VITA PAKT - San Francisco, Los Angeles, Phoenix and Philadelphia (4) TROPIC FRESH - Miami, Tampa, Jacksonville and Atlanta. The failure to identify fresh lemons, or marketers thereof, in the foregoing review is significant.

48. ReaLemon’s 1973 objective was to regain one-half of the “share loss in 1972” (CX 3, pp. 750, 759). The market share of competitors was reviewed in the 1973 Plan as of the situation August 4, 1972. In this portion of the 1973 Plan the competition was listed as Golden Crown, Seneca, Sunkist, Vita Pakt, Treesweet, and “All Others” (CX 8, p. 759). The market, thus, was again viewed as being made up of processed lemon juice producers, not those producers and fresh lemons.

49. Under the heading “Competition,” the 1973 Marketing Plan of Realemon analyzed the national market in terms of other processed lemon juice producers, and a number of metropolitan and regional markets in terms of the share obtained by another bottled lemon juice producer, Golden Crown (CX 8, pp. 759-61). The strategy Initial Decision 92 F.T.C.

of the latter firm was considered, and under “Other Competitive Brands,” it was stated “there is no significant activity. . .” (p. 764). 50. Considering “Distribution—Key Account and Retail,” the 1973 Marketing Plan stated (CX 8, p. 767): The lemon juice market has three major characteristics: (A) Realemon is the only nationally distributed product. [37] (B) Competitive brands are offered nationally however in general, with the exception of Golden Crown, secure regional distribution. (C) Golden Crown is expanding nationally as a function of: (1) Success in 1972 in terms of absolute sales and sales per store handling. (2) Increased manufacturing capacity.

Fresh lemons were not mentioned. Obviously they are “nationally distributed.” It is clear that in making plans for 1973 Realemon management again viewed processed lemon juice as the “market” and other producers of processed lemon juice as the “competition.” 51. For 1978, ReaLemon’s management determined to continue the use of “Trade Promotions” to combat competition, and these were directed at other bottled lemon juice brands. The 1973 Plan stated (CX 3, p. 781):

Trade deal activities have become an increasingly important tool at both the retail and consumer level. At the retail level new distribution has been secured by competitive brands and at the consumer level there has been exhibited a high degree of price sensitivity. This may be the singly most important area of the 1973 Realemon Plan.

Trade strategy was to be concentrated “in heavily competitive markets with low or moderately competitive markets receiving less weight” (CX 3, [38] p. 787). The Realemon plan was to retrieve in 1973 half of the market share, from 91.8 percent to 88.0 percent, lost between 1970 and 1972 to competitive processed lemon juice producers. This gain was to be achieved against “all brands other than Realemon” (CX 8, pp. 759, 790-91).

52. As already noted in connection with Realemon promotional payments, the 1973 Marketing Plan recognized three categories of markets, “ HIGHLY COMPETITIVE,” “MODERATELY COMPETITIVE,” and “LOW COMPETITIVE” (CX 8, pp. 888-39). These categories referred to processed lemon juice, and took no account of fresh lemon sales or prices (see Peters, Tr. 1812-18).

58. The 1974 Marketing Plan likewise viewed the product market as processed lemon juice and the competitive threats to emanate from other processed lemon juice brands, particularly Golden Crown Br awarn ty aa vee ~ 669 Initial Decision (CX 4). To a somewhat greater’ degree than the 1973 Plan, respondent’s 1974 Marketing Plan focused on the inroads made by Golden Crown on the Realemon market share. Plans and programs were made to retrieve lost ground, and to prevent future growth of Golden Crown. Under ‘“REALEMON PERFORMANCE/COMPETITIVE BRANDS,” the 1974 Marketing Plan stated (CX 4, p. 853): The stability of the Realemon franchise is significantly endangered by the presence of Golden Crown, a price oriented competitive brand. However, it must be noted that Golden Crown simply highlights the vulnerability of Realemon to this form of competition whether it be a branded item or private label. By “Realemon franchise” was meant the historic dominance of the Realemon brand of bottled lemon juice, and the consumer’s acceptance of that brand [39] as virtually synonymous with bottled lemon juice. Pricing was considered to be the “major Golden Crown competitive tool” (CX 4, p. 854). Retailer margins were noted as important since margins affected Golden Crown’s ability to “secure distribution, shelf space, display and feature activity” (CX 4, p. 855). 54. ReaLemon’s marketing activities in 1973 were dominated by the shift from selling through brokers to marketing by respondent’s own sales force, and by the development of a creative strategy to strengthen the consumer “franchise” and expand the category, that is, sales of all processed lemon juices. A third objective determined upon was (CX 4, p. 856):

The attempt to forest all the growth (in established markets) and the expansion (in new markets) of Golden Crown through more aggressive trade oriented activities. 55. The objectives of Borden’s Realemon management for 1974 included an increase in the Realemon “market share” in “4 key Districts,’ New York, Philadelphia, Chicago and Detroit, and an increase in those metropolitan areas of “total category growth” from an estimated “normal” 4 percent to 10 percent, and to 7 percent in the rest of the United States (CX 4, p. 864). As before, market share was calculated on the basis of processed lemon juice sales, not including fresh lemon sales.

56. According to respondent’s 1974 Marketing Plan prices were to be increased in markets accounting for 50 percent of total volume, but not increased in the “highly competitive” Golden Crown markets concentrated in Region 1 and part of Region 2 (CX 4, p. 873). In making the foregoing determination [40] to raise prices on ReaLemon processed lemon juice only in markets other than the “highly competitive Golden Crown markets,” Borden’s 1974 Marketing Plan again gave no consideration whatever to fresh lemons or their prices Initial Decision 92 F.T.C.

(CX 4, pp. 873-874). Importantly, inasmuch as fresh lemons are marketed nationally, the ability of respondent to raise prices in those geographic areas where half its volume was obtained, and not in other geographic areas accounting for the remaining half, would seem to be strong evidence that the product market in which Borden’s Realemon processed lemon juice competed did not include fresh lemons. .

Day-to-Day Competitive Activity 57. The record contains a substantial volume of internal Rea- Lemon correspondence, memoranda, and communications between respondent’s executives, sales personnel, brokers and others handling Realemon processed lemon juice. In these documents, the competitive conditions in the marketplace were of principal concern, and the competitive activities of respondent’s Realemon Foods in the marketing of processed lemon juice were detailed. There is no question from this material that the product market was looked upon to consist of other brands of processed lemon juice, not including fresh lemons. In over 200 pages of documentation (CX 81) showing the monitoring of competitive products, nothing but the activities of other brands and producers of processed lemon juice were given significant attention. Such documentation covered the metropolitan areas of New York, Philadelphia, Pittsburgh, Chicago, Tampa, Detroit, Miami, Los Angeles, San Francisco, Seattle, Phoenix, Minneapolis-St. Paul and Houston during the years 1971 through 1974 (August). Among these competitive reports are reports of Realemon regional sales managers to Borden’s National Saies Manager at [41] Realemon headquarters, naming the competitive products encountered in their areas. The following were named, all of which are processed lemon juices:

Golden Crown Sunkist Seneca Kimball Reddi-Lemon Tree Sweet VitaPakt E Z Juicer Tropic Fresh MCP Eclipse Iris See CX 81, pp. 7425-7434. Private label brands were also mentioned. 58. The fact that Borden’s Realemon management viewed other brands of processed lemon juice as the competitive products, and not fresh lemons, can further be seen in a letter of January 16, 1974, by ae evar eee Hn He 669 Initial Decision the Realemon National Sales Director to all Realemon district and regional sales managers, as follows (CX 81, Part II, p. 9000): In order for us to better formulate Realemon promotions in 1974, it would be helpful if you could at your earliest convenience direct to my attention the type competitive lemon juice activity in your district, that is, Golden Crown, Vita Pakt, Sunkist, etc. At the same time it would be helpful if you could include their list price to the trade, any deals, etc. In addition, we would also like their retail price and our retail price for the corresponding size.

If you will supply us with this information I am sure that we will be in a better position to assist you in furthering the sale of Realemon in your district. [42] All of the foregoing brands mentioned are other processed lemon juices, including Sunkist. There was no request for competitive activity in the sale of fresh lemons. 59. In letters in November 1973 to headquarters officials of the Borden Foods Division of Borden, Inc., the Realemon National Sales Director analyzed the Realemon market position in the following major metropolitan areas (CX 81, pp. 7489-40, 7478-79): Philadelphia Buffalo New York Chicago Cleveland Detroit Pittsburgh Indianapolis Boston Milwaukee Baltimore/Washington Minneapolis/St. Paul St. Louis These letters focused upon the competitive problem of Golden Crown bottled lemon juice. No mention whatever was made of competition from fresh lemons.

60. A former Regional! Sales Manager for respondent’s ReaLemon processed lemon juice for the Northeastern area of the United States received reports from brokers under his supervision concerning the competitive situation they faced, and forwarded competitive reports to his superior, ReaLemon’s National Sales Director. These reports likewise concerned competing processed lemon juice products, not fresh lemons (Taft, Tr. 1278-83). This former Regional Sales Director testified, as follows (Tr. 1279, 1282): Q. So that I understand, do you recall receiving any correspondence from your broker concerning fresh lemon activity? A. None whatsoever. [43] * * * * * * * 277-685 O—79 45 Initial Decision 92 F.T.C.

Q. Mr. Taft, why were competitive reports sent from brokers to you. concerned exclusively with other lemon juice products when discussing Realemon juice competitive activities? A. The reconstituted lemon juice part of the business of Realemon Foods was the major bellwether of it and the principal concern was competitive bottled lemon juice to the sizes, and lime juice too, to the sizes that Realemon made, packed in the bottles. 61. Respondent’s Realemon brokers concerned themselves only with the competitive activity of other brands of processed lemon juice, not fresh lemons. The president of a Philadelphia based food broker testified (Vinocur, Tr. 2089-2090): . Q. Do you recall sending Mr. Taft [Realemon Regional Sales Manager ] competitive reports concerning fresh produce such as lemons? A. No, sir.

. Q. Why were the reports concerning Realemon lemon juice written exclusively about other lemon juices? :

A. I take it you mean reconstituted lemon juice. Q. Yes, if that is what they were in regard to. A. Yes. Well, we strictly were concerned only with other brands of reconstituted lemon juice.

Q. Why? A. Well, questions were only asked about other brands by Realemon of reconstituted lemon juice. [44] Q. Questions by Mr. Taft? A. Questions by Mr. Taft about Realemon. There were no questions asked about other forms of lemon juice in reference to reconstituted, bottled lemon juice. Q. Is it fair to say your impression was they weren’t interested in these other products? A. Itisa different category. Sure it is a lemon juice, but different shoppers, different market in essence.

JUDGE HANSCOM: What is a different market? THE WITNESS: When I — bottled, reconstituted lemon juice is one type of market where there are certain people who use reconstituted, bottled lemon juice, and then there are others who would want to use fresh lemon juice, whether for the peel or whatever purposes they want. They don’t want to use a reconstituted lemon juice. We never felt that one was in competition with the other as far as marketing plans. 669 Initial Decision Q. When you refer to fresh lemon juice, you are referring to the juice of fresh lemons? A. Yes, sir.

To the same effect: Silver, a Pittsburgh broker, Tr. 3434; Gordon, a Minneapolis broker, Tr. 3392-93; Conrady, a Grand Rapids broker, Tr. 8488-89. [45] 62. The president of respondent Borden’s Realemon Foods viewed the competitive marketplace in which he was responsible for marketing Realemon processed lemon juice to consist of other processed lemon juice brands. He testified (Peters, Tr. 1783): in my mind there is a very clear distinction between the competitive marketplace and the relevant marketplace which is under discussion here. In the competitive marketplace I am, a very immediate day-to-day basis, our concern is obviously with bottled reconstituted lemon juice, and we formulate policy in the office and write up annual marketing plans and the like. F. Other Marketers of Processed Lemon Juice Viewed Their Competition To Be Realemon and Other Brands of Processed Lemon Juice 68. The president of “Tropic Fresh,” a Florida based regional brand of processed lemon juice already mentioned, testified (Tr. 541): Q. Mr. Kendall, who are your competitors in the sale of lemon juice? A. Our competitors in the sale of lemon juice are Realemon and Golden Crown. His Sales Manager testified to the same effect (Westcott, Tr. 597): Basically we sell against other lemon juices. We actually compete against other juices and drink products constantly.

[46] The President and Chief Executive officer of “Seneca,” a regional processed lemon juice brand, also mentioned earlier, based in the Northeast, testified that the competitors he was familiar with were Realemon and Golden Crown, in addition to his own brand (Wolcott, Tr. 647). The Division Manager, Product Sales Division, Sunkist Foods, testified (Tr. 682):

Q. Mr. Delaney, who are Sunkist reconstituted lemon juice’s competitors? A. In the markets in which we are distributing, Realemon and Vita-Pack. I am not sure in the Texas market.

As to whether Sunkist’s brand of processed lemon juice competed with fresh lemons, this executive thought that those products were probably in two different markets (Tr. 684): Initial Decision 92 F.T.C.

Q. Mr. Delaney, does Sunkist reconstituted lemon juice compete with fresh lemons at the retail level? A. In my opinion, that’s a difficult question to answer. From the standpoint that Sunkist does market fresh lemon [sic], they also market reconstituted bottled lemon juice. In my opinion, we’re probably looking at two different markets eventually. If a product has the same usage, there will be some competition, yes. Where process lemon juice producers saw competition between their products and fresh lemons, it is clear that this was in the broadest sense (see, e.g., Kendall, Tr. 569; Westcott, Tr. 614-15; Wolcott, Tr. 662-68). [47] G. Fresh Lemons Are Marketed Without Regard for the Availability of Processed Lemon Juice 64. The Lemon Administrative Committee, operating pursuant to the authority of the Agricultural Marketing Act of 1937 under the supervision of the U.S. Department of Agriculture, regulates the volume of shipments of fresh lemons from California and Arizona domestically, and to Canada and Alaska (Faulkner, Tr. 1687-1701). The Manager of the Lemon Administrative Committee testified that in determining shipments of fresh lemons to the market the Committee does not consider “the availability of reconstituted or other processed lemon juices,” the availability of fresh lemons in the market being the key factor considered in releasing additional supplies (Faulkner, Tr. 1723).

H. Fresh Lemons And Processed Lemon Juice Brands Have Specialized Vendors, Wholly Different Production Facilities, and Are Bought for Resale by Different Supermarket Buyers and Sold to the Public by Different Supermarket Departments 65. This proceeding contains the testimony of officials of two producers of fresh lemons, Sunkist Foods and Ventura Coastal Corporation. The former is well known. Ventura Coastal is a subsidiary of the Seven-Up Company. The Division Manager of. the Product Sales Division of Sunkist Foods testified that Sunkist was divided into a “fresh fruit marketing group and a products marketing group” (Delaney, Tr. 678). As noted, Sunkist produces and markets a processed lemon juice in competition with Realemon processed lemon juice, and also sells lemon concentrate to ReaLem- . on, Sunkist’s largest customer for that substance (Tr. 679-682). Fresh lemons and Sunkist’s processed lemon juice are sold through two completely distinct company organizations (Delaney, Tr. 687-88): [48] BORDEN, INC. 701 669 Initial Decision Q Now, Mr. Delaney, can you tell us what kind of sales organization you have for your reconstituted lemon juice? A Our reconstituted bottled lemon juice is sold through a broker network, and we have approximately 35 to 40 brokers across the United States. But as you can appreciate being in only the three markets we’re in, Northern and Southern California and Texas, there is a limited broker involvement. Q Mr. Delaney, are you familiar with the sales organization used to sell Sunkist fresh lemons? A Well, we have approximately 40 district offices of Sunkist across the United States. Q Would it be fair to characterize these [two] sales organizations as different — not the same as sales organizations? A No. Our fresh sales organization is completely different from the products organization.

Similarly, the Ventura Coastal Corporation marketed its fresh lemons and frozen lemon juice through two completely different sales divisions (Higby, Tr. 738-39).

66. Fresh lemons are marketed through produce brokers, who sell fresh lemons through produce wholesalers (Higby, Tr. 744; Faulkner, Tr. 1700; Beavers, Tr. 1581; Watson, Tr. 6203; Lemmerman, Tr. 969-70; Imming, Tr. 4602). The produce brokerage business is one characterized by fluctuating prices and requires a special expertise (Beavers, Tr. 1582). [49] Processed lemon juices are sold through food brokers or company salesmen (Higby, Tr. 745; Kendall, Tr. 540; Hansfield, Tr. 130, 149).

67. Bottled lemon juice, such as Realemon, is sold to supermarket grocery buyers whereas fresh lemons are sold to supermarket produce buyers (Hansfield, Tr. 152-53; Delaney, Tr. 689; Ellenson, Tr. 1963; Friedland, Tr. 1494; H. Greenberg, Tr. 1190; Lemmerman, Tr. 974; Manos, Tr. 1521; Moreland, Tr. 1024; Vinocur, Tr. 2107; Wolcott, Tr. 648; Wrisley, Tr. 2188; Foorman, Tr. 5048; Thomas, Tr. 3263). Grocery buyers and brokers recognize distinct problems faced by produce buyers, such as spoilage, bulk transfer costs, supply fluctuations, and fluctuating prices (Thomas, Tr. 3262; Foorman, Tr. 5048; Wardell, Tr. 3315). Grocery buyers, generally, do not consider themselves competent to be produce buyers due to the expertise needed (Lemmerman, Tr. 981; Moreland, Tr. 1024; Toms, Tr. 3106; Thomas, Tr. 3262; Sherry, Tr. 3415-16; Rose, Tr. 4631). As a result of the purchase by different departments, fresh lemons are displayed and sold to the public in the fresh fruits and vegetable departments of supermarkets and retail food stores, whereas bottled lemon juice, Initial Decision 92 F.T.C.

except in some. instances of plastic squeeze containers shaped like fresh lemons, is carried on the shelves of the grocery department. 68. Production facilities for fresh lemons and processed lemon juice are, of course, wholly distinct. Fresh lemons are grown in warm climates such as California, Florida and Arizona, and are picked, processed by being washed, sorted, waxed, sized, etc., and are then marketed as fresh produce (Higby, Tr. 7438-44; Delaney, Tr. 688). Processed lemon juice such as Realemon can be manufactured anywhere using lemon concentrate, water, a preservative, and mixing and bottling machinery (Wolcott, Tr. 635-36; Delaney, Tr. 679-80; Peters, Tr. 1785; Hansfield, Tr. 182-34, CX 2, p. 673). [50] 69. Based upon all of the foregoing, as indicated at the beginning of this section, the undersigned finds that processed lemon juice constitutes a valid relevant product market within which to consider respondent Borden’s competitive conduct in the marketing and sale of its Realemon reconstituted lemon juice. Although in a broad sense fresh lemons and bottled reconstituted lemon juice may compete for many of the same end uses in the hands of the public, the two products are so drastically and substantially different from each other in a variety of crucial and important characteristics of economic and other significance that they constitute at the very least components of separate and distinct. submarkets for antitrust and restraint of trade purposes, that is, for testing the allegations of the complaint in this proceeding. _ Monopoly Power A. Respondent Borden Possessed a Monopoly Share of the Processed Lemon Juice Market 70. Having determined that processed lemon juice constitutes, at the least, a valid submarket for the purposes of this proceeding, there is no question that respondent Borden’s Realemon brand over the years has had, and now has, a monopoly share of that market. Market share data from several different sources are in the record and all are essentially consistent.

71. Respondent’s Realemon Marketing Plans, already discussed in some detail, gave repeated consideration to its market share of processed lemon juice, both nationally and in important metropolitan areas, and to that of its processed lemon juice competitors. As described, the 1971 Marketing Plan referred to the 92 percent market share of Realemon (CX 1, p. 639): [51] BORDEN, INC. 708 669 Initial Decision C. MARKET SHARE AND COMPETITIVE SITUATION 1. Bottled Lemon Juice is in virtual 100% distribution throughout the United States, with an estimated market share of 92% at the beginning of 1970, and 88.2% through August. (Source S.A.M.1.) The “S.A.M.I.” source referred to is “Selling Areas - Marketing, Inc.,” which is a recognized and well established market research organization. Respondent’s Realemon management subscribed to “S.A.M.I.” reports beginning in 1971, and has relied on them in determining market shares for the purpose of charting business courses (CX 1-4; CX 81, pp. 7289, 7307-7308, 7314, 7316, 7482; CX 263; CX 323). “S.A.M.I.” reports are in common use by businessmen in the grocery industry, are considered highly reliable, and were provided by respondent’s Realemon management to its sales personne] for use in marketing Realemon processed lemon juice (Taft, Tr. 1317-1320; Manos, Tr. 1524; Lemmerman, Tr. 978-980; Laurent, Tr. 2212-2214; H. Greenberg, Tr. 1202; Friedland, Tr. 1500; Ellenson, Tr. 1965-66; Leahy, Tr. 842-438; Gerace, Tr. 2033; Delaney, Tr. 686; Kendall, Tr. 551; Hansfield, Tr. 153-56; Wolcott, Tr. 653; Renner, Tr. 2603-2604; Springer, Tr. 1862-63; Vinocur, Tr. 2141-42; Wrisley, Tr. 2175; Silver, Tr. 3435; Higby, Tr. 749; Bentley, Tr. 8290). 72. The 1971 Marketing Plan of Realemon further stated its “Long Range Objective,” a portion of which has also already been quoted, showing its dominant position in the processed lemon juice industry (CX 1, p. 649): [52] .

iI, OBJECTIVES OF THE PLAN A. LONG RANGE OBJECTIVE 1. Historically, Realemon has been THE total market for both bottled lemon and lime juices. Media and promotional expenditures directed toward attracting new users and increasing uses with present buyers have been highly successful and were directly related to ReaLemon’s sales history. This same media and promotional effort presently blankets sales of all bottled lemon juice, including those of competition. In other words, Realemon has now become a protective umbrella over all lemon juice activity. The long range objective therefore, is to expand the size of this umbrella and thus the total market.

73. The 1972 Marketing Plan of Realemon, prepared and submitted by its president, quoted in part earlier, stated (CX 2, p. 661):

EXECUTIVE SUMMARY Initial Decision 92 F.T.C.

A cautious optimism is also necessary in considering the competitive picture. In a5 1 4 1 1 2 828 498 166 32 88.682671 completely5 1 4 1 1 3 1009 499 105 31 96.344086 unique5 1 4 1 1 4 1128 500 143 29 93.283020 situation,5 1 4 1 1 5 1287 500 163 26 91.515503 Realemon5 1 4 1 1 6 1465 501 103 26 96.482132 Lemons 1 4 1 1 7 1583 502 81 25 96.807564 Juices 1 4 1 1 8 1679 503 144 30 96.147400 presently5 1 4 1 1 9 1837 503 163 25 95.639320 commands5 1 4 1 1 10 2014 512 18 16 95.639320 a2 1 5 0 0 0 795 540 1236 119 -1 3 1 5 1 0 0 795 540 1236 119 -1 4 1 5 1 1 0 796 540 1235 35 -1 5 1 5 1 1 1 796 540 138 31 96.845421 premiums 1 5 1 1 2 946 540 31 26 96.782326 of5 1 5 1 1 3 985 548 31 18 96.837509 as5 1 5 1 1 4 1027 540 67 32 96.047012 high5 1 5 1 1 5 1105 549 32 17 96.798637 as5 1 5 1 1 6 1148 541 33 25 96.727112 255 1 5 1 1 7 1192 543 29 23 96.665565 to5 1 5 1 1 8 1231 541 33 25 96.763870 305 1 5 1 1 9 1276 544 78 23 96.211197 cents5 1 5 1 1 10 1365 551 47 23 93.442352 pers 1 5 1 1 11 1426 542 61 25 93.442352 units 1 5 1 1 12 1498 551 66 17 96.570084 overs 1 5 1 1 13 1574 544 178 31 96.932243 competitive5 1 5 1 1 14 1763 544 142 31 96.612755 offerings.5 1 5 1 1 15 1918 544 58 31 96.601082 [53]5 1 5 1 1 16 1988 545 43 25 96.791916 No4 1 5 1 2 0 795 581 1235 34 -1 5 1 5 1 2 1 795 581 68 25 96.895889 such5 1 5 1 2 2 889 581 173 26 95.592636 differentials 1 5 1 2 3 1087 590 36 18 95.592636 on5 1 5 1 2 4 1148 591 57 23 96.321487 any5 1 5 1 2 5 1229 583 81 25 96.445793 others 1 5 1 2 6 1335 584 62 24 96.212341 foods 1 5 1 2 7 1423 584 123 31 96.212341 product,5 1 5 1 2 8 1573 584 93 26 96.136864 frozen5 1 5 1 2 9 1692 593 32 17 90.919342 or5 1 5 1 2 10 1748 585 171 30 90.919342 non-frozen,5 1 5 1 2 11 1945 587 85 24 96.858307 exists4 1 5 1 3 0 795 623 1235 36 -1 5 1 5 1 3 1 795 623 150 31 96.332657 anywhere5 1 5 1 3 2 958 623 30 25 96.611984 in5 1 5 1 3 3 1002 623 48 26 96.921631 thes 1 5 1 3 4 1065 624 135 32 96.045403 industry.5 1 5 1 3 5 1214 624 75 26 96.338860 Such5 1 5 1 3 6 1304 625 187 31 96.861778 differentials5 1 5 1 3 7 1505 626 71 25 96.776520 have5 1 5 1 3 8 1588 626 147 32 96.805687 definitely5 1 5 1 3 9 1747 626 67 26 97.002541 hurt5 1 5 1 3 10 1828 636 52 17 96.728043 ours 1 5 1 3 11 1891 627 96 32 96.637848 efforts5 1 5 1 3 12 2001 629 29 24 96.634300 in2 1 6 0 0 0 769 665 1257 36 -1 3 1 6 1 0 0 769 665 1257 36 -1 4 1 6 1 1 0 769 665 1257 36 -1 5 1 6 1 1 1 769 680 2 2 72.755432 -5 1 6 1 1 2 796 665 162 25 95.975418 individuals 1 6 1 1 3 970 665 125 28 96.457077 markets,5 1 6 1 1 4 1111 665 137 33 96.170830 although5 1 6 1 1 5 1260 674 52 17 96.911469 ours 1 6 1 1 6 1321 666 106 26 96.146507 overall5 1 6 1 1 7 1438 667 107 25 96.624115 markets 1 6 1 1 8 1555 668 83 25 96.965149 shares 1 6 1 1 9 1651 668 23 25 96.402580 is5 1 6 1 1 10 1684 668 63 25 96.646912 still5 1 6 1 1 11 1758 669 30 24 96.646912 in5 1 6 1 1 12 1801 668 47 26 95.381149 thes 1 6 1 1 13 1859 669 65 26 95.381149 90%5 1 6 1 1 14 1938 677 88 24 96.405090 range.2 1 7 0 0 0 793 706 1237 157 -1 3 1 7 1 0 0 793 706 1237 157 -1 4 1 7 1 1 0 794 706 1236 36 -1 5 1 7 1 1 1 794 706 32 25 96.367889 In5 1 7 1 1 2 836 706 81 25 96.367889 orders 1 7 1 1 3 928 709 28 22 96.440292 to5 1 7 1 1 4 967 707 139 25 96.951233 maintains 1 7 1 1 5 1117 707 56 25 96.208748 this5 1 7 1 1 6 1183 707 67 25 96.659729 kinds 1 7 1 1 7 1261 707 31 25 96.940674 of5 1 7 1 1 8 1298 708 111 25 96.910568 markets 1 7 1 1 9 1419 708 89 30 96.817581 share,5 1 7 1 1 10 1520 709 23 25 96.817581 it5 1 7 1 1 11 1552 709 56 25 96.948730 will5 1 7 1 1 12 1618 709 34 25 97.012474 be5 1 7 1 1 13 1663 717 147 24 96.295929 necessary5 1 7 1 1 14 1819 712 30 23 96.523430 to5 1 7 1 1 15 1858 710 111 32 96.893028 expands 1 7 1 1 16 1978 719 52 17 96.852325 our4 1 7 1 2 0 794 748 1234 34 -1 5 1 7 1 2 1 794 748 161 31 96.604988 marketing5 1 7 1 2 2 968 748 84 25 96.407745 efforts 1 7 1 2 3 1067 749 29 24 96.965599 in5 1 7 1 2 4 1111 749 82 25 96.282799 orders 1 7 1 2 5 1207 751 29 23 96.300072 to5 1 7 1 2 6 1249 752 134 28 96.488670 generates 1 7 1 2 7 1397 750 107 31 96.573906 growths 1 7 1 2 8 1519 750 30 25 96.767265 in5 1 7 1 2 9 1564 751 70 25 96.875092 totals 1 7 1 2 10 1650 751 92 25 96.636078 lemons 1 7 1 2 11 1753 752 76 30 96.772453 juices 1 7 1 2 12 1843 752 80 25 95.757591 sales.5 1 7 1 2 13 1939 752 89 25 95.757591 Given4 1 7 1 3 0 794 789 1233 35 -1 5 1 7 1 3 1 794 789 48 26 96.697350 thes 1 7 1 3 2 864 789 111 30 96.910172 dollars,5 1 7 1 3 3 999 797 51 18 95.996712 ours 1 7 1 3 4 1072 790 161 31 95.289551 marketing5 1 7 1 3 5 1255 790 154 26 95.289551 know-how5 1 7 1 3 6 1431 791 99 25 96.125847 should5 1 7 1 3 7 1553 791 100 26 96.609146 enables 1 7 1 3 8 1676 800 33 18 96.794495 us5 1 7 1 3 9 1731 794 29 24 96.981956 to5 1 7 1 3 10 1782 795 75 23 95.863686 meets 1 7 1 3 11 1879 793 57 25 95.863686 this5 1 7 1 3 12 1957 794 70 30 96.221573 goal.4 1 7 1 4 0 793 831 279 32 -1 5 1 7 1 4 1 793 831 160 31 96.531372 (Emphasis5 1 7 1 4 2 962 831 110 32 96.560966 added.)2 1 8 0 0 0 709 907 1317 90 -1 3 1 8 1 0 0 709 907 1317 90 -1 4 1 8 1 1 0 710 907 1316 44 -1 5 1 8 1 1 1 710 907 256 41 96.166756 Subsequently5 1 8 1 1 2 985 908 36 31 96.611893 in5 1 8 1 1 3 1039 908 61 32 96.806473 thes 1 8 1 1 4 1121 908 81 32 96.946251 19725 1 8 1 1 5 1220 908 89 32 92.326256 Plans 1 8 1 1 6 1327 909 232 33 91.554367 ReaLemon’s5 1 8 1 1 7 1577 910 180 39 96.535553 presidents 1 8 1 1 8 1773 911 116 32 96.554520 stated5 1 8 1 1 9 1908 911 71 40 96.750206 (CX5 1 8 1 1 10 1997 911 29 37 96.538521 2,4 1 8 1 2 0 709 958 327 39 -1 5 1 8 1 2 1 709 968 55 28 96.644478 pp.5 1 8 1 2 2 778 958 72 37 96.498428 669,5 1 8 1 2 3 864 958 71 37 96.871208 675,5 1 8 1 2 4 950 958 86 39 96.046906 677):2 1 9 0 0 0 752 1038 240 26 -1 3 1 9 1 0 0 752 1038 240 26 -1 4 1 9 1 1 0 752 1038 240 26 -1 5 1 9 1 1 1 752 1038 73 26 96.527679 THES 1 9 1 1 2 832 1038 160 26 96.385590 MARKET2 1 10 0 0 0 814 1117 1106 16 -1 3 1 10 1 0 0 814 1117 1106 16 -1 4 1 10 1 1 0 814 1117 1106 16 -1 5 1 10 1 1 1 814 1117 11 13 90.359276 *5 1 10 1 1 2 995 1117 12 13 43.001221 *5 1 10 1 1 3 1177 1117 13 14 86.929482 *5 1 10 1 1 4 1360 1118 12 13 78.872902 *5 1 10 1 1 5 1542 1118 12 13 92.039352 *5 1 10 1 1 6 1725 1118 12 14 91.167252 *5 1 10 1 1 7 1909 1119 11 14 91.642540 *2 1 11 0 0 0 790 1190 1238 239 -1 3 1 11 1 0 0 790 1190 1238 239 -1 4 1 11 1 1 0 790 1190 1236 34 -1 5 1 11 1 1 1 790 1191 40 30 96.858673 (a)5 1 11 1 1 2 840 1190 113 25 96.921257 Markets 1 11 1 1 3 962 1190 175 31 92.783463 Descriptions 1 11 1 1 4 1148 1190 201 25 61.185524 REALEMON’S5 1 11 1 1 5 1387 1190 73 25 96.660561 sales5 1 11 1 1 6 1470 1190 30 25 96.395477 of5 1 11 1 1 7 1506 1190 106 26 96.626144 bottled5 1 11 1 1 8 1622 1191 55 25 96.626144 ands 1 11 1 1 9 1688 1191 100 32 95.635345 plastics 1 11 1 1 10 1798 1191 93 26 95.550995 lemons 1 11 1 1 11 1898 1193 75 31 96.608986 juices 1 11 1 1 12 1983 1193 43 25 96.921829 fora 1 11 1 2 0 841 1231 1187 32 -1 5 1 11 1 2 1 841 1231 65 26 95.413116 19705 1 11 1 2 2 918 1231 152 26 95.413116 amounted5 1 11 1 2 3 1082 1233 29 24 96.237549 to5 1 11 1 2 4 1123 1232 223 31 96.237549 approximately5 1 11 1 2 5 1360 1232 30 25 96.858406 185 1 11 1 2 6 1404 1232 47 27 96.408379 1/25 1 11 1 2 7 1463 1232 108 25 96.017441 millions 1 11 1 2 8 1583 1232 111 26 96.918076 dollars.5 1 11 1 2 9 1709 1232 75 26 96.232338 With5 1 11 1 2 10 1796 1241 17 17 95.829666 a5 1 11 1 2 11 1825 1233 64 27 95.829666 90%5 1 11 1 2 12 1903 1233 83 26 96.597397 shares 1 11 1 2 13 1997 1234 31 25 96.379959 of4 1 11 1 3 0 839 1272 1184 30 -1 5 1 11 1 3 1 839 1272 118 30 96.541130 market,5 1 11 1 3 2 976 1273 49 25 96.872780 thes 1 11 1 3 3 1043 1273 78 29 96.443497 total,5 1 11 1 3 4 1139 1272 148 30 96.110695 therefore,5 1 11 1 3 5 1306 1273 90 26 96.110695 would5 1 11 1 3 6 1414 1273 34 26 95.813530 be5 1 11 1 3 7 1465 1273 154 26 95.813530 somewhat5 1 11 1 3 8 1636 1274 29 25 96.441063 in5 1 11 1 3 9 1682 1282 95 17 96.433662 excess5 1 11 1 3 10 1795 1274 31 25 95.368546 of5 1 11 1 3 11 1840 1274 49 26 96.647987 $205 1 11 1 3 12 1907 1274 116 26 96.218048 million.4 1 11 1 4 0 838 1313 1186 34 -1 5 1 11 1 4 1 838 1313 231 27 51.556763 REALEMON'’S5 1 11 1 4 2 1086 1322 63 17 96.651215 cases 1 11 1 4 3 1166 1314 111 25 95.740341 volumes 1 11 1 4 4 1294 1314 29 25 95.936798 in5 1 11 1 4 5 1344 1314 65 26 96.840858 19705 1 11 1 4 6 1426 1323 56 17 96.549408 was5 1 11 1 4 7 1498 1315 116 32 96.468750 slightly5 1 11 1 4 8 1631 1316 29 24 96.468750 in5 1 11 1 4 9 1678 1323 95 18 96.831444 excess5 1 11 1 4 10 1790 1316 31 25 96.818008 of5 1 11 1 4 11 1835 1316 63 25 96.448311 four5 1 11 1 4 12 1915 1316 109 26 96.611076 million4 1 11 1 5 0 838 1356 1189 32 -1 5 1 11 1 5 1 838 1364 84 21 96.379143 cases,5 1 11 1 5 2 939 1356 104 31 96.572777 packed5 1 11 1 5 3 1059 1356 29 24 95.615669 in5 1 11 1 5 4 1103 1364 18 17 95.615669 a5 1 11 1 5 5 1135 1356 187 25 96.098793 combinations 1 11 1 5 6 1339 1356 31 25 96.641922 of5 1 11 1 5 7 1382 1356 31 24 95.882538 125 1 11 1 5 8 1428 1356 54 25 95.742577 ands 1 11 1 5 9 1498 1356 32 25 95.742577 245 1 11 1 5 10 1546 1356 70 31 96.279778 packs 1 11 1 5 11 1631 1357 85 29 96.435593 units,5 1 11 1 5 12 1731 1365 32 17 96.181839 or5 1 11 1 5 13 1777 1365 16 17 96.937820 a5 1 11 1 5 14 1807 1357 89 31 96.649246 grand5 1 11 1 5 15 1912 1358 70 25 96.348381 totals 1 11 1 5 16 1996 1359 31 24 96.348381 of4 1 11 1 6 0 838 1397 479 32 -1 5 1 11 1 6 1 838 1397 223 32 95.993256 approximately5 1 11 1 6 2 1070 1397 153 29 96.285568 77,000,0005 1 11 1 6 3 1234 1397 83 25 96.553551 units.2 1 12 0 0 0 811 1476 1210 145 -1 3 1 12 1 0 0 811 1476 1210 145 -1 4 1 12 1 1 0 811 1476 1106 15 -1 5 1 12 1 1 1 811 1476 11 13 91.610207 *5 1 12 1 1 2 992 1476 12 12 90.793022 *5 1 12 1 1 3 1174 1476 13 12 90.285324 *5 1 12 1 1 4 1357 1476 12 12 91.818474 *5 1 12 1 1 5 1539 1476 11 12 77.920517 *5 1 12 1 1 6 1723 1476 11 13 91.990356 *5 1 12 1 1 7 1906 1477 11 14 92.317200 *4 1 12 1 2 0 922 1548 1099 32 -1 5 1 12 1 2 1 922 1548 39 25 96.444344 As5 1 12 1 2 2 981 1548 49 25 96.922188 thes 1 12 1 2 3 1050 1548 88 25 96.673264 SAMI5 1 12 1 2 4 1159 1548 103 31 96.261703 Reports 1 12 1 2 5 1283 1548 135 26 95.788597 indicates5 1 12 1 2 6 1438 1549 28 24 95.788597 in5 1 12 1 2 7 1486 1548 148 32 96.125465 Appendix5 1 12 1 2 8 1653 1548 32 30 93.205864 #35 1 12 1 2 9 1706 1549 203 26 91.010384 REALEMON5 1 12 1 2 10 1928 1558 36 17 96.666168 on5 1 12 1 2 11 1984 1559 37 16 96.860657 an4 1 12 1 3 0 829 1589 1192 32 -1 5 1 12 1 3 1 829 1590 104 25 96.528587 overall5 1 12 1 3 2 947 1590 81 29 96.464310 basis,5 1 12 1 3 3 1043 1589 59 31 96.816483 [54]5 1 12 1 3 4 1115 1590 58 25 96.987572 still5 1 12 1 3 5 1186 1590 72 24 96.612358 have5 1 12 1 3 6 1273 1590 61 31 96.840782 [sic]5 1 12 1 3 7 1348 1598 37 17 95.886208 an5 1 12 1 3 8 1399 1590 193 31 96.293556 approximates 1 12 1 3 9 1604 1590 65 27 95.685295 90%5 1 12 1 3 10 1683 1590 84 25 96.893654 shares 1 12 1 3 11 1780 1590 31 26 96.856712 of5 1 12 1 3 12 1820 1591 120 29 96.655464 market,5 1 12 1 3 13 1954 1592 67 25 96.197983 with2 1 13 0 0 0 828 1631 1192 68 -1 3 1 13 1 0 0 828 1631 1192 68 -1 4 1 13 1 1 0 829 1631 1191 33 -1 5 1 13 1 1 1 829 1632 48 24 96.906891 thes 1 13 1 1 2 889 1631 80 25 96.304359 others 1 13 1 1 3 981 1632 179 30 96.090034 competitors5 1 13 1 1 4 1171 1631 117 31 96.285248 sharing5 1 13 1 1 5 1298 1631 49 25 96.669762 thes 1 13 1 1 6 1358 1631 123 25 96.674019 balance.5 1 13 1 1 7 1495 1631 43 25 96.526642 No5 1 13 1 1 8 1549 1640 52 16 96.488121 ones 1 13 1 1 9 1613 1632 31 24 96.671486 of5 1 13 1 1 10 1652 1632 78 24 96.779816 them5 1 13 1 1 11 1742 1634 137 29 96.472610 stronger,5 1 13 1 1 12 1892 1632 128 32 96.588249 perhaps,4 1 13 1 2 0 828 1672 506 27 -1 5 1 13 1 2 1 828 1673 70 25 96.363594 than5 1 13 1 2 2 909 1681 16 17 92.407875 a5 1 13 1 2 3 935 1673 81 26 84.124176 3-4%5 1 13 1 2 4 1027 1673 84 25 96.227654 shares 1 13 1 2 5 1120 1672 31 26 96.199913 of5 1 13 1 2 6 1157 1672 49 26 96.924637 thes 1 13 1 2 7 1216 1672 118 26 96.826630 market.2 1 14 0 0 0 808 1751 1107 15 -1 3 1 14 1 0 0 808 1751 1107 15 -1 4 1 14 1 1 0 808 1751 1107 15 -1 5 1 14 1 1 1 808 1752 13 12 87.849945 *5 1 14 1 1 2 991 1751 11 13 86.443130 *5 1 14 1 1 3 1088 1753 2 2 37.488689 :5 1 14 1 1 4 1172 1751 12 13 82.877594 *5 1 14 1 1 5 1354 1751 13 13 88.648575 *5 1 14 1 1 6 1537 1751 11 13 91.271744 *5 1 14 1 1 7 1720 1752 12 12 92.081268 *5 1 14 1 1 8 1903 1752 12 14 91.448151 *2 1 15 0 0 0 743 1824 432 32 -1 3 1 15 1 0 0 743 1824 432 32 -1 4 1 15 1 1 0 743 1824 432 32 -1 5 1 15 1 1 1 743 1824 140 26 96.103638 Problems5 1 15 1 1 2 892 1824 59 25 96.303917 ands 1 15 1 1 3 961 1824 214 32 96.428146 Opportunities:2 1 16 0 0 0 785 1882 1232 49 -1 3 1 16 1 0 0 785 1882 1232 49 -1 4 1 16 1 1 0 785 1882 1232 49 -1 5 1 16 1 1 1 785 1899 58 25 96.882301 Thes 1 16 1 1 2 857 1899 124 31 93.754890 problems 1 16 1 1 3 997 1899 27 24 93.754890 in5 1 16 1 1 4 1040 1901 87 22 96.831192 terms5 1 16 1 1 5 1140 1899 31 24 96.267769 of5 1 16 1 1 6 1181 1906 96 17 96.737434 severe5 1 16 1 1 7 1292 1898 81 25 96.744499 retails 1 16 1 1 8 1387 1882 187 42 96.494232 differentials5 1 16 1 1 9 1588 1899 52 25 96.807869 has5 1 16 1 1 10 1654 1899 115 32 96.029305 already5 1 16 1 1 11 1782 1899 71 26 96.451950 been5 1 16 1 1 12 1867 1899 150 26 94.191353 described.2 1 17 0 0 0 784 1973 1236 241 -1 3 1 17 1 0 0 784 1973 1236 241 -1 4 1 17 1 1 0 784 1973 1234 33 -1 5 1 17 1 1 1 784 1974 58 25 96.072273 Thes 1 17 1 1 2 857 1974 180 31 96.309471 opportunity5 1 17 1 1 3 1052 1973 42 26 96.535675 for5 1 17 1 1 4 1109 1973 189 32 96.109406 maintaining5 1 17 1 1 5 1312 1981 50 18 96.109406 ours 1 17 1 1 6 1377 1974 118 31 96.502396 positions 1 17 1 1 7 1510 1976 76 23 96.398224 must5 1 17 1 1 8 1600 1974 34 25 96.944801 be5 1 17 1 1 9 1648 1982 52 17 96.469376 ones 1 17 1 1 10 1714 1974 31 25 95.624191 of5 1 17 1 1 11 1756 1974 115 32 96.421959 making5 1 17 1 1 12 1885 1974 49 26 96.558922 thes 1 17 1 1 13 1948 1975 70 25 96.525681 total4 1 17 1 2 0 785 2015 1235 35 -1 5 1 17 1 2 1 785 2016 111 25 96.762627 markets 1 17 1 2 2 906 2023 81 24 96.697945 grow.5 1 17 1 2 3 1002 2015 74 35 96.188812 Thus5 1 17 1 2 4 1085 2015 51 32 96.164452 far,5 1 17 1 2 5 1151 2024 38 16 96.306671 we5 1 17 1 2 6 1200 2015 70 25 96.916115 have5 1 17 1 2 7 1282 2015 64 26 96.245758 been5 1 17 1 2 8 1358 2015 132 32 95.905296 virtually5 1 17 1 2 9 1501 2015 45 26 96.951088 thes 1 17 1 2 10 1556 2016 65 31 96.492195 only5 1 17 1 2 11 1631 2015 90 26 96.441643 brands 1 17 1 2 12 1731 2016 162 28 84.014877 advertised,5 1 17 1 2 13 1906 2016 61 25 96.364105 ands 1 17 1 2 14 1975 2016 45 32 96.834007 fora 1 17 1 3 0 786 2056 1232 33 -1 5 1 17 1 3 1 786 2057 46 26 96.726234 thes 1 17 1 3 2 847 2060 70 23 96.825127 most5 1 17 1 3 3 928 2060 71 29 96.459251 part,5 1 17 1 3 4 1019 2056 45 26 96.478958 thes 1 17 1 3 5 1079 2056 64 32 96.112465 only5 1 17 1 3 6 1159 2056 89 26 96.528412 brands 1 17 1 3 7 1259 2056 149 32 96.280617 promoted.5 1 17 1 3 8 1426 2057 58 25 96.600998 Thes 1 17 1 3 9 1499 2057 71 25 96.435448 levels 1 17 1 3 10 1585 2057 31 25 96.188454 of5 1 17 1 3 11 1627 2057 67 25 96.771042 both5 1 17 1 3 12 1709 2065 52 17 96.123680 ours 1 17 1 3 13 1775 2057 173 32 96.123680 advertising5 1 17 1 3 14 1962 2058 56 25 96.629967 anda 1 17 1 4 0 785 2097 1232 33 -1 5 1 17 1 4 1 785 2098 156 32 96.286346 promotions 1 17 1 4 2 958 2100 76 23 96.075539 must5 1 17 1 4 3 1050 2097 33 26 96.075539 be5 1 17 1 4 4 1100 2097 174 25 96.280083 maintained5 1 17 1 4 5 1291 2097 56 25 96.876076 ands 1 17 1 4 6 1363 2097 151 30 96.130798 increased,5 1 17 1 4 7 1531 2106 31 17 96.671768 so5 1 17 1 4 8 1578 2098 64 25 96.671768 that5 1 17 1 4 9 1657 2106 41 18 96.638542 we5 1 17 1 4 10 1714 2106 52 18 96.638542 cans 1 17 1 4 11 1783 2098 83 26 95.961182 makes 1 17 1 4 12 1882 2099 49 25 96.883148 thes 1 17 1 4 13 1947 2099 70 25 95.530533 total4 1 17 1 5 0 784 2139 1234 33 -1 5 1 17 1 5 1 784 2142 130 29 96.266464 category5 1 17 1 5 2 924 2139 99 32 96.928139 larger.5 1 17 1 5 3 1039 2139 70 25 96.761330 With5 1 17 1 5 4 1119 2148 51 16 96.875290 ours 1 17 1 5 5 1179 2139 107 25 96.787811 markets 1 17 1 5 6 1294 2139 83 25 96.855011 shares 1 17 1 5 7 1385 2139 34 32 95.989197 of5 1 17 1 5 8 1423 2139 218 32 96.299721 approximately5 1 17 1 5 9 1650 2139 71 28 96.903114 90%,5 1 17 1 5 10 1732 2139 107 33 96.894783 growths 1 17 1 5 11 1851 2141 29 24 96.743874 in5 1 17 1 5 12 1891 2140 46 26 95.931213 thes 1 17 1 5 13 1948 2140 70 26 96.765984 total4 1 17 1 6 0 785 2181 1163 33 -1 5 1 17 1 6 1 785 2181 107 26 96.334793 markets 1 17 1 6 2 900 2181 213 31 96.307220 automatically5 1 17 1 6 3 1122 2184 149 29 96.701546 represents5 1 17 1 6 4 1278 2181 107 31 96.663124 growths 1 17 1 6 5 1393 2181 46 31 93.278938 for5 1 17 1 6 6 1445 2181 210 25 92.520058 REALEMON.5 1 17 1 6 7 1669 2181 160 31 96.623085 (Emphasis5 1 17 1 6 8 1839 2181 109 33 96.209251 added.)2 1 18 0 0 0 701 2257 1315 90 -1 3 1 18 1 0 0 701 2257 1315 90 -1 4 1 18 1 1 0 742 2257 1274 40 -1 5 1 18 1 1 1 742 2259 50 31 91.471962 74.5 1 18 1 1 2 837 2259 73 31 91.471962 Thes 1 18 1 1 3 930 2258 81 32 92.113770 19735 1 18 1 1 4 1030 2258 203 32 92.113770 Realemon5 1 18 1 1 5 1251 2257 203 39 95.960190 Marketing5 1 18 1 1 6 1470 2257 88 33 96.366272 Plans 1 18 1 1 7 1576 2258 104 39 96.753189 again5 1 18 1 1 8 1698 2258 161 39 96.138245 reported5 1 18 1 1 9 1877 2259 139 31 96.563652 market4 1 18 1 2 0 701 2307 1171 40 -1 5 1 18 1 2 1 701 2309 122 32 96.972931 shares5 1 18 1 2 2 835 2308 53 32 93.287598 for5 1 18 1 2 3 900 2308 203 32 92.210808 Realemon5 1 18 1 2 4 1116 2307 69 32 96.764488 ands 1 18 1 2 5 1198 2307 46 32 96.121719 its5 1 18 1 2 6 1255 2307 112 40 96.121719 majors 1 18 1 2 7 1378 2308 223 39 96.763084 competitors5 1 18 1 2 8 1614 2307 71 40 95.600334 (CX5 1 18 1 2 9 1698 2307 29 38 93.300400 8,5 1 18 1 2 10 1741 2318 30 29 91.930382 p.5 1 18 1 2 11 1785 2307 87 40 96.823380 759):2 1 19 0 0 0 741 2389 377 27 -1 3 1 19 1 0 0 741 2389 377 27 -1 4 1 19 1 1 0 741 2389 377 27 -1 5 1 19 1 1 1 741 2390 110 26 96.668144 Markets 1 19 1 1 2 860 2390 90 26 96.712799 Shares 1 19 1 1 3 958 2389 60 26 95.879929 ands 1 19 1 1 4 1029 2389 89 26 96.850204 Trend2 1 20 0 0 0 782 2463 1232 75 -1 3 1 20 1 0 0 782 2463 1232 75 -1 4 1 20 1 1 0 782 2463 1232 34 -1 5 1 20 1 1 1 782 2465 59 26 96.696106 Thes 1 20 1 1 2 853 2465 141 32 96.536957 following5 1 20 1 1 3 1006 2464 114 25 96.132179 reviews5 1 20 1 1 4 1132 2463 89 26 96.627411 SAMI5 1 20 1 1 5 1234 2463 90 26 96.446526 dollars 1 20 1 1 6 1335 2464 83 25 96.585945 shares 1 20 1 1 7 1430 2464 66 25 96.255829 data5 1 20 1 1 8 1509 2464 42 25 96.359039 for5 1 20 1 1 9 1564 2464 48 25 96.655678 thes 1 20 1 1 10 1624 2464 93 25 95.892494 lemons 1 20 1 1 11 1730 2464 55 25 95.892494 ands 1 20 1 1 12 1798 2464 67 25 96.498718 lime5 1 20 1 1 13 1877 2467 137 29 96.798851 category.4 1 20 1 2 0 784 2507 58 31 -1 5 1 20 1 2 1 784 2507 58 31 95.195740 [55] weaver ese ty ween 669 Initial Decision Year Ending Year Ending 7 Months Ending 12/25/70 12/24/71 8/4/72 REALEMON 91.8 91.4 88.0 GOLDEN CROWN 14 2.4 5.5 SENECA 2.0 1.5 11 SUNKIST 2.1 1.7 14 VITA PAKT A 5 4 TREESWEET 5 4 4 ALL OTHERS 18 2.1 3.2 TOTAL 100.0 100.0 100.0 As previously noted while the overall market share of Realemon has had a relatively smal] decline, recent trends are more severe. In addition, only a market-by-market review can indicate the situation due to the limited distribution of Golden Crown, the major competitive brand.

75. Complaint counsel in this proceeding obtained data from firms marketing processed lemon juice (CX 239; Dr. Greenberg, Tr. 2794-2806, 2807-2837, 2844-49, 2850-53). This data shows the following market shares:

Market Shares of Leading Four Firms Processed Lemon Juice Industry 1969-1974 Market Shares Measured in Gallons (Percent of Market) Firm 1969 1970 1971 1972 1973 1974 A 88.7 86.1 84.2 80.2 7.4 75.3 B 4.4 9.1 18.1 14.9 Cc 14 1.4 D 19 3.1 2.2 1.8 F 2.8 2.5 2.1 1.8 1.6 G 1.7 1.4 1.4 [56] Market Shares Measured in Dollars (Percent of Market) Firm 1969 1970 1971 1972 1973 1974 A 88.9 87.1 86.1 82.9 79.9 17.8 B 2.7 5.9 9.2 10.6 C 1.2 ; 1.9 D 1.5 E 2.2 3.2 2.9 F 3.0 2.7 2.2 17 1.5 G 1.2 1.5 7 Source: Compiled from data submitted by firms (CX 239). The firm “A” is Realemon and firm “B” is Golden Crown (Dr. Greenberg, Tr. 2806). Initial Decision 92 F.T.C.

76. Using “S.A.M.L” reports, complaint counsel tabulated the Realemon market share of bottled lemon and lime juice category in 30 major metropolitan markets from January 22, 1971, through April 1974 and, in some instances, May 1974 (CX 258). For April or May 1974, this data shows the following market shares of Realemon in the cities listed:

Equivalent? Units Atlanta 78 Baltimore/Washington 76 Birmingham/Montgomery __. 80 Boston/Providence 70 Buffalo 65 Charlotte 80 Chicago 16 Cinn/Day/Columbus 91 [57] Cleveland 79 Dallas/Ft. Worth 80 Denver 67 Detroit 72 Houston 97 Indianapolis 89 Jacksonville/Tampa 70 Kansas City 97 Los Angeles/S.D. 54 Memphis/L.R. 96 Miami 86 Milwaukee 72 Minneapolis/St. Paul 99 New Orleans 87 New York 81 Philadelphia 73 Phoenix/Tucson 81 Pittsburgh. 86 St. Louis 89 San Francisco 92 Seattle/Takoma 97 Syracuse TT 77. The 1974 Realemon Marketing Plan provided shares for 30 of 2 SAMI reports adjusted cases of different size containers to equivalent gallon units (see CX 258 A and Tr. 2316-17).

DULL, LLY. eve 669 Initia] Decision the nation’s leading metropolitan areas for the 52 weeks ending August 31, 1973 (CX 4, p. 883):

SAMI UNIT SHARE - 52 WEEKS ENDING 8/21 REALEMON MARKET TOTAL BOTTLED Atlanta T711 Balt/Wash. 80.1 Birm/Mont. T7 Boston/Prov. 69.2 Buffalo 68.5 Charlotte 28.7 [58] Chicago: 13.4 Cincinnati 87.5 Cleveland: 81.6 Dallas/Ft. Worth 119 Denver 55.4 Detroit: 10.2 Houston 86.7 Indianapolis 87.5 Jacksonville/Tampa 69.1 Kansas City 83.9 L.A./San Diego 40.1 Memphis/Little Rock 90.3 Miami 70.1 Milwaukee 70.8 Minn/St. Paul 89.5 New Orleans 82.7 New York 78.0 Philadelphia 73.9 Phoenix/Tucson 71.2 Pittsburgh 81.6 San Francisco T7.1 Seattle/Tacoma 83.7 St. Louis 86.1 Syracuse 66.4 Although there are some differences between the foregoing figures and those contained in complaint counsel’s tabulation and listed in the previous finding, overall the shares stated in both sources are quite consistent.

78. According to respondent’s own Marketing Plan derived from “S.A.M.L” reports in August 1973, in 12 metropolitan areas, Baltimore/Washington, Cincinnati, Cleveland, Houston, Indianapolis, Kansas City, Memphis/Little Rock, Minneapolis/St. Paul, New Orleans, Pittsburgh, Seattle/Takoma and St. Louis, containing. around 23,000,000 people, respondent ReaLemon’s share of the processed lemon juice market was 80 perceut or greater. In another Initial Decision 92 F.T.C.

4, Atlanta, Birmingham, New York City and San Francisco, containing another 15,000,000 or more people, respondent’s possessed a 75 percent market share, and in 7 more, Chicago, Dallas, Detroit, Miami, Milwaukee, Philadelphia and Phoenix, where another 22,000,000 people live, respondent’s Realemon held over 70 percent of the market.

B. Industry Concentration Ratios 79. In view of the dominant market share of processed lemon juice commanded by respondent Borden’s Realemon brand, it would be expected that industry [59] concentration ratios would be high. And they are. The four-firm concentration ratios in the processed lemon juice industry for the years 1969 through 1974 were (CX 239): Year 1969 94.3 1970 92.8 1971 92.7 1972 92.7 1973 93.8 1974 93.2 These are exceptionally high ratios (CX 295-299). C. Realemon Is the Dominant Brand and Virtually the Generic Name for Bottled Lemon Juice and Commands a Premium Price 80. Respondent Borden acquired the Realemon-Puritan Company in 1962, and thus acquired the Realemon brand name and processed lemon juice business. Respondent paid $12,370,514 for the Realemon-Puritan Company although the adjusted net worth of Realemon-Puritan assets acquired was $2,767,619 (RX 3638, p. 52; Dillon, Tr. 4849-4850). The difference in the two figures represents “good will” of which it may be concluded that the “Realemon” brand, and the sales and profits achieved by that brand name, were the key factors. The Realemon bottled lemon juice business was an outgrowth of a fresh lemon juice operation commenced in 1935 (Schwartzberg, Tr. 2971-75; RX 198, 216). The Realemon name was adopted in 1944 or 1945 and Realemon was the first bottled lemon juice on the U.S. market (Schwartzberg, Tr. 2975). 81. The complete dominance and acceptance by the public of the Realemon brand name are clear from the record. Realemon BORDEN, INC. 709 669 Initial Decision processed lemon juice is the only [60] nationally distributed brand, all other brands being local or regional, with the possible recent exception of Golden Crown (CX 1, pp. 640-42; CX 3, pp. 767-68). As already described, the 1971 Marketing Plan described Realemon as “the total market” for bottled lemon juice stating that it had become the “protective umbrella” over all lemon juice activity (CX 1, p. 649). As also described, the president of Realemon Foods in the 1972 Marketing Plan characterized the Realemon brand as “one of the greatest brand names in the history of the supermarket” (CX 2, p. 670), and further noted that in a “completely unique situation” Realemon lemon juice commanded a premium of 25 to 30 cents per unit over competitive bottled lemon: juices, and that no such differential on any other food product, frozen or non-frozen, existed anywhere in the industry (CX 2, p. 665).

82. The 1973 Marketing Plan reported that “on a national basis” Realemon lemon juice, 32 oz. size, enjoyed a 36.3 percent price premium over the leading competitive brand (CX 3, p. 740). No price increase was planned for 1973 due to the “large and important price differential between Realemon and competitive brands” (CX 38, p. 807). The 1974 Marketing Plan reported that in April/May and June/July of 1973, the consumer cost for a 32 oz. bottle of Realemon lemon juice was 62¢ whereas the cost for the leading competitive brand was 46¢ to 48¢, Realemon thus commanding a price premium of about 30 percent (CX 4, p. 855).

83. The price differentials obtained by Realemon lemon juice were not due to any inherent product superiority, but rather to the premium brand image of Realemon created by a number of factors including advertising and promotion over the years. The president of respondent Borden’s Realemon Foods, as noted earlier, stated in the 1972 Marketing Plant (CX 2, p. 678): [61] From a technical standpoint, REALEMON has no apparent advantage over the juice of any of its competitors. Processed lemon juice is processed lemon juice, and is not as good as the fresh equivalent in its taste qualities. The 1971 Marketing Plant described one of two short-range _objectives (CX 1, p. 650):

Although reconstituted lemon juice is virtually indistinguishable one brand from another, heavy emphasis on the Realemon Brand name through its media effort should create such memorability for the brand, that an almost imaginary superiority would exist in the mind of the consumer, a justification for paying the higher price we are asking.

The 1973 Marketing Plan stated, quoting from a management summary (CX 8, p. 756):

Initial Decision 92 F.T.C.

“Realemon is thought of as the commercial lemon juice. It is widely known and has an image of quality in its field (for fresh and commercial users alike).” (Emphasis in original.) 84. The Center For Advanced Marketing Practice reported to Realemon Foods in May 1972, after a study of consumer attitudes described earlier (CX 286, p. 7681):

BRANDS AND PATTERNS OF USAGE Brands “Realemon is really the only one” expresses the prevailing sentiment in these groups. While respondents [62] are aware of a few other brands (Seneca, Shop-Rite, Crown, National), Realemon is the one that stands out as the commercial lemon juice. These women feel it was the original commercial lemon juice and has been available for many years. Although no differences were mentioned between Realemon and the other products, both commercial and fresh users see Realemon as the brand that is proven and reliable and has captured their brand loyalty. (Emphasis in original.) The report further noted that the impact of the Realemon name “is also evidenced by the frequency with which respondent refers to ‘real’ lemon juice when discussing the fresh product” (CX 286, p. 7681).

85. Witnesses from the industry testified that the Realemon brand was completely dominant, commanded premium prices, and was virtually the generic term for processed lemon juice. A former Realemon Regional Sales Manager stated (Taft, Tr. 1284): Q Why was Realemon able to command a higher price than these competitors? A Realemon was first in the business and over a long period of years they had established a very dominant consumer and trade-wise acceptance. Q How would you evaluate ReaLemon’s brand name as far as its impact on potential buyers? A It is almost generic.

[63] The former head grocery buyer for a division of a large Eastern supermarket chain testified (Moreland, Tr. 1022): Q Will you tell us why Acme has continued to stock Realemon during at least this 12 year period that you are familiar with? A There is a customer demand for the item. Realemon is almost a generic term for lemon juice, like Coke or Morton’s Salt.

A Pittsburgh food broker testified (Silver, Tr. 3436): Q Comparative strength — do you have an opinion as to the comparative strength of Realemon in the sense of its strength with the consumer and recognizability? A Well, I would say if you were thinking of peanuts you would think of Planters. If you think of refrigerator you think of a Frigidare. It is synonymous with the name. Q If you think of lemon juice? AT o-4--1 Dalit 2M 8 669 | Initials 1 1 1 1 4 1312 241 132 27 95.269485 Decision2 1 2 0 0 0 647 316 1330 121 -1 3 1 2 1 0 0 647 316 1330 98 -1 4 1 2 1 1 0 647 316 1330 90 -1 5 1 2 1 1 1 647 321 92 33 44.401455 ~Thes 1 2 1 1 2 757 323 179 39 90.872139 president.5 1 2 1 1 3 955 324 39 32 92.928818 of5 1 2 1 1 4 1009 335 22 22 96.033447 a5 1 2 1 1 5 1049 325 245 79 94.408455 Philadelphia5 1 2 1 1 6 1305 326 194 78 89.687607 brokerages 1 2 1 1 7 1513 386 15 20 46.171074 :5 1 2 1 1 8 1523 316 83 82 96.876846 firms 1 2 1 1 9 1625 324 155 74 95.707878 testified5 1 2 1 1 10 1796 325 62 79 75.140915 (Vi5 1 2 1 1 11 1847 341 130 27 91.956459 inocur;4 1 2 1 2 0 655 369 185 68 -1 5 1 2 1 2 1 655 373 64 64 82.839569 ‘Tr.5 1 2 1 2 2 733 369 107 45 96.504044 2106):2 1 3 0 0 0 659 436 1317 461 -1 3 1 3 1 0 0 674 436 1063 100 -1 4 1 3 1 1 0 674 436 1063 73 -1 5 1 3 1 1 1 674 440 74 56 0.000000 -.Q.5 1 3 1 1 2 768 436 58 61 94.285835 Mr.5 1 3 1 1 3 834 437 130 54 41.790710 Vinocur,5 1 3 1 1 4 977 455 50 32 96.207825 ares 1 3 1 1 5 1009 447 2 2 6.909958 e5 1 3 1 1 6 1040 455 48 45 96.783279 you5 1 3 1 1 7 1098 440 125 66 96.125809 familiar5 1 3 1 1 8 1231 440 68 69 95.942284 with5 1 3 1 1 9 1309 446 49 43 97.018875 thes 1 3 1 1 10 1367 441 79 65 93.227356 terms 1 3 1 1 11 1451 443 156 66 89.708595 “premiums 1 3 1 1 12 1616 450 121 55 84.496094 brand”?4 1 3 1 2 0 677 500 534 36 -1 5 1 3 1 2 1 677 500 2 2 0.000000 -5 1 3 1 2 2 683 498 54 29 60.891937 A.5 1 3 1 2 3 752 498 59 37 60.891937 By5 1 3 1 2 4 821 499 63 29 95.151108 that5 1 3 1 2 5 894 503 11 26 95.151108 I5 1 3 1 2 6 915 503 66 37 96.944252 takes 1 3 1 2 7 991 505 23 25 58.665131 it5 1 3 1 2 8 1021 503 55 33 58.665131 you5 1 3 1 2 9 1085 503 84 37 92.395294 means 1 3 1 2 10 1180 521 31 3 92.395294 —3 1 3 2 0 0 672 534 725 66 -1 4 1 3 2 1 0 672 534 725 66 -1 5 1 3 2 1 1 672 539 63 61 9.186928 &5 1 3 2 1 2 769 545 12 26 95.315201 I5 1 3 2 1 3 791 537 98 41 67.829529 would:5 1 3 2 1 4 890 537 58 36 96.966515 likes 1 3 2 1 5 957 550 29 22 96.836571 to5 1 3 2 1 6 995 545 88 28 96.006187 knows 1 3 2 1 7 1085 534 78 53 96.986130 what5 1 3 2 1 8 1171 540 55 44 96.095772 you5 1 3 2 1 9 1235 535 90 50 84.384583 mean.5 1 3 2 1 10 1337 549 60 32 80.245033 [64]3 1 3 3 0 0 663 581 1313 87 -1 4 1 3 3 1 0 685 581 1291 61 -1 5 1 3 3 1 1 685 588 51 26 45.624214 A>5 1 3 3 1 2 771 589 48 32 91.771172 By5 1 3 3 1 3 825 584 155 37 91.771172 “premiums 1 3 3 1 4 994 581 107 50 96.090851 brand”5 1 3 3 1 5 1109 591 95 26 91.701561 ‘would5 1 3 3 1 6 1217 592 35 25 96.810959 be5 1 3 3 1 7 1264 588 49 30 96.667755 thes 1 3 3 1 8 1325 590 90 28 93.503540 brands 1 3 3 1 9 1428 593 64 26 59.875523 ‘that5 1 3 3 1 10 1504 582 52 44 96.340958 has5 1 3 3 1 11 1568 593 59 27 0.000000 thes 1 3 3 1 12 1630 594 109 32 0.000000 quality5 1 3 3 1 13 1751 591 180 51 96.809532 connotation5 1 3 3 1 14 1945 597 31 25 96.980995 or4 1 3 3 2 0 663 608 1082 85 -1 5 1 3 3 2 1 663 608 49 49 96.964745 thes 1 3 3 2 2 721 628 171 55 96.892845 advertising5 1 3 3 2 3 900 627 104 32 96.280647 behind5 1 3 3 2 4 1013 626 23 33 96.758705 it5 1 3 3 2 5 1045 629 31 30 96.849365 or5 1 3 3 2 6 1084 634 91 26 94.053955 brands 1 3 3 2 7 1185 638 165 29 96.174065 acceptances 1 3 3 2 8 1360 633 36 35 96.851303 by5 1 3 3 2 9 1405 635 54 27 88.222000 thes 1 3 3 2 10 1462 652 33 4 88.222000 —5 1 3 3 2 11 1504 636 67 26 96.469978 Mrs.5 1 3 3 2 12 1582 632 163 61 95.688927 Consumer:3 1 3 4 0 0 674 674 949 35 -1 4 1 3 4 1 0 674 674 949 35 -1 5 1 3 4 1 1 674 674 74 32 0.000000 --Q.. Is ReaLemon'a' premium brand? ;

A... Realemon is a very sound, strong, premium brand. - If I may add, there is similarly — as Realemon is to the lemon juice market, Jello is to the gelatin market. I feel thatthe people have accepted Realemon as the standard of product of lemon j juice. ;

The Grocery Buyer for the leading supermarket in 1 the Buffalo « area testified (Gerace, Tr. 1988):

Realemon is — well, as I mentioned earlier, it is like Crisco. It is the name of the Realemon:: When you say lemon juice in reconstituted form ‘it is generally Realemon. It is the product that the customers have used for years, and they are very. familiar with it:.:°:..So Realemon has over the years, over the years, has just developed their name. When people want a reconstituted lemon juice the demand has been for Realemon.

Another marketer of processed lemon juice testified (Wolcott, Tr. 647):

Q.. Why, in your opinion, Mr. Wolcott, does Realemon command a premium price? A. Because they have a consumer franchise that’s similar to Welch’s Grape Juice and Miracle Whip Salad’ [65] Dressing and many other brands that have been selected, and because of that consumer franchise the consumer perceives the product to.be superior and. will. pay a premium price for it, or.if the products are priced competitively or at the same price, they will tend to buy the brand. The Grocery Buyer for a Wisconsin based wholesale-retail grocery chain testified (Ellenson, Tr. 1960- 61): Q. Mr. Ellenson, can you tell us why you | think that Realemon commands a higher price both at your cost level and at the retail level? A. Personally I think that the Realemon people, being in the Wisconsin market, for the length of-time that they have built a brand image that they have, that when a consumer walks into a retail store to pick up a bottle of [reconstituted] lemon juice, she’s got in her mind that it is Realemon, regardless of whose it is; and we found this true in many other categories that we carry. The first in, that constantly promotes their own name themselves, seems to almost create a brand identity in the consumer's mind that she just can’t get out of it. : See for similar testimony: Hogue, Tr. 420-22; Pripstein, Tr. 4681; Boden, Tr. 2662; Thomas, Tr. 3266-67; Westcott, Tr. 606-607; Initial Decision 92 FTC.

Laurent, Tr. 2240; Kendall, Tr. 542; Immekus, Tr. 1627 ~28; Friedland, Tr. 1491-92; and Crane, Tr. 3462. [66] 86. Shelf space in retail food stores, particularly supermarkets, is often limited with many products competing for what is available (Hogue, Tr. 414). Processed lemon juice industry members testified that. if a supermarket had only room for one brand of processed lemon juice on its shelves, that brand would be Realemon (Wrisley, Tr. 2178-79; Gordon, Tr. 3406; Pripstein, Tr. 4683; Sherry, Tr. 3412- 13; Kendall, Tr. 549-50; Wolcott, Tr. 651; Leahy, Tr. 846-47; Renner, Tr. 2603; Immekus, Tr. 1629-30; Lemmerman, Tr. 971; Rose, Tr. 4620; Foorman, Tr. 5042-44, Thomas, Tr. 3265; Moreland, Tr. 1124; Vinocur, 2102-2103; Westcott, Tr. 610; Beavers, Tr. 1596-97; Goldberg, Tr. 2625-26; H. Greenberg, Tr. 1184). The National Sales Manager of a competing processed lemon juice firm testified (Hogue, Tr. 414):

... We put ourselves in.the position of the buyer of that. product in the grocery store. He already handles Realemon and then we come to him and say, “We have a fine product we want to sell called Vita-Pakt,” and he says, “Mr. Hogue, I have plenty of lemon juice. It’s a good juice, it sells well, I don’t need yours, sir.” 87. Realemon has advertised its brand name extensively over the years. Until 1972, when Golden Crown “commenced advertising activities on a minor scale in selected markets,” RealLemon was the only significant advertiser in the processed lemon juice industry (CX 8, p. 772). The president of Realemon Foods wrote in the 1972 Marketing Plan that Realemon in 1970 maintained its position as the “leading bottled lemon juice advertiser,” and that ReaLemon’s advertising effort including a projected 1971 advertising expenditure of $629,100 contributed to the “continued domination of bottled lemon juice share of market by REALEMON” (CX 2, p. 681). [67] 88. The dominance of the Realemon brand and the acceptance of that brand by the public, under the circumstances shown by the record of this proceeding, constitutes a substantial barrier to the entry of new bottled lemon juice marketers. D. Respondent Borden’s Realemon Foods Realized a Rate of Return on Assets Far Greater Than That of Other Food and Industry Groups Indicating Monopoly Power 89. Complaint counsel contend that ReaLemon’s rate of return on assets for the years 1968 through 1973 averaged nearly four and one-half times the rate of return realized by other firms in the “Food and Kindred Products” industry group, and four and one-half times greater than the rate of return for “All Manufacturing Corpora- BORDEN, LNU. vet) 669 Initial Decision tions” as set out in FTC/SEC Quarterly Financial Reports for the foregoing years (CX 252, 294, 300-301). The Realemon rate of return was 25.7 percent on assets in contrast to the 5.82 percent realized by the “Food and Kindred Products Industry” and the 5.97 percent realized by “All Manufacturing Corporations” (CX 294, 300-301). Respondent Borden contends this conclusion is incorrect on the ground that $9,602,895 paid by Borden for Realemon over and above that firm’s adjusted net worth when acquired in 1962 has not been included in making the calculation. Respondent Borden, as stated earlier, purchased the Realemon-Puritan Company in 1962 for $12,370,514 although its adjusted net worth was only $2,767,619 (RX 363, p. 52; Dillon, Tr. 4849), The difference between these figures is the foregoing $9,602,895, which reflected the value of the Realemon -brand name, the dominant market position thereof and the profitability of the firm. Dr. Michael Mann, an expert economist identified at the beginning of this decision, testified that the $9,602,895 premium paid by Borden for Realemon (Tr. 6118): [68] . reflects the fact that Borden paid a purchase price for the Realemon hard assets which discounted a rather handsome stream of future earnings. And further (Tr. 6121):

. they paid a purchase price substantially in excess of the book value of the hard assets which reflected their judgment that those hard assets were going to bring a stream of income which was substantially in excess of what would have been the case buying just any average food and kindred product firm. See also Tr. 6161-64 and Tr. 6182. In the opinion of the law judge this is an accurate appraisal. It is plain that had Borden not acquired Realemon there would have been no $9,602,895 “goodwill” figure arguably to add to assets in making a calculated rate of return for Realemon. Under the circumstances the law judge finds Dr. Greenberg’s calculation, CX 294 and. Tr. 295-305, to constitute a valid statement of the profitability of RealLemon Foods after acquisition by respondent Borden, and the contention of complaint counsel, set out at the beginning of this finding, as to the comparative rates of return on assets of Realemon and other industry groups to be correct. In a proceeding of this nature the substance of the situation must be the guidepost, not technical matters of accounting practice.

90. Monopoly power, in the opinion of Dr. Mann, is the ability of a firm to hold a price above a competitive level for a persistent period of time (Tr. 6152). The profitability record of Realemon over 277-685 O—79——46 Initial Decision 92 F.T.C.

the years indicated to Dr. Mann “a case study in market power” (Tr. 6131). [69] E. The Dominance of Respondent Borden’s Realemon Foods Conferred Substantial Resource Advantages Over Its Processed Lemon Juice Competitors 91. Realemon Foods spent more than $5,000,000 on advertising between 1969 and 1974 (CX 288). In contrast, competing processed lemon juice marketers spent little on advertising during this period, ' as already indicated (Wolcott, Tr. 648; Kendall, Tr. 542; Delaney, Tr. 690; Hansfield, Tr. 159-160). As quoted earlier, the Realemon 1973 Marketing Plan documented this fact by stating that Realemon was the only significant advertiser in the processed lemon juice industry until some minor-scale efforts of Golden Crown commencing in 1972 (CX 3, p. 772). Additionally, from 1957 through 1972 Realemon conducted a strong public relations program throughout the country “to tell the story of the advantage of Realemon” (Edelman, Tr. 3218). Promotional materials of all kinds were distributed, including news releases, recipes, pamphlets and even “Educational Kits” for use by high school students, apparently in home economics courses (see, for example, RX 202, 204, 206, 214, 217, 218-19, 220, 222, 223-230 and 378-380). Realemon, being the only processed lemon juice marketer with national distribution, was able to use media with nationwide coverage for advertising, including television (CX 1, pp. 639-654; CX 2, pp. 678, 681-683, 689, 693-695, 697; CX 3, pp. 767; CX 4, pp. 869-871, 886, 888; CX 9; CX 14-17; CX 20; CX 32; CX 240-42; CX 244-250; CX 253-56; RX 546; RX 558).

92. As part of the Borden organization, Realemon has been able to participate in tie-in advertising and cross-couponing with other Borden foods products, and has done so (CX 1, pp. 647, 658; CX 2, p. 683; CX 3, pp. 777-79, 813-14, 829; CX 4, p. 871, 888; Lundell, Tr. 3357-58; CX 81, p. 7871; CX 127, 240-242, 245, 248, 258, 255-256). In fact, ReaLemon’s 1973 [70] Marketing Plan noted that Realemon had “significant opportunities to tie-in with other manufacturers,” and discussed past use of this merchandising device with a number of other well-known products (CX 3, pp. 776-79). The 1973 Plan concluded tie-ins with other Borden products were advantageous by stating (CX 8, p. 813):

Special consideration will be given to tie-ins with Borden brands as opposed to other manufacturers in order to effect company economics and to strengthen the overall Borden image among consumers.

93. Faced with a competitive effort by Golden Crown in the early BUKUVIIN, LIN. tae 669 Initial Decision 1970’s, Realemon Foods developed a million dollar “President’s Fund” to “support the Realemon Reconstituted Lemon Juice brand” (CX 3, p. 740). This fund had its origins as early.as 1971 (CX 3, p. 786), and $1 million allocation from the fund in 1973 was aimed at reversing “Golden Crown share inroads” (CX 8, p. 792). The major strategy to be utilized was the use of “market-by-market case allowances.” The 1973 Plan stated (CX 8, p. 792): The Presider.t’s Fund test plays a major role in this program. Even utilizing the Basic Plan $1,604 M trade deal budget with higher expenditures in highly competitive markets and lower expenditures in low competitive markets, this total level is not sufficient to accomplish the objective of reversing the Golden Crown share gains and recovering one-half of the 1972 overall Realemon loss. [71] Respondent Borden spent $2,805,000 in 1973 on promotions of its Realemon processed lemon juice, and another $542,000 on advertising (CX 288). The advertising budget. was reduced from $1,015,000 to the foregoing figure and the expenditure on promotions was increased from $2,100,000 to $2,805,000 (CX 288). The advantages of such resources, derived from the size and dominant position of Realemon in the processed lemon juice industry, are obvious. 94. In fact, the 1973 Marketing Plan scheduled the “utilization of both Realemon and Borden internal and external leverages to implement plans” (CX 3, p. 787). These “leverages” included (CX 8, p. 787):

(1) External Resources (consumer oriented) a. Consumer image b. Consumer advertising c. Shelf position (2) Internal Resources (manufacturing and development oriented) Plant and equipment capacity Plant and equipment flexibility Financial resources Management ability R & D [Research and Development] capability. ono np F. Respondent Borden’s Realemon Foods Possessed the Power To Control Prices and Entry in the Marketing and Sale of Processed Lemon Juice 95. The record of this proceeding establishes, as the foregoing findings describe, that respondent Borden possessed market power in the processed lemon [72] juice industry sufficient to enable it to control processed lemon juice prices, or at least to exercise a Initial Decision 92 F.T.C.

substantial measure of control over such prices, and to control entry by others into the marketing and sale of processed lemon juice. Respondent Borden, in short, possessed monopoly power in the marketing and sale of processed lemon juice. It had the ability to exclude or limit competition, and to control the prices competing processed lemon juice firms could charge for their products. Such firms marketed their brands of processed lemon juice essentially at the sufferance of the Realemon brand. That respondent Borden may not have found it expedient or to its best interest from the standpoint of profitability (see CX 2, p. 692) to exercise its control over prices or competition to the fullest extent of its power does not alter the reality shown by this record, that Borden’s Realemon Foods possessed that power. , 96. As the overwhelmingly dominant brand possessing long term _public acceptance amounting to a “consumer franchise” which enabled it to charge substantially more for Realemon processed lemon juice than its competitors, Realemon, and through it respondent Borden, had the power to drive competitors’ prices down, or their competing brands off the supermarket shelves, by lowering its own prices. Dr. Michael Mann testified to the market power possessed by a firm with a “successfully differentiated product” such as Realemon (Tr. 955-56). Dr. Mann testified that one of the effects in the marketplace of a product with the brand acceptance of Realemon is that a new entrant “has to find some means by which to detach customers” from such a brand. In Dr. Mann’s expert opinion (Tr. 956):

-If the entrant chooses to do this by opening up a substantial price difference between itself and the existing brands in order to attract the consumers’ [73] attention, and does so, then the firm in the dominant position can respond by narrowing the price differential — possibly eliminating it — and this would, one would expect, lead to a decline in the market position of the entrant or its inability to go any further than it may have captured in its initial niche on the market as long as product differentiation remains a strong and important feature of the market. If the entrant responds to the established firms’ narrowing the differential by trying to keep it at the original differential which is considered necessary to detach customers, you can have a ratchet downward effect and the obvious consequence of that could be that the entrant would find its pricing going below its own average variable cost before the established firm would, and since a price below average variable cost is below what economists call a shutdown point, you would minimize losses by shutting down rather than continuing to operate. It means the entrant will be bankrupted before the established firm would be faced with the same prospect.

97. The undersigned finds from the evidence in this record that, if Borden priced its product so as to eliminate or substantially BUOKUDEN, LUNU. (16 669 Initial Decision narrow the retail price spread between its Realemon processed lemon juice and the brands of competitors, assuming retailer margins remained in the same ratio, sales of competing processed lemon juice brands would drastically decline. As a competitor put it, “the consumer perceives the [Realemon] product to be [74] superior and will pay a premium price for it,” and if the products are “priced competitively or at the same price,” the consumer will “buy [that] brand” (Wolcott, Tr. 647). Under the circumstances, as Dr. Mann testified, the only alternative for the competing brand would be to open the price gap by price reduction, initiating a “ratchet downward effect” ultimately driving less well known and less strong brands out of the market or into insignificant positions. Power of Realemon over price and competitors is evident. 98. Borden’s Realemon competitors recognized the Realemon market power, and that only the presence of a price differential sufficient to induce the supermarket to stock their brand, and motivating the consumer to buy it, enabled them to survive. The president of Florida based “Tropic Fresh” testified (Tr. 547): We have predicated our entire business on the fact that the nationally advertised brands — and then ours would be a régional brand — we would be able to operate, because we don’t have the brand recognition, we would be able to operate on the basis of price and offer the housewife a second choice of lemon juice at a lower price. This price will also influence the buyers to take our merchandise on. We have been successful over the last four or five years in convincing buyers and supermarkets they can have two brands of lemon juice on the shelf. We watch prices of our competitors very closely because that is our reason for being on the shelf. [75] The president of Seneca testified to the same effect (Wolcott, Tr. 650):

We look at the cost, we look at the price of Realemon, and then we decide how aggressive we’re going to be in selling bottled lemon juice. I’m assuming that there is a sufficient — assuming we can sell it sufficiently under Realemon to give the buyer a reason to carry a second brand, and assuming that that is enough over our cost to get us a gross profit that’s adequate to cover our cost and produce a net profit, then we will compete in the field more aggressively. Golden Crown likewise maintained a substantial price difference between its reconstituted lemon juice and Realemon (CX 4, p. 873). 99. Respondent Borden recognized that it had the power to control prices. In its 1970 Marketing Plan, for example, it was concluded that the price spread between Realemon and competing brands should not be permitted to increase, and that, if it were not increased, the Realemon market share could be maintained close to its “present level,” 7.e, 88.2 percent (CX 1, p. 649). Plainly, if the Initial. Decision 92 F.T.C.

price spread were decreased, purchasers of other brands would shift to Realemon.

100. The high, in fact, extreme, degree of brand dominance attained by Realemon over the years indicates, in itself, power over prices and entry. Dr. Michael Mann made a study of product differentiation as a barrier to entry. Dr. Mann defined product differentiation as “a market characteristic in which buyers do not look at the alternative offerings of various sellers as identical” (Tr. 457). In Dr. Mann’s expert opinion, as product differentiation [76] becomes a more and more important characteristic of an industry (Tr. 458-59):

[Ojne would expect that there would be an increase in market dominance. Now the reason for that is that if one conceives of a range of seller offerings, consumers having a lot of choice with respect to alternatives, that product differentiation by its very nature means that certain of these products begin to take on clear distinctions in the consumer’s mind as opposed to other offerings. Those sellers who are beneficiaries of the increasing tendency of consumers to focus their attention and attachments to particular offerings of particular sellers and no longer are indifferent among the wide range will find themselves increasingly commanding most of the sales of the products to which consumers have attached themselves. So that I would expect that as product differentiation intensifies, as it becomes a more prominent characteristic of the market, that some sellers are going to command most of the sales of the market, and that you will not have a large number of sellers each with fairly small percentages of the market. Where product differentiation increasingly characterizes a market, the dominant products are unlikely to. be subject to any serious erosion of their market position because the attempt to overcome the advantage of the differentiated product “can be very expensive,” and a firm attempting such a project is faced with very large costs (Tr. 459). In Dr. Mann’s opinion, where high product differentiation is present (Tr. 471): [77] one should expect to find high market concentration; one should expect to find levels of profitability which are persistently, noticeably and markedly above those earned by firms in the general class of economic activities in which they operate, and that this dominance is not easily subject to erosion. Dr. Mann’s analysis is clearly applicable to the processed lemon juice industry. Respondent’s Realemon is differentiated from other brands to such a degree as to be virtually the generic name for the product itself. Such differentiation, the attendant dominant market share, coupled with the high profitability and premium price commanded by Realemon have given, and now give, respondent Borden a substantial measure of power over industry prices and the ability to restrict competition and competitive entry. BORDEN, INC. 719 669 Initial Decision Maintenance of Monopoly Power 101. The record of this proceeding demonstrates that Borden formulated and pursued a business policy, the purpose, intention and effect of which was to maintain its monopoly power in the processed lemon juice market. As is described in greater detail later herein, Borden determined to preserve its existing dominant market share against emerging competition, and took action, primarily by means of selective local or regional price reduction strategies, to accomplish that purpose. The record also shows that although Borden suffered some erosion of market position during the years here under consideration, it did succeed in maintaining its monopoly power nationally, and in the great majority of metropolitan areas. [78] 102. At the beginning of 1970 Realemon possessed a 92 percent share nationwide of the processed lemon juice market, as earlier stated (CX 1, p. 639). By the mid-1960’s, however, several smaller brands of processed lemon juice had established themselves in regional markets. Seneca Foods Corporation began to market its brand of processed lemon juice in competition with Realemon in the mid-1960’s, primarily in the Northeastern United States (Wolcott, Tr. 634, 646). In the Philadelphia area, Seneca was ReaLemon’s largest competitor from 1968 to 1970 (Vinocur, Tr. 2101). By 1971 Seneca was primarily established in the Northeast and North Central regions, but was obtaining some distribution in the South (CX 2, p. 671). Kendall Foods marketed its Tropic Fresh brand of processed lemon juice in competition with Realemon beginning in 1966 (Kendall, Tr. 573). Tropic Fresh was sold primarily in the Southeast (CX 2, p. 671). Sunkist brand of processed lemon juice, marketed since 1952, was sold in California, Texas and the Southwest, having contracted from an initially wider marketing area (Delaney, Tr. 681). Vita Pakt was sold mainly in the far West (Hogue, Tr. 404-406). There were others of relative insignificance in comparison with Realemon, as described earlier in connection with the relevant market and ReaLemon’s monopoly position (CX 1, pp. 640-42; CX 2, p. 671; CX 8, pp. 738, 750, 759, 768; CX 4, p. 858). Additionally, there was Golden Crown, discussed in subsequent findings.

103. Golden Crown Citrus Corporation began as a Chicago based enterprise engaged primarily in home delivery of fruit juices in the Chicago area. In the late 1960’s Golden Crown commenced produc- - tion and marketing of its Golden Crown brand of processed lemon juice. In 1969, Paul Hansfield, later President of Golden Crown, became involved in the management and ownership of the corpora- Initial Decision 92 F.T.C.

tion, and determined to emphasize the manufacture and sale of processed lemon [79] juice for distribution to retail outlets (Hansfield, Tr. 127-28). In that year the company began expanding sales of Golden Crown lemon juice into the Midwestern areas around Chicago. As the company grew, it moved into Eastern areas of the United States in 1970, the Northeast in 1971, the Southeast in 1972, and Southwest and Western areas in 1973 (Hansfield, Tr. 146-48). In 1973 Golden Crown also opened a second producing and bottling facility at Bridgeton, New Jersey (RX 7). 104. The most serious impact of Golden Crown’s commencement ~ of distribution to retail grocery stores of its brand of processed lemon juice initially was felt by the other regional brands in the market, particularly Seneca and Tropic Fresh. As already stated, shelf space available for bottled processed lemon juice is limited. Processed lemon juice industry members testified that there is room for only one or two brands on the shelves of most stores, and if there is room for only one brand that brand would be Realemon (Wrisley, Tr. 2178-79; Gordon, Tr. 3405-3406; Pripstein, Tr. 4683-84; Sherry, Tr. 3412-18; Kendall, Tr; 549-50; Wolcott, Tr. 651-52; Renner, Tr. 2603; Immekus, Tr. 1629-30; Lemmerman, Tr. 971; Rose, Tr. 4620; Vinocur, 2102-2103; H. Greenberg, Tr. 1184).

105. Most retail food stores will sell only one brand other than Realemon, and will purchase the cheapest of the “second” brands available (Wolcott, Tr. 664; Vinocur, Tr. 2102). As a result, when Golden Crown in 1971 entered the Northeastern area where Seneca was selling its product, with a price lower than Seneca could meet, it took sales from Seneca. Between 1971 and 1974, Seneca lost approximately three-fourths of its processed lemon juice sales (Wolcott, Tr. 654). In 1972, Pantry Pride stores in the Philadelphia area sold both Seneca and Realemon processed lemon juices. Golden Crown later replaced Seneca in Pantry Pride stores (Friedland, Tr. 1490-91). Frankford-Quaker Stores in Philadelphia also replaced Seneca with Golden Crown while retaining Realemon, because Golden Crown [80] offered a price lower than that of Seneca (Leahy, Tr. 846-47). In 1972, Golden Crown entered Tropic Fresh’s markets in competition with Realemon and Tropic Fresh. Subsequently, Tropic Fresh was forced to withdraw from a number of those markets (Kendall, Tr. 574).

106. As its Marketing Plans make clear, by 1971 RealLemon had begun to consider Golden Crown a serious threat to its dominant market position (CX 1-4).

A. Realemon Had the Purpose and Intent of Hindering and BORDEN, INC. 721 669 Initial Decision Restraining Competing Brands of Processed Lemon Juice and of Maintaining Its Monopoly Power 107. ReaLemon’s Marketing Plans for the years 1971 through 1974, and other internal corporate documents, clearly reveal the determination and intent of ReaLemon’s management to maintain, in the face of competition from Golden Crown and other processed lemon juice producers, the predominant market share and monopoly position historically held by Realemon processed lemon juice. The Marketing Plans portray respondent’s concern over the growing _ inroads of Golden Crown as a competitor to Realemon in certain markets, and the development of programs and strategies to combat the threat to ReaLemon’s market share posed by Golden Crown (CX 1-4). In discussing these Marketing Plans there will be some unavoidable repetition of material contained in earlier sections of this decision because much in the Marketing Plans is highly material to the product market, and to respondent Borden’s position in that market, as well as to the present section. 108. In its 1971 Marketing Plan, ReaLemon’s.management cited SAMI data estimating that Realemon lemon juice was in virtually 100 percent distribution nationwide, and that while Realemon enjoyed a 92 percent market share at the beginning of 1970, its nationwide market share had fallen to 88.2 percent by August of [81] that year (CX 1, p. 689). The Plan reported that beginning in 1970 competition from lower priced brands had begun to make serious inroads into ReaLemon’s market share (CX 1, p. 645). Of the 10 to 12 competitiors in the bottled lemon juice business, the report identified three—Golden Crown, Seneca, and Tropic Fresh—as those causing the most difficulty (CX 1, p. 640). The report also identified a number of “key” areas in which competition posed the greatest danger to Realemon, as follows (CX 1, p. 640):

For the four (4) week period ending 9/4/70, as compared to the same 4 weeks a year ago, brand share in equivalent units, dropped in the following: Milwaukee — from 94.2% to 89.4% St. Louis: — from 100.0% to 96.4% Buffalo — from 100.0% to 81.38% Chicago — from 91.7% to 85.7% Cincinnati, Dayton and Columbus — from 98.8% to 94.2%, all of which now have Golden Crown Brand Lemon Juice for competition. Philadelphia, under the siege of Seneca competition, has dropped from 94.5% to 85.1%. Markets presently under attack by both Seneca and Golden Crown show: Pittsburgh — down from 99.2% to 62.5% Initial Decision 92 F.T.C.

Indianapolis — down from 98.2% to 88.4%.

109. The 1971 Marketing Plan set out ReaLemon’s determination to maintain its approximate 90 percent market share described in the foregoing finding (CX 1, p. 650). Realemon recognized the problem [82] presented by the spread between the price of Realemon bottled lemon juice and the brands of its competitors, and decided to deal with this problem by “obscuring” the price differential for the customer. The Plan stated (CX 1, p. 650):

Although reconstituted lemon juice is virtually indistinguishable one brand from another, heavy emphasis on the Realemon Brand name through its media effort should create such memorability for the brand, that an almost imaginary superiority would exist in the mind of the consumer, a justification for paying the higher price we are asking.

* * * * * * * [T]he reflection of this spread at retail level must be obscured for the consumer. To accomplish this, more advertising and promotional monies will have to be spent in 1971. ;

Steps were planned, nevertheless, to combat competing brands in specific markets where they had been making inroads by reducing the price spread between Realemon and such brands. Couponing as a method of attacking the spread was considered (CX 1, p. 653) but, more important, the Realemon practice of conducting trade promotions on a uniform, nationwide basis was abandoned permitting an attack on competing brands in specific markets, as follows (CX 1, p. 656):

In those markets where competition has been making inroads, tentative plans are to increase the size of the [promotional] allowances to as much as $1.20 per case, or 10¢ per bottle. Based on past history, [83] it is hoped that the trade will reflect reduced retails of as much as 15¢ per unit. We will again be specifically attacking the problem of the retail price spread between Realemon and competition. In general terms, competitive activity exists in the Eastern half of the United States and for the Western Half, promotional allowances will be limited to a range of 60 to 75 cents per case.

110. Between 1967, which year Realemon noted marked “the advent of competition,” and 1970 the ratio of expenditures for advertising and promotions shifted substantially toward the latter “because of competition” (CX 1, p- 646). Promotions, that is, allowances to retailers off invoice on a per-case basis, were particularly adapted to attacking competing brands in specific markets (CX 1, p. 656).

111. By the time the 1972 Marketing Plan was developed, BURVEN, LNU. (ZS 669 Initial Decision ReaLemon’s estimated share of the bottled lemon juice category, based on “SAMI” data, was still about 90% (CX 2, p. 668). Of the 10 to 12 small competitors in the market, none with a market share of more than 3-4%, particular attention was given to Golden Crown. The Plan stated that Golden Crown had had good success in the Northeast and North Central regions, and had begun to expand into the South (CX 2, p. 675): However, Golden Crown, Seneca and Tropic Fresh were all listed as serious competitors, each of them reported as substantially undercutting ReaLemon’s price (CX 2, p. 671). The 1972 Marketing Plan set forth ReaLemon’s “basic platform for 1972” which included as a “specific objective’ combatting “‘low priced competition” (CX 2, p. 690). Realemon recognized this low priced competition as its most serious threat, and determined to use both trade promotions and advertising to combat it (CX 2, p. 671). [84] 112. The use of trade promotions to restrict competition is clear. Inthe face of “low priced competition” from other processed lemon juices, trade promotions became “a tool or lever against competition” (CX. 2, p. 688), an “important tool in dulling the efforts of competition” (CX 2, p. 700). Realemon considered it of “paramount importance that Realemon continue to be the featured brand at the retail level,” which localized promotions were effective in bringing about, because that (CX 2, p. 679):

. is probably the most restrictive thing to the growth of our competition. Promotions were key tools in reducing the price spread between Realemon and lower priced competing brands. During promotions the retail price of Realemon ordinarily dropped 10 cents or more below its regular retail price (CX 2, p. 677, 700). 118. Advertising was also to be used to prevent erosion of the Realemon brand in the face of competition from lower priced brands (CX 2, p. 672). Spot radio commercials were begun in 1971 in nine local markets where Realemon was facing competitive pressure. The radio spots were described as follows (CX 2, p. 683): The spot radio creative approach keyed in directly on bottled competition by telling consumers not to accept imitations, and that other bottled lemon juices may try, but none can imitate REALEMON. Commercials were executed using a conversational technique employing someone who was an impersonator and an announcer asking the impersonator to do his impression of a bottle of REALEMON. Commercials then stressed the point that no one can impersonate a bottle of REALEMON. [85] 114. In its 1973 Marketing Plan, ReaLemon’s management stated that one of the crucial events affecting the company in 1972 was (CX 3, p. 736):

Initial Decision 92 F.T.C.

The recognition of other growing brands within the competitive environment, and the adoption of a positively oriented strategy to continue the growth and retain the market position of Realemon Lemon Juice.

The report noted that according to “SAMI” statistics ReaLemon’s dollar share of the lemon juice category declined by 3.4 percentage points, from 91.4% to 88.0%, during the first seven months of 1972 (CX 3, p. 737). The pace of the decline had increased toward the end of those months as shown by the following chart (CX 3, p. 737): REALEMON $ SHARE OF LEMON & LIME JUICE CATEGORY SHARE POINT 1970/1971 1971/1972 CHANGE AUG-OCT 91.4 91.1 - 3 NOV-JAN ; 92.6 91.3 - 13 FEB-APRIL 92.4 89.0 - 3.4 MAY-JULY 90.4 86.2 ~ 42 115. The 1972 Marketing Plan reveals ReaLemon’s recognition that Golden Crown had become its primary competitor (CX 3, p. 738): Competition During 1972 the competitive environment in the lemon and lime juice category has been significantly altered versus previous years. A comparison of SAMI data between 1971 and 1972 indicates the emergence of Golden Crown as the dominant factor within this segment. [86] Year Ending Year Ending 7 Months Ending 8/4/72 12/25/70 12/24/71 Share Point Share Change from Point 1971-7 Mos.

Share Share Change $ Share Period Golden Crown 1.4 2.4 +10 1092 5.5 +3.2 Seneca 2.0 1.5 -0.5 218 11 -0.7 Sunkist 21 17 -0.4 278 1.4 -0.3 All Others 2.7 3.0 +0.3 1826 4.0 +110 Nielsen data for the June/July period indicates that Golden Crown dollar share of the lemon and lime juice category is 5.1% while the volume share is 9.7%.

All Commodity Volume % Distri- $ Share Volume Share bution Golden Crown 5.1 9.7 21 Seneca 9 1.4 5 Sunkist 14 13 9 All Others 13.0 8.0 — Golden Crown’s share in some metropolitan areas was considerably ee wer en ty aerue eer 669 Initial Decision larger than that reflected by national market share statistics (CX 3, pp. 760-61, 838). Golden Crown achieved inroads into the processed lemon juice market and into ReaLemon’s market share through aggressive price competition. Golden Crown’s 32 oz. size lemon juice, as noted, undersold Realemon by 10¢ to 30¢ per bottle (CX 3, p. 738). 116. The 1973 Marketing Plan reiterated that Realemon had “a dominant market position and . . . a strong consumer franchise,” and stated the following among “Problems and Opportunities” for 1973 (CX 8, p. 750):.

(D) Reverse competitive inroads of Golden Crown.

Projecting an increase of cash sales of all bottle sizes for 1973 of 6 percent, ReaLemon’s 1973 Plan stated (CX 3, p. 790): [87] These [share] gains can only be achieved through both a reversal of Golden Crown share inroads and increased category growth. (Emphasis added.) 117. ReaLemon’s announced objective was to regain during 1973 one-half of the lemon juice market share lost to competitive brands in 1972, bringing its nationwide market share from an estimated 86.5 percent back to 89.0 percent (CX 3, pp. 790-91). The report stated that this objective was aimed at all competing brands, not just Golden Crown (CX 8, p. 790):

[T]he share gains from reversing the 1972 trend must be viewed not against Golden Crown total market share but against the share of all brands other than Realemon. (Emphasis in original.) 118. In another part of the 1973 Plan, a seven-phase “Golden Crown Strategy” in entering new markets was outlined because (CX 3, p. 764):

A recognition of the Golden Crown strategy will enable Realemon to take more positive steps in reversing the Golden Crown trend in 1973. In order to combat Golden Crown, ReaLemon’s objectives for 1973 included the following (CX 8, p. 764):

Reducing the price differential through trade and/or consumer promotional vehicles. The strategy was to concentrate trade (promotional) allowance spending in specific heavily competitive markets (CX 3, pp. 788, 792). Aggressive “market-by-market activities” were determined upon rather than “overall national programs.” Market potential in [88] combination with “problem area analysis” were to determine the Initial Decision 92 F.T.C.

“level” and “type” of activity required (CX 3, p. 786). The primary objective of these activities according to the Plan (CX 3, p. 786): . will be to regain market share lost primarily to Golden Crown, a price oriented brand.

119. List price reductions, either nationally or on a market-bymarket basis, were rejected (CX 3, p. 798). Instead, “trade deal activities” were relied upon to obtain store displays and lowered retail prices, as already indicated (CX 3, p. 781). 120. ReaLemon’s “1973 Basic Plan” called for $1,604,000 to be spent on trade deal promotion, with an additional $400,000 to $800,000 being added under two alternative “President’s Fund” programs (CX 3, pp. 783, 788, 799 and 832). Realemon attempted to determine the most effective level of case allowance activity in markets identified according to the degree of competition present (CX 3, p. 784). Thus, 1973 deal activities were to be at varying levels depending on the competition present in the market (CX 3, pp. 787, 788, 792, 817-18). Realemon spent $2,805,000 on 1973 promotions, or $705,000 over the amount previously budgeted for all promotional activity (CX 288). These trade deal promotions were directed at competitive brands in specific markets, particularly Golden Crown. Their purpose was “reversing competitive gains” (CX 3, p. 789) and “[rJeversal of Golden Crown Share Inroads” (CX 3, p. 1792). Advertising was also planned for “strengthening of the consumer franchise to justify the Realemon price premium” (CX.3, p. 764). [89] 121. Realemon recognized that pricing was Golden Crown’s major competitive tool. In the 1974 Marketing Plan price comparisons between Realemon and Golden Crown for 1973 were made as follows (CX 4, p. 854):

February/March April/May June/July Total U.S. [¢] {c] [¢] Realemon 32 02. 61.5 61.7 61.6 Realemon 24 oz. 63.5 63.2 61.6 Golden Crown 82 oz. A471 47.6 46.3 Price affected retail food store margins as well as cost to the consumer, and ReaLemon’s management recognized that retailer margins were important to a competitor’s ability to secure distribution, shelf space, display and feature activity (CX 4, pp. 854-55). The 1974 Marketing Plan therefore compared retailer margins for Realemon and Golden Crown 32-0z. bottles (CX 4, p. 855): 669 _ Initial Decision April/May 1973 June/July 1973 Realemon Golden Crown Realemon Golden Crown Avg. Gross Price 6.75 4.40(E) 6.73 4.40 (E) Avg..PPA Value 0. 0 1.38 .25 Avg. Net Retailer Price 6.75 4.40 5.40 4.15 Consumer Cost 0.62 48 0.62 46 Retailer $ Margin 0.69 1.36 2.04 1.37 Retailer % Margin 9.3 23.60 27.4 ° 31.10 It can be seen from these comparisons that ReaLemon’s trade promotions, ie, price promotional allowances (“PPA”), had the effect of increasing retailer margins, tending to shift supermarket purchases back to Realemon, as well as the effect of decreasing retail prices. [90] 122. The 1974 Marketing Plan recited that one of the objectives of 1973 marketing activities, already described, had been to forestall growth of Golden Crown in established markets, and its expansion into new markets through more aggressive trade-oriented activities (CX 4, p. 856). Realemon analyzed its 1973 trade promotions, which were raised to levels 2 to 3 times above those of 1972, in terms of their effect on the expansion of Golden Crown sales (CX 4, pp. 857- 58), noting that containment of Golden Crown distribution of 10ounce and 16-ounce sizes was a major objective of the increased deal levels (CX 4, p. 857). It was concluded that the results of the program were as follows (CX 4, p. 858):

(1) Heavy deal levels on 24 oz. and 382 oz. did not preclude Golden Crown distribution growth. The degree to which this retarded even faster expansion is not known. (2) Heavy deal levels on 8 oz. and 16 oz. may have prevented Golden Crown expansion on these sizes.

In summary, the Plan concluded that 1973 had seen the continued growth of Golden Crown in terms of share and distribution, despite a continued shift of promotional expenditures to trade deal activities in response to competitive conditions (CX 4, p. 861). 123. Realemon established a “Marketing Mix Strategy,” again with the major objective of increasing ReaLemon’s share of the market in high lemon juice per capita consumption areas (CX 4, p. 861). This objective was to be accomplished through a marketing program which utilized a combination of [91] advertising, consumer promotion and trade promotion activities (CX 4, p. 861). Specifically, Realemon planned to increase its market share in 4 “key Districts,” New York, Philadelphia, Chicago, and Detroit. These 4 markets accounted for 38.4 percent of ReaLemon’s sales and 54.7 percent of Initial Decision 92 F.T.C.

Golden Crown’s sales during February-July 1973 (CX 4, p. 864). The objective was to reduce Golden Crown’s market share by 20 percent, or from 18 percent in 1973 to 14 percent in 1974, while ReaLemon’s share was to rise from 71 percent to 75 percent. ReaLemon’s 1974 Plan stated (CX 4, p. 864):

The share objectives are to reduce Golden Crown share by 20%. Realemon concluded that the above major metropolitan areas represented “high development of Golden Crown” and the “highest per capita consumption markets of lemon juice,” and that by aiming at those markets Realemon would have the following effect (CX 4, p. 864):

Decreasing Golden Crown effectiveness in these markets may result in significant reduction of expansion leverage.

Trade deal levels in the above four key areas of New York, Philadelphia, Chicago, and Detroit were to be continued at $2.25 per case, as part of the effort to reduce Golden Crown’s share by 20 percent, but trade deals in all other areas were to be reduced by approximately 30 percent (CX 4, p. 872).

124. The 1974 Marketing Plan reviewed the “overall advertising and promotion budget” for the years 1972 through 1974. The figures reviewed show [92] great increases in all categories of promotion, especially in the trade deal (price promotion allowance) areas, as follows:

1972 1972 1973 1973 1974 1974 $ % $ % $ % Bottled Lemon Juice 2197 81.3 2465 83.9 - 4147 90.5 Working Adv. 765 28.3 389 13.2 1201 26.2 PPA & _ Co-Op & FG. 1341 49.6 1961 66.7 2238 48.9 Consumer Promo. 0 0 21 7 558 12.2 Other Expenditures 91 3.4 94 3.2 150 3.3 See CX 4, p. 865. These great increases were directed at competition, had the purpose of maintaining ReaLemon’s predominant share of the processed lemon juice market, and were aimed in particular at Golden Crown (CX 4, p. 866). The Plan specifically stated that the “Trade Deals” and “Consumer Promotion” elements of the program 669 Initial Decision had an area of major effectiveness to “Directly Combat Golden Crown” (CX 4, p. 866).

125. Money for Realemon promotions was budgeted for 1974 at $2,888,000, an increase of $788,000 over 1973, which included $2,238,000 for trade deals and about $558,000 for consumer promotions (couponing) (CX 4, pp. 887-88; CX 288). This increase was clearly directed at competitive brands, in particular, Golden Crown (see, for example, CX 4, p. 866). Indeed, the expenditures of Realemon for advertising and promotion grew, between 1967, which year marked the “advent of competition” (CX 1, p. 646), and 1974, from $2,277,000 (CX 1, p. 646) to $4,379,000 (budgeted ~ see CX 288), an almost 100 percent increase.

126. As stated in earlier sections, in 1974 Realemon planned to increase its wholesale list prices, but not in the “highly competitive Golden Crown markets.” The 1974 Plan stated (CX 4, p. 878): [93] . . Realemon bottled 82 oz. will be increased in markets accounting for only 50% of total volume. The 50% of volume not increased represents the highly competitive Golden Crown markets concentrated in Region 1 and part of Region 2. 127. Robert Taft, former Regional Sales Manager for Realemon in the Northeastern United States, testified that Golden Crown was regarded as a serious threat to Realemon in the Northeast in 1972, and he considered that it was his objective as a Realemon employee to restrict the growth of Golden Crown insofar as necessary to maintain ReaLemon’s “historic market share.’”’ He estimated that in 1971 and 1972 ReaLemon’s market share in the Northeastern markets was in excess of 75% (Taft, Tr. 1817-19). 128. Realemon National Sales Manager expressed on many occasions in communications with Borden or Realemon personnel his determination to preserve ReaLemon’s traditional market position in the face of Golden Crown competition. In July 1974 ReaLemon’s National Sales Manager wrote to one of his Regional Sales Managers of his concern that ReaLemon’s share of the Pittsburgh market had fallen to 85% (CX 81, p. 7316): T am attaching the April/May and May/June SAMI figures for Pittsburgh. * * * * * * * The Golden Crown sales figures tripled . . . while our quart figures. . . went up very slightly.

At this time we have continued to go down in market share to where we are now at only 85%. I would like your comments.

277-685 O—79-——-47 730 . FEDERAL TRADE COMMISSION. DECISIONS Initial Decision 92 F.T.C.

[94] In October of 1971, the National Sales Manager wrote to Mr. Bud Crane about the Detroit market (CX 81, p. 7308): Isn’t there something we can do at the store level to slow them [Golden Crown] down a little.

In January 1972 he admonished ReaLemon’s New Orleans broker to do his best to see that Golden Crown did not secure any “placements” in the New Orleans area, as follows (CX 161): We know that you will stay right on top of this situation and do your best to see that they [Golden Crown] do not secure any placements but in the event they would, I know you will make certain we are clobbering them at retail. On June 6, 1972, ReaLemon’s National Sales Manager wrote to another Regional Sales Manager (CX 81, p. 7289): I trust that we are doing everything possible to see no further such quantities of Golden Crown are shipped into these [Miami, Jacksonville, and Birmingham] markets.

Several months earlier he had written to the Realemon broker in Detroit (CX 81, p. 7307): :

Do you have any brilliant ideas how we can more effectively combat this [Golden Crown movement] at the store level.

In November 1973 ReaLemon’s National Sales Manager reported to an official of the Borden Foods Division in the Chicago area on the progress of the effort to [95] restrain Golden Crown in major metropolitan areas in the Midwest, as follows (CX 81, pp. 7478-79; emphasis added):

CHICAGO I am confident that with the momentum we are building right now that we are going to be in excellent shape in 1974 to expand Realemon sales in the Chicago area and at the expense of Golden Crown.

DETROIT I am confident that we can pick up with some programs that are not only going to enhance our sales in the area but are going to substantially to detract from Golden Crown sales. :

* * * * * * * MILWAUKEE Milwaukee is pretty much the same as Indianapolis and here again, I think it is just a matter of getting a little more cooperation on the part of the trade during our promotions to again begin increasing Realemon at the expense of Golden Crown. 669 Initial Decision * . * * * * * * ST. LOUIS Golden Crown secured some new distribution in this area and as a result we slipped somewhat. . . . [W]e [96] are going to have to try harder to get straight truckloads of Realemon shipped to the major accounts in the area during our promotional periods and at the same time make certain that Realemon is the item to be promoted at key times during the year.

In another letter on the same date to a Borden Foods Division official in New York City, the Realemon National Sales Manager reported on progress restraining Golden Crown in major East Coast markets (CX 81, pp. 7439-40; emphasis added):

* * * * * * * PHILADELPHIA Tam confident that we can begin curtailing their [Golden Crown] growth. . . | * * * * * * * PITTSBURGH Here we have made nice progress not only increasing Realemon sales dramatically but also lowering Golden Crown’s share.

BOSTON . I am confident that from this point on we can contain any additional Golden Crown growth and begin rebuilding Realemon sales. [97] * * * * * * * BUFFALO .-- Tam confident . . . that our holiday promotion is going to start reversing this trend as I think Golden Crown has gone about as far as they can . .. and from hereon it is justa matter of getting Realemon promoted as often as possible which will not only increase our sales but at the same time begin substantially slowing down Golden Crown. 129. The Regional Sales Manager of Realemon based in Jacksonville, Florida, instructed the Realemon broker in Miami in January 1972 to take steps to retard Golden Crown expansion (CX 182): . .. The Golden Crown deal with Hills Bros. . . . You may use some free goods (QUARTS) to work the Hills stores. Order these quarts and make sure the large stores have floor displays on our quarts. Work this out to {sic] the price is at 69¢ with the free goods. If Golden Crown does not move at Hills, I am sure that Charley will not continue the deal until June 24th.

Initial Decision 92 F.T.C.

130. In August 1971 another Realemon Regional Sales Manager responsible for the Minneapolis area wrote the Realemon broker in that area planning methods to restrict or exclude Golden Crown, pointing out ReaLemon’s success in that effort elsewhere (CX 81, p. 7293): [98] In many areas where they [Golden Crown] attempted to gain a foothold we were quite instrumental by putting a concentrated effort at all levels in keeping their sales to a minimum and in many cases they left the market completely. B. Realemon Utilized Discriminatory Area Pricing and Promotions To Hinder and Restrain Competing Brands and To Maintain Its Monopoly Power | The record of this proceeding demonstrates a course of conduct undertaken by respondent Borden, through Realemon Foods, to hinder and restrict the ability of other processed lemon juice marketers, particularly Golden Crown, to compete in local and regional markets. The specific activities and practices revealed by the record took place primarily in the Northeastern region of the United States, and particularly in the cities of Philadelphia and Buffalo, and included the following:

1. Different list prices were maintained in different areas to combat competition 131. Realemon processed lemon juice is marketed under a zone pricing system. The country is divided into three zones, each with separate list prices. Zone 2 generally encompasses the Northeastern portion of the United States, Zone 1 includes North Central and Midwest states, and Zone 3 covers the South and West. In the past Realemon lemon juice has been priced up to 35 cents per case lower in Zone 2 than in Zones 1 and 3, which ordinarily have had identical prices (CX 37-54). Prices in Northeastern areas have been lower than those in the remainder of the country despite the fact that Borden’s average cost of manufacturing cases of Realemon quarts was 19 cents more at its Eastern plant than at its Chicago plant in [99] 1971, 17 cents more in 1972 and 4 cents more in 1973 (CX 293). Nor did this price differential result from a lower cost of distribution in the Northeastern region, for prices in that region were lower than those in the remainder of the nation even for goods sold FOB plant or picked up by the buyer at the plant (CX 37-54). In short, in the Northeast where Realemon faced Golden Crown competition beginning around 1971, Realemon maintained lower list prices than in the balance of the country.

BORDEN, INC. 733 669 ; Initial Decision 132. The price lists in the record show that Realemon had a uniform nationwide pricing system in 1967 and 1968 (CX 34-36), moved to a two-zone system in 1969 (CX 38), and instituted the present three-zone system in 1970 (CX 37, 39-54). Previously in the 1950’s prior to acquisition by respondent, Realemon had utilized zone pricing “to more closely meet the Sunkist [processed lemon juice] price” in the Eastern United States (Saving, Tr. 2586-87). In 1958 Sunkist retrenched in its processed lemon juice marketing because of the “highly competitive” situation it faced (Delaney, Tr. 682), and now markets that product in the Southwest, mainly California and Texas (Delaney, Tr. 681). The zone pricing system allowed Borden to maintain lower list prices in areas where it faced competitive pressures. See ReaLemon’s 1974 Marketing Plan, which has been quoted earlier, in which price increases were instituted in those portions of the United States where Realemon had little competition, but were not made in “highly competitive Golden Crown markets” (CX 4, p. 878). In other words, respondent Borden maintained lower prices in some geographic markets to combat competition of other processed lemon juice brands, particularly Golden Crown. [100] 2. Different promotional allowances were maintained in different areas to combat competition 133. Since at least 1969 Realemon has offered three or four trade promotions per year. These trade promotions were used primarily to increase sales of the 32-ounce size of Realemon reconstituted lemon juice (or the 24-ounce size in areas where it is the largest size sold), and usually covered the periods around Memorial Day, midsummer, and Thanksgiving-Christmas, with a fourth during Lent having been added in 1973 (CX 9-11, 14-20, 22-29, 31-33; Peters, Tr. 1787-88). Promotional allowances were offered on an off-invoice, bill-back, or off-invoice plus coupon basis, or a combination thereof (CX 9-11, 14- 20, 22-29, 31-38; Peters, Tr. 4465). Realemon sold approximately 71 percent of its largest selling 32-ounce size ‘on deal” in 1972, 84 percent in 1973 and an estimated 77 percent in 1974 (CX 4, p. 872). 184. Promotional allowances are intended to induce a retailer to promote the manufacturer’s product or to offer it for sale at a reduced price (Saving, Tr. 2516). Some of ReaLemon’s promotions did not require promotional services by the retailer, and buyers could accept the allowance, but promote the product only if to do so were of value to them (Saving, Tr. 2514-16). For those promotions which did require performance, one of the performance options was generally a Initial Decision 92 F.T.C.

reduced retail price (Saving, Tr. 2541). ReaLemon’s price promotions essentially amounted to price reductions (Peters, Tr. 4480). 1385. During the late 1960’s, ReaLemon’s price promotional allowances were offered on a uniform nationwide basis, and gradually increased from an average of 60¢ a case to about 90¢ per case (Peters, Tr. 4467-68). [101] 136. In 1971 Realemon switched from a uniform national promotion program to a policy of tailoring promotions to particular marketing areas, and increased the allowance in the summer of 1971 to $1.25 per case in 15 of its highest volume Eastern markets (CX 8, p. 783). It was in these Eastern markets that Realemon faced growing competition, and the increased allowance was intended to combat such competition by reducing the retail price spread between Realemon processed lemon juice and its competition in those areas (CX 1, p. 656).

137. After returning briefly to a nationwide promotional basis, Realemon for the 1972 Thanksgiving-Christmas program again began using local promotions and increased the level of its allowances on the 32-ounce and 24-ounce sizes in a number of metropolitan areas (Peters, Tr. 4470-71). Higher allowance levels of 90¢ per case for one promotion and $1.80 for two, were offered in New York City, Hartford, Philadelphia, Cleveland, Pittsburgh, Baltimore, Detroit and Chicago (CX 19, 23, 180). Of these cities all except Pittsburgh were listed as “Highly Competitive Markets” in ReaLemon’s 1973 Marketing Plan (which was written in September 1972). Pittsburgh was listed in that document as a “Moderately Competitive Market” (CX 3, p. 838). Allowances of 75¢ for one promotion and $1.25 for two, less than those mentioned above, but greater than those available in the remainder of the country, were offered in Milwaukee and Atlanta, two cities classed as “moderately competitive” (CX 19, 23, 180; CX 3, p. 838). The remaining less competitive areas of the nation were offered a substantially smaller allowance of 60¢ for one promotion and 90¢ for two (CX 19, 23, 180). [102] 138. ReaLemon’s President testified that the increased allowances offered during the Thanksgiving-Christmas period of 1972 were utilized in order to regain sales lost earlier in the third quarter of 1972, when allowance levels had been reduced to 60 cents per case (CX 22, 180), and to allow ReaLemon’s brokers, who were about to be replaced by Borden’s direct sales force, to increase their commissions in their final year (Peters, Tr. 4470-71). However, those reasons cannot apply to those areas where the allowance remained at the 60 cents per case level. It is clear from the Marketing Plans already BORDEN, LNC. (dd 669 Initial Decision discussed, on the contrary, that the increase in promotional allowance in selected markets in 1972 and later years was an effort to restrict sales of competing brands in those markets, primarily of Golden Crown, by lowering the price differential between Realemon and such brands.

139. In 1973 Realemon retained the promotional differentials, with the highest allowances available in its most competitive markets. During the spring promotion of that year, an allowance of $1.50 per case of quarts was offered in the highly competitive cities of the Northeast and North Central regions (CX 27-28, 180). In Philadelphia, the deal level was further increased after its announcement to the trade, when in March 1973 Borden’s Philadelphia district manager advised Borden’s customers that the announced 32ounce promotion would be raised to $1.80 (Sankey, Tr. 4731-32; RX 561). An even higher allowance level, of $2 per case of quarts, was offered in Atlanta, Florida and Dallas, with $1.50 levels prevailing everywhere else in the Southeast (CX 27-28, 180). Atlanta, Dallas and three cities in Florida, Miami, Tampa and Jacksonville, as well as several other cities in the Southeastern region, were listed as “Moderately Competitive Markets” in the 1973 Marketing Plan (CX 3, p. 838). Jacksonville/Tampa, Atlanta and Birmingham were also categorized as “Well Developed” Golden Crown markets in that same document (CX 8, p. 760). [103] 140. Deal levels prevailing in markets where significant competition was not present provided only for allowances of 50¢, 75¢ and 90¢ on 8-ounce, 16-ounce and 32-ounce sizes of Realemon, respectively (CX 27-29, 180). Promotion allowance levels were thus tailored to combat the particular competitive condition found in local or regional areas, with deal levels increasing markedly in those areas in which Golden Crown or another competitive brand of lemon juice was either a significant factor or attempting to establish a foothold. 141. ReaLemon’s policy of offering higher promotional allowances in areas experiencing competition from Golden Crown continued during the price promotion of July-August 1973. One of the options available to customers in New York City and the Philadelphia area was a $1.80 per case allowance on quarts plus one case free with every 15 purchased (CX 29; CX 4, p. 893). As had already been stated, Philadelphia was listed in the 1973 Marketing Plan as a “Highly Competitive Market” (CX 3, p. 838). New York City was also listed as “Highly Competitive,” and was ReaLemon’s | highest volume market in dollar sales (CX 3, p. 838). Other areas received substantially lower allowances than those granted in Initial Decision 92 F.T.C.

competitive areas in the North Central, Southern and Colorado’ regions (CX 29; see CX 3, pp. 760, 838).

142. The winter of 1973 saw promotional allowances reach their highest level of $2.25 per case in selected cities (Peters, Tr. 4473-76; CX 30). Such allowances were granted to customers in the Northeast and in the City of Chicago (the remainder of the district containing Chicago received only $1.20 per case). Florida, North Central areas and most large metropolitan areas were given allowances of $1.50, the remainder of these latter districts receiving allowances of 75¢ per case. Areas of the West in which little competition was present were offered allowances of only 60¢, 75¢ and 90¢ on the 8-, 16- and 24ounce sizes (CX 31).

148. The spring 1974 promotion followed the pattern of that in the winter of 1973, except that the highest allowance offered was $2. - New England, [104] New York City, Philadelphia and Chicago were offered this allowance. New York State, Western Pennsylvania, the Middle Atlantic States, Michigan, Indiana, Ohio, Florida and Denver received $1.80 per case; remaining areas were offered only from 90¢ to $1.50 per case (CX 33).

144. ReaLemon’s 1974 Marketing Plan identified four “key Districts,” accounting for a large percentage of both ReaLemon’s and Golden Crown’s sales volume, in which Realemon was determined to increase its market share at the expense of Golden Crown. It was hoped that checking Golden Crown in these areas would impair its ability to expand into other markets (CX 4, p. 864). In fact, three of these four cities, New York, Philadelphia, and Chicago, were among the five areas in the winter 1973 promotion, and four areas in the spring 1974 promotion, which were offered the highest allowances available, that is, $2.25 and $2 per case, respectively. The fourth of these cities, Detroit, received in both promotions an allowance of $1.80 per case, higher than that offered customers in many other areas of the nation (CX 31, 33; CX 4, p. 894). 145. In accordance with the strategies set forth in the marketing plans heretofore discussed, Borden used its price promotional allowance (PPA) program to combat Golden Crown and other brands of reconstituted lemon juice. Large per case promotional allowances, as described, much increased over levels prevailing before the advent of substantial competition from other brands of lemon juice, were offered in those areas where competition was present, while customers in areas not experiencing competition were offered much lower promotional allowances. ReaLemon’s customers treated the promotional allowances as net wholesale price reductions and took account of the allowances in calculating the net cost for the item BORVEN, LNU. tou 669 Initial Decision (Lemmerman, Tr. 978; Gerace, Tr. 1992-2021; CX 203-215; Moreland, Tr. 1036-1117; CX 219; CX 310; CX 312; H. Greenberg, Tr. 1214-38, 1248). These price [105] reductions were reflected in the retail price of Realemon. Prices on its 32-ounce size, which after an April 1971 price increase regularly ranged from 69 cents to 79 cents in supermarkets, with the reduced prices on “special” in the 59-cent to 69-cent range (CX 2, p. 677), declined to the 39-cent to 49-cent range in some markets in 1973 and 1974 as a result of the increased promotional allowances (CX 81, pp. 7306, 7458, 7461, 7463, 7471, 9038; CX 93, 101, 181-183, 188-189, 191, 312).

146. As emphasized herein, since Realemon was by far the dominant and premium brand, elimination or reduction of its retail] price, and the consequent narrowing or elimination of the price spread between it and brands with little or no consumer acceptance, had the capacity to hinder or stop sales of the latter. 3. Different net prices were charged different customers to combat competition Philadelphia 147. Acme Markets, with a 20 to 28 percent share of the Philadelphia retail grocery market, was the largest supermarket chain and price leader in that city (Vinocur, Tr. 2098-99: H. Greenberg, Tr. 1184). Philadelphia, as has previously been noted, was one of ReaLemon’s high volume markets and one listed in ReaLemon’s Marketing Plans as “Highly Competitive.” In 1972, 1973 and 1974, Realemon granted to Acme Markets in Philadelphia promotional allowances greater than those offered or given to competing Philadelphia area food retailers. The purpose and effect of the higher promotional allowances granted Acme in 1972 was to keep Golden Crown out of Acme supermarkets by, in effect, selling Acme its requirements of bottled lemon juice. An additional purpose after 1972, when Acme did stock [106] Golden Crown, was to hinder sales of the latter by narrowing or eliminating the price spread between Realemon and Golden Crown, as well as any other competing brands. The details of these promotional allowances are discussed below. :

148. Until the end of 1973, Realemon had a cooperative (“‘coop”) advertising allowance program in addition to its seasonal price promotional allowance programs (Peters, Tr. 4480-82). Under the coop program, customers would accumulate money for each case of Realemon purchased during the year. The accrual rates for 1971 through 1973 were 15 cents per case of quarts, 12 cents per case of 24- Initial Decision 92 F.T.C.

ounce bottles, 17 cents per case of 16-ounce bottles, 14 cents per case of 12-ounce bottles and 11 cents per case of pints (Peters, Tr. 4481; CX 62, 70, 74). A record of each customer’s accruals was maintained by Borden. The customer could earn and receive his money by © rendering advertising or promotional performance specified by agreement with Borden, and by submitting a request to Borden for payment (Peters, Tr. 4481; CX 62, 70, 74, 94-100). 149. In 1972 Acme Markets in Philadelphia was granted a 60cent. per case coop allowance for a special purchase of RealLemon quarts in May or June of that year. This amount is four times the normal 15-cent coop accrual on quarts. Acme sent its trucks to ReaLemon’s Bridgeton, New Jersey, plant to pick up the lemon juice and delivered the product directly to its stores. Mr. Taft, the Regional Sales Manager for Philadelphia, described the transaction and testified that although it was originally set up on a bill-back basis, he believed Acme had deducted the allowance from its payments for the order rather than billing back (Taft, Tr. 1299-1301, CX 303, p. 20).

150. During the same time period, Food Fair Stores in Philadelphia received a 50-cent per case coop allowance on Realemon quarts for the spring promotion (Taft, Tr. 1803-1304; CX 100; CX 308, p. 18). [107] 151. Mr. Taft testified that the higher allowance “could” have been given to Acme for competitive reasons, for most of the promotional programs were designed to “maintain ReaLemon’s position against increasing competition” (Taft, Tr. 1805-1308). At first Mr. Taft indicated that Acme received the extra 10 cents per case allowance because it picked up the lemon juice from the Realemon plant, but Food Fair also picked up from the Realemon plant as did most Realemon supermarket customers in the Philadelphia area (Taft, Tr. 1304-1305, 1809-1310, 1322-1323, Friedland, Tr. 1497-1498). The decision to offer Acme the 60-cent allowance was discussed with Mr. Saving, Realemon National Sales Manager, and Mr. Vinocur, Acme Accounts Executive for the Realemon broker in Philadelphia (Taft, Tr. 1808). Mr. Taft further testified that because of the allowance, Acme made a very heavy purchase of Realemon processed lemon juice. As a result, in Taft’s. words (Tr. 1310): .

. .The substantial distribution effectively shut out, for the summer, the purchase of Golden Crown because they [Acme] put so much in the stores they [Acme] weren’t going to be in the market until at least September or October. eae mn y eee 669 ; ; Initial Decision Q. They, being Golden Crown? A. They wouldn’t,be in the market to entertain another competitive lemon juice for some time.

Q. Acme would not be in the market? [108] A. Acme would not be in the market because the distribution of the range [sic] was substantial. If my recollection is correct, it was approximately 180 stores or 150 stores, and over a hundred of those got 2 pallets, which also, if my recollection is correct, would be 110 cases, and that is a fairly substantial amount to carry a single, given store for quite a time, depending on the weather. If you got 110 degree weather for a week, it might not be so long.

Because of Acme’s purchases of Realemon, Mr. Vinocur advised Mr. Taft, Acme was unable to take advantage of two “lucrative presentations,” presumably made by representatives of competitive lemon juices (Taft, Tr. 1810-11; CX 111). 152. Taft testified that Food Fair would have received the same 60-cent allowance given to Acme had Food Fair “achieved a similar performance figure” (as Acme), because it would “have helped our competitive situation there” (Taft, Tr. 1322). In other words, had Food Fair purchased a similar amount of product and distributed it directly to its stores, with the result that those stores “were what you might call stocked with lemon juice for a fairly considerable period of time” (Taft, Tr. 1324), it would also have received the additional allowance (Taft, Tr. 1322-24). Although Mr. Taft testified that there was no express agreement by Acme not to purchase a competitive lemon juice, it was his understanding that, as a result of the promotion, Acme would not purchase another brand at least for the year 1972, because it had purchased so much Realemon as not to need to purchase any other brand (Taft, Tr. 1841-42). In fact, Acme did not purchase Golden Crown processed lemon juice in 1972 (Moreland, Tr. 1020-21). [109] ;

153. In May of 1973, Acme purchased, in two transactions, 2,500 cases of Realemon quarts for which it paid a net price of $3.65 per case, which was list price of $6.45 less a $2.80 per case deduction taken off invoice (CX 219, pp. 218-230). At the time the listed promotional allowance of Realemon was $1.80 off invoice, producing a net price of $4.65 per case (RX 561). This was the price paid by Acme’s competitors, Frankford-Quaker and Penn Fruit (CX 218, p. 1; H. Greenberg, Tr. 1198-99).

154. In December 1973, Acme purchased 1,815 cases of Realemon quarts for which it paid $3.20 per case, which was list price of $6.45 per case less a $3.25 deduction taken off invoice (CX 219, pp. 288- 293). The listed Realemon promotional deal at the time, however, Initial Decision 92 F.T-C.

was only $1.00 per case off invoice plus $1.25 bill-back (CX 31), producing a total of $2.25 per case allowance received by Frankford- Quaker and Penn Fruit (CX 218, pp. 8-10; CX 312; H. Greenberg, Tr. 1200).

155. In the foregoing transactions, as the figures disclose, Acme received a lower price by $1.00 per case than Frankford-Quaker and Penn Fruit. As a result, not only were Acme’s orders of Realemon very substantial, but the retail price of Realemon in Acme supermarkets in the Philadelphia area was lowered to 39¢ per quart in December 1973, which may well have eliminated the price spread between respondent’s premium Realemon brand and competing brands, particularly Golden Crown, tending to hinder and restrict sale of the latter and tending to maintain or enhance ReaLemon’s historic market dominance (see CX 4, p. 855, where respondent’s 1974 Marketing Plan lists the average consumer cost of Golden Crown, quart size, in 1973 as 46¢ to 48¢). Ina letter to its stores, in connection with the second transaction above, announcing a reduced price feature of 39¢ (from a regular price of 55¢) on Realemon quarts from [110] December 16 to December 25, 1973, Acme stated that it had been granted an allowance of $3.25 per case (the full amount of its deduction) off invoice for 4 weeks (CX 93). Acme, as noted, is the dominant supermarket chain in the Philadelphia area and the price leader. ° 156. In connection with the foregoing findings, respondent Borden contends that the $1.00 per case more than the listed allowance which Acme took off invoice in May and December 1973 purchases is due to deductions by Acme of accrued coop allowances. Borden’s district sales manager in Philadelphia, Robert Sankey, testified that, with Borden’s acquiescence, Acme took all its Realemon allowances off invoice, deducting accrued coop monies periodically “as they saw fit” (Sankey, Tr. 4732-33). Whatever the fact may be in this respect (see proposed findings of complaint counsel, Nos. 164 and 186, and respondent’s reply memorandum at pp. A45-A51), Acme was allowed by Realemon Foods to deduct $1.00 per case off invoice which Frankford-Quaker and Penn Fruit were not, and such deductions by Acme were in direct contravention of Borden’s established procedures for the cooperative advertising program. To receive cooperative advertising payments, certain specific promotional efforts had to be undertaken, and proof of performance submitted to Borden with a request for payment, as follows (CX 70; see also CX 74):

Completed Certificate of Performance, with copies of proof of performance (tear sheets, store bulletins, T.V. or radio script, window banner, handbill, mailing BORDEN, INC. 741 669 Initial Decision material, etc. as applicable) must be submitted within 60 days after close of performance period. Certificate of Performance should be submitted to Realemon Foods by wholesalers, distributors, other direct buying customers and retailer [111] customers of non-participating wholesalers or distributors. Realemon reserves the right to refuse payment on all Certificates of Performance received 60 days after the end of the performance period.

In conformity with FTC Guide 13, Realemon Foods reserves the right to spot-check performance under this promotion. Realemon Foods will issue a check to the customer for promotional services rendered. No deductions from remittances will be allowed. Realemon Foods reserves the right to withdraw this offer at any time. Upon completion of performance, sign and submit Realemon Certificate of Performance along with proof of performance for payment under the terms of this offer to Realemon Foods, 1200 West 37th Street, Chicago, Illinois 60609. (Emphasis added.) Other accounts in the Philadelphia area, such as Penn Fruit, in accordance with Borden’s “Cooperative Merchandising Offer”, received payments of coop money by check from Realemon after sending a request for payment accompanied by proof of performance (RX 364, 365). The record contains no evidence that Acme was ever required by Borden to justify its deduction with proof of performance.

157. Acme markets in Philadelphia purchased quarts of ReaLemon reconstituted lemon juice at $4.20-$4.25 a case or $2.25 off list price in the spring of 1974 when other retailers in the Philadelphia market received only $2.00 a case off list price (CX 219, pp. 321-330, 332-36, 338, 340, 344, 346, 349, 350; Leahy, Tr. 886; CX 101A; CX 312). The Realemon published promotion for District 14, which includes Philadelphia, offered only $2.00 off invoice on cases of 32-ounce Realemon [112] purchased between April 22 and May 17, 1974 (CX 33). The deal was announced to Borden’s regional and district offices by Harold Saving, ReaLemon’s National Sales director, on February 28, 1974 (CX 383).

158. On February 13, 1974, Borden salesman, J. J. McNulty, offered Acme an allowance of $2.25 per case on orders made between April 22 and May 10 (CX 219, p. 321). Subsequently, on March 12, 1974, McNulty made Acme another offer of $2.00 per case allowance off-invoice plus an additional 25 cents off invoice for the regular purchase dates of April 22 to May 17, 1974, with a suggested retail feature price to the public of 43 cents (CX 219, p. 322). Acme began deducting the $2.25 per case from invoices dated March 21. Between March 21 and May 21, Acme was invoiced for almost 16,000 cases of Realemon quarts of $2.25 off list price and 25 cents over deal price (CX 219, pp. 823-330, 332-36, 338, 340, 342, 344, 346, 349, 350). 159. Frankford-Quaker and Penn Fruit, as already indicated, two of Acme’s competitors in the Philadelphia market (Vinocur, Tr. Initial Decision 92 F.T.C.

2093-94), purchased Realemon at $2.00 off invoice (the regular allowance) during the spring of 1974 (CX 101A; CX 312). Frankford- Quaker purchased 3,080 cases at deal ($2.00 off) price (CX 101A). Penn Fruit was offered $2.00 off invoice on one order shipped before March 20 and $2.00 off invoice on purchases between April 8 and May 17, 1974, and purchased 550 cases in March and an additional 2750 during the deal period (CX 312).

160. Again, the preferential treatment accorded Acme resulted in the movement of a very substantial quantity of Realemon bottled lemon juice, 16,000 cases worth $67,000 or more, into the Philadelphia market and onto the shelves of the area’s dominant supermarket chain. A reduced retail price of 43¢ per quart was [113] sought by Realemon, lower than the average retail of Golden Crown of 46¢ to 48¢ per quart in 1973, as noted earlier. The purpose and tendency to maintain ReaLemon’s dominant market position is evident. Buffalo 161. Niagara Frontier Services (“Niagara”) owns or franchises Tops Markets, which is the largest volume supermarket in the Buffalo, New York area (Gerace, Tr. 1982; Springer, Tr. 1847). It purchased Realemon quarts at a total net cost of $4.40 per case from 1968 to 1972, and the price it paid never exceeded $4.45 until August 1974 (Gerace, Tr. 2061; CX 203-215). It paid a low price of $4.05 per case for Realemon quarts in December 1973 (CX 212). Niagara’s grocery buyer testified that he bought Realemon quarts at the consistent price of about $4.40 per case during the entire period he was responsible for Niagara’s grocery purchases, from 1968 to 1972 (Gerace, Tr. 1984, 1991-92, 2023-26, 2061). In 1973 and 1974 Niagara also purchased Realemon quarts around $4.45 per case, except for a purchase in August 1974 which was at $4.85 per case (CX 211-214). According to Niagara’s grocery buyer, the competitive retail feature price of Realemon was 37 to 39 cents per quart in Niagara’s Tops Markets, and a $4.40 per case wholesale price was necessary to sell at that price level (Gerace, Tr. 2023-24, 2026). The established price at which Niagara bought the product through May 1974 was $4.40 or $4.45, as stated, and the Realemon broker used off-invoice allowances, bill-backs and free goods to get the price down to that level (Gerace, Tr. 2023-24).

162. In contrast, the prices paid for Realemon quarts by the wholesaler, S. M. Flickinger Co., which supplied competing retail grocery firms in the Buffalo area, including Super Duper Markets, the second or third largest supermarket chain in Buffalo (Gerace, Tr. 1982; Springer, Tr. 1847), were consistently [114] higher, often by as WU Adis, BATU. van 669 Initial Decision much as $1.00 or $1.50 per case except for one purchase in August 1974 (CX 204 through 214; CX 216).

163. In 1972, Realemon offered Niagara a coop allowance of 60 cents per case on cases of Realemon quarts purchased between January 1 and September 30 (CX 303, p. 24). Niagara, like Acme, was allowed by Borden to deduct this 60 cents per case off invoice throughout 1972, during which it purchased 5,500 cases (CX 204, 205, 210, 215).

164. The former Regional Sales Manager of Realemon responsible for the Buffalo area testified that the 60 cents per case allowance to Niagara was “very similar to the Acme picture [in Philadelphia]” (Taft, Tr. 1318). He described the effect of this transaction with Niagara (Taft, Tr. 1313-14):

. . .[Niagara} purchased this amount of course in sufficient volume to sustain them throughout, on this basis, an anticipated period of several months. Q. Asa result of this allowance did Niagara Frontier Services purchase unusually large quantities of Realemon during the period in question? A. The quantities were unusually large to be purchased in such a small period of time. Normally, the quantities would have been purchased over a longer period of time, had it not been for the allowance.

Q. Was the effect of this large purchase the same as you have noted with respect to the Acme situation? [115] A. To the best of my knowledge and recollection, there was no other competitive lemon juice sold by that concern called Niagara Frontier Services, at least, through October 1972. (Emphasis added.) As in the case of Acme, there was no explicit agreement between Niagara and Realemon that the former would not purchase a competing brand of lemon juice in return for an extra allowance (Taft, Tr. 1842; Gerace, Tr. 2052). Taft explained his understanding of the situation as follows (Tr. 1342-48): A. The situation between Acme and Niagara were similar, so whatever I actually stated with respect to Acme would apply there. It was.our: understanding or belief there were no agreements and nobody said, as a result of this promotion you cannot purchase any other lemon juice product — this was not done. This was done on a basis, assumption, that under this arrangement, with the purchases they would make, they would not really be in a position to buy anything else. It did not mean they couldn’t. (Emphasis added.) 165. Buffalo, like Philadelphia, was a city in which Realemon faced substantial competition from Golden Crown. As early as the 1971 Marketing Plan, it was noted that ReaLemon’s market share in Initial Decision 92 F.T.C.

Buffalo had fallen from 100 percent to 81.8 percent during 1970 in _ the face of competition from Golden Crown (CX 1, p. 640). [116] Miami 166. In early 1972 the Realemon broker in Miami and ReaLemon’s Regional Sales Manager in charge of that area took steps to obtain commitments from retail food stores to reduce Realemon retail prices on quarts to 69 cents (CX 130, 131). ReaLemon’s Regional Sales Manager wrote (CX 131):

In talking to the buyers, it looks like we definitely will be getting a 69¢ retail and we hope this will be one of the answers to eliminating some of our friends from the marketing. (Emphasis added.) 167. At about the same time, in a transaction already described, the Realemon Regional Sales Manager referred to a Golden Crown “deal” with a large supermarket, Hills Bros., stating (CX 182): The Golden Crown deal with Hills Bros. I mentioned to your Dad on the phone this week. You may use some free goods (QUARTS) to work the Hills stores. Order these quarts and make sure the large stores have floor displays on our quarts. Work this out to the price [sic] is at 69¢ with the free goods. [f Golden Crown does not move at Hills, I am sure that Charley will not continue the deal until June 24th. (Emphasis added.) This action of Realemon plainly was for the purpose of preventing “movement” of Golden Crown in the Hills Bros. supermarkets by lowering the retail price of ReaLemon’s premium brand. [117] 4. Sales were made at unreasonably low prices to combat competition Complaint counsel have attempted to prove that Borden engaged in predatory conduct by selling ReaLemon’s 32-ounce size to Acme markets in Philadelphia and to Niagara Frontier Services (Tops Markets) in Buffalo at prices below Borden’s average variable costs for that product (see Dr. Mann, Tr. 494-98). 168. Costs of manufacturing a product can be divided into two types: fixed costs and variable costs. Variable costs are those which vary. with the. level of product or output, such as the costs of ingredients, containers, labels and labor incurred in producing the product, packing charges paid to third parties for supplying the labor for manufacturing a product, distribution or shipping costs, and that portion of selling expenses which varies with level of production or output (Dr. Mann, Tr. 905-906; Goluszka, Tr. 4458-54; Dr. Greenberg, Tr. 2791-93; Dr. Kamien, Tr. 5766). Average variable cost refers to the total of variable costs divided by the product output of a BORDEN, INC. 44d 669 Initial Decision firm over some period of time (Dr. Mann, Tr. 905; Dr. Greenberg, Tr. 2791). Short-run average variable costs are those costs incurred once the production unit of the plant is completed and ready to begin operations (Dr. Mann, Tr. 905).

169. Fixed costs are those costs which do not change within a relatively short period of time with the level of production or output (Dr. Kamien, Tr. 5766; Goluszka, Tr. 4453; Dr. Greenberg, Tr. 2791). Manufacturing overhead and administrative overhead are both fixed costs (Goluszka, Tr. 4454; Dr. Greenberg, Tr. 2792-93). To the extent _ that selling expenses include costs which do not vary with output or production, such as salaries to salesmen or the cost of their office space, they are fixed costs [118] (Goluszka, Tr. 4454; Dr. Greenberg, Tr. 4701). Promotional expenses which do not vary with output or production, such as point-of-sale material, are fixed costs (Goluszka, Tr. 4454).

170. Complaint counsel and respondent introduced into evidence differing computations of Borden’s average variable costs of producing cases of Realemon quarts distributed in eastern markets supplied from ReaLemon’s Minot and Comstock plants during 1971, 1972 and 1973. Complaint counsel’s formulation (proposed finding 183, p. 100) is as follows: [119] 277-685 O—79——48 1$10n Initial Dec (€62 Xo @oOrNOS) queudtys qoeI1TG peqngtsz4sta “a W 02° oT’? cl’ 96°E -€0°P yB°E 9E°D ce°y 6E°P cto Te? eT’? 9T° 9T° 9e° 9° Te’ Te° Te’ Te’ Le° Le’ Le’ Le° 80P° Bop: 88T° 8st” SLT° SLT° L9S° 49s" SSP° SSb° cSb" csp"

LLT’ - ost’ - LLT’ - - 90T° - 840° - S80"

€80° €60° 920° LL0° T80° LLO° vot T €stt T60°T S9TT°T 6L40°T oso 'T 9S6°T L68°T LS6°T 998°T 9€6°T Tre 't YOO soy Obeotyo 3OUTH «“ObeoTYD JOuTWH ObeotyD €L6T cL6T TL6T STqetaen obersay Sutstzraapy SuTTTas dtys 300atq “a uoTINGTAAsTa *W Buryoeq “gq zoqey “Ww TeqeyT zeuTe{UOD sSquetperbuy S350D OTqetaey sotne uowsa'y pezRNaTAsSuocoay uowseyesy ZO5 1 28 1 1 2 718 1440 27 85 42.666252 ZE/2T5 1 28 1 1 3 721 1550 20 71 63.017254 48005 1 28 1 1 4 718 1642 22 146 0.000000 OTqetaen5 1 28 1 1 5 719 1809 24 128 0.000000 ObeaIsAY2 1 29 0 0 0 1491 2274 26 26 -1 3 1 29 1 0 0 1491 2274 26 26 -1 4 1 29 1 1 0 1491 2274 26 26 -1 5 1 29 1 1 1 1491 2274 26 26 59.194164 (22 1 30 0 0 0 1418 2273 31 48 -1 3 1 30 1 0 0 1418 2273 31 48 -1 4 1 30 1 1 0 1418 2273 31 48 -1 5 1 30 1 1 1 1418 2273 31 48 74.258545 (92 1 31 0 0 0 1273 2270 26 26 -1 3 1 31 1 0 0 1273 2270 26 26 -1 4 1 31 1 1 0 1273 2270 26 26 -1 5 1 31 1 1 1 1273 2270 26 26 80.150299 (s BURUDIEIN, LINU. . ime 669 Initial Decision [120] 171. Complaint ‘counsel’s computations, as indicated in the chart, are based on CX 293, which shows a breakdown of the average total cost on a national basis of producing cases of 32-ounce Realemon reconstituted lemon juice for the years 1971, 1972 and 1973 at ReaLemon’s Chicago plant and for its east coast co-packing operations (Goluszka, Tr. 4445-4452). During the years 1971 to 1973 Borden produced Realemon bottled lemon juice at its plant in Chicago, and had a co-packing arrangement with Minot Packing in Bridgeton, New Jersey, for production of Realemon in 1971, 1972 and the first part of 1973. During 1973 the co-packing operations were moved to Comstock Foods, a Division of Borden, in Waterloo, New York (Goluszka, Tr. 4446). The Realemon product sold in Buffalo and Philadelphia from 1971 through 1973 was produced at Minot or Comstock rather than in Chicago (Goluszka, Tr. 4452). Both parties have used the Minot/Comstock figures in their calculations of Borden’s costs. ;

172. CX 293 was prepared from Realemon records for the use of Realemon executives by Mr. Ted Goluszka, Financial Manager of Realemon Foods. Mr. Goluszka was charged with responsibility for the accounting and data processing functions at Realemon, and records were maintained under his supervision which reflect the cost of manufacturing Realemon reconstituted lemon juice. These records were used to keep Melvin Peters, President of Realemon, informed of current costs of manufacture (Goluszka, Tr. 4443-45). The document was surrendered to complaint counsel pursuant to a request for such documents as would show an “estimate of the average total cost” of manufacturing Realemon (Tr. 4711), and purports only to list the “Average Annual Cost of 12/382 Oz. Realemon Reconstituted Lemon Juice” (CX 293). Complaint counsel prepared the accompanying chart by taking from CX 298 those items considered by Dr. Warren Greenberg, already mentioned, to be variable costs (Dr. Greenberg, Tr. 4693). [121] 173. Respondent Borden relies on RX 654, another document prepared by Mr. Goluszka (Goluszka, Tr. 4456), for its calculation of average variable cost. This document is also based on CX 298, with certain adjustments made to isolate variable costs from fixed costs (Goluszka 4454). Average variable costs as shown on RX 654 are as follows: [122] “7B°Es uey} Jeuzer Eg°Es OR pabueyo vseq sey ,3SOD PTQeTIeA Tenuuy eheraay, TOF aanHtz Teutz ay ‘AT butpzosoe .!peaqzoerz00 uaeq Sey Wet STYUL *(PB-E89G FAS 3nq ‘649G BYZSNTOD) ps95 1 2 3 1 14 1847 2056 20 33 62.481323 XY5 1 2 3 1 15 1852 2112 15 35 92.190102 UO5 1 2 3 1 16 1845 2168 22 89 36.159157 UAMOYS4 1 2 3 2 0 1806 521 31 1737 -1 5 1 2 3 2 1 1811 521 17 54 61.118778 SPM5 1 2 3 2 2 1812 596 16 33 44.486458 SB5 1 2 3 2 3 1806 650 22 49 38.564812 PZ’5 1 2 3 2 4 1806 724 22 70 12.709923 Uey5 1 2 3 2 5 1807 816 22 107 16.582962 JeyzeEI5 1 2 3 2 6 1807 947 22 48 89.916412 Gz’5 1 2 3 2 7 1808 1021 20 36 89.578255 aq5 1 2 3 2 8 1807 1077 22 106 47.245537 pTNoYys5 1 2 3 2 9 1810 1205 26 90 7.452194 Azjus5 1 2 3 2 10 1809 1317 21 69 19.507004 STYyR5 1 2 3 2 11 1810 1410 25 181 0.000000 sernpacord5 1 2 3 2 12 1809 1612 27 143 8.239731 butpunoz5 1 2 3 2 13 1810 1780 21 142 4.231918 pazepueqjs5 1 2 3 2 14 1812 1946 20 34 66.373917 035 1 2 3 2 15 1810 2001 27 164 0.000000 butpzoooe5 1 2 3 2 16 1810 2187 22 71 0.000000 ZeyW4 1 2 3 3 0 1770 504 29 1753 -1 5 1 2 3 3 1 1770 504 21 143 5.387230 papaoucs5 1 2 3 3 2 1771 669 21 146 33.513962 eByxzSNTOD5 1 2 3 3 3 1771 859 25 101 0.000000 “gyz'°s5 1 2 3 3 4 1772 983 20 37 61.600300 eq5 1 2 3 3 5 1774 1040 19 32 92.493309 OF5 1 2 3 3 6 1772 1096 21 68 87.537262 ELET5 1 2 3 3 7 1772 1186 21 34 92.571678 UT5 1 2 3 3 8 1772 1243 27 218 6.234352 eTYATEepeTtyd5 1 2 3 3 9 1772 1482 22 33 91.426895 ut5 1 2 3 3 10 1775 1539 20 70 10.125237 3S005 1 2 3 3 11 1773 1633 11 9 43.907028 ,5 1 2 3 3 12 1773 1650 22 234 0.000000 UOTANGTIAASTG,5 1 2 3 3 13 1775 1908 21 35 87.773712 JO5 1 2 3 3 14 1777 1965 19 107 33.852592 JuNOWe5 1 2 3 3 15 1775 2094 22 52 0.000000 BYyy5 1 2 3 3 16 1775 2168 23 89 69.677872 Smoys4 1 2 3 4 0 1733 693 40 1572 -1 5 1 2 3 4 1 1735 693 24 104 89.386032 ‘peseq5 1 2 3 4 2 1734 817 23 32 91.997131 ST5 1 2 3 4 3 1735 872 22 52 51.983334 pS95 1 2 3 4 4 1737 945 20 34 42.500233 XY5 1 2 3 4 5 1735 1002 22 92 85.694618 YOTYM5 1 2 3 4 6 1741 1112 17 36 85.555794 UO5 1 2 3 4 7 1736 1169 23 219 0.000000 SuoTzepTHoTed5 1 2 3 4 8 1733 1410 40 181 0.000000 SurAtTsepun5 1 2 3 4 9 1738 1613 22 52 14.348106 aya5 1 2 3 4 10 1738 1687 22 87 89.419243 smoys5 1 2 3 4 11 1738 1797 22 92 84.501656 yotum5 1 2 3 4 12 1739 1914 27 66 8.658524 ‘z7°d5 1 2 3 4 13 1738 2007 26 59 33.374397 “(e)5 1 2 3 4 14 1740 2080 22 45 31.692741 pss5 1 2 3 4 15 1741 2148 20 34 54.906624 XU5 1 2 3 4 16 1735 2224 34 41 25.023033 ES2 1 3 0 0 0 1720 1886 8 376 -1 3 1 3 1 0 0 1720 1886 8 376 -1 4 1 3 1 1 0 1720 1886 8 376 -1 5 1 3 1 1 1 1720 1886 8 376 95.000000 2 1 4 0 0 0 944 268 757 31 -1 3 1 4 1 0 0 944 268 757 31 -1 4 1 4 1 1 0 944 268 757 31 -1 5 1 4 1 1 1 944 273 165 26 96.542145 FEDERAL5 1 4 1 1 2 1126 271 120 27 96.229233 TRADES 1 4 1 1 3 1264 270 230 28 96.269333 COMMISSIONS 1 4 1 1 4 1512 268 189 28 96.393997 DECISIONS2 1 5 0 0 0 663 276 50 26 -1 3 1 5 1 0 0 663 276 50 26 -1 4 1 5 1 1 0 663 276 50 26 -1 5 1 5 1 1 1 663 276 50 26 95.756042 7482 1 6 0 0 0 1372 362 70 18 -1 3 1 6 1 0 0 1372 362 70 18 -1 4 1 6 1 1 0 1372 362 70 18 -1 5 1 6 1 1 1 1372 362 70 18 49.571957 1810n2 1 7 0 0 0 1200 355 170 26 -1 3 1 7 1 0 0 1200 355 170 26 -1 4 1 7 1 1 0 1200 355 170 26 -1 5 1 7 1 1 1 1200 355 95 26 95.682426 Initials 1 7 1 1 2 1315 355 55 25 94.227997 Dec2 1 8 0 0 0 1638 518 21 1743 -1 3 1 8 1 0 0 1638 518 21 1743 -1 4 1 8 1 1 0 1638 518 21 1743 -1 5 1 8 1 1 1 1638 518 21 1743 95.000000 2 1 9 0 0 0 1508 518 6 300 -1 3 1 9 1 0 0 1508 518 6 300 -1 4 1 9 1 1 0 1508 518 6 300 -1 5 1 9 1 1 1 1508 518 6 300 95.000000 2 1 10 0 0 0 1281 518 5 96 -1 3 1 10 1 0 0 1281 518 5 96 -1 4 1 10 1 1 0 1281 518 5 96 -1 5 1 10 1 1 1 1281 518 5 96 95.000000 2 1 11 0 0 0 1510 964 5 95 -1 3 1 11 1 0 0 1510 964 5 95 -1 4 1 11 1 1 0 1510 964 5 95 -1 5 1 11 1 1 1 1510 964 5 95 95.000000 2 1 12 0 0 0 1510 1147 6 96 -1 3 1 12 1 0 0 1510 1147 6 96 -1 4 1 12 1 1 0 1510 1147 6 96 -1 5 1 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70°5 1 25 1 2 6 1577 1521 34 69 0.000000 Bse€ L6"es$ 3S0D eTqeTzaepn Tenuuy eberaay 9e° 92° ze" ze" Te" Te* ‘dxg butTTas ebesraay Se LT’ (¢) ‘OF* 0 . 6e° uoTyndtaqstgd zero cere’ oere O£’e Le°e L2°e PTOS Spool Fo . q8s09 eberaay Tei9OL LLT* LLT° Ost’ ost’ LLT° LLT° buryorg ebezeay €80° €80° 940° 910° T80° T80° Teqel] abereay PpOT‘’T POT’T T6o°T T60°T 6L0°T 6L0°T JauTequoD ebesraay 9S6°T 9S6°T Ls6°T £S56°T 9€6°T 9€6°T Squetpeibur ebereay erTydytspeTtyd oTeygng erydTepertyq opessng erudjtepettyd oTessnd yoORFSUOD JOUTW 3OUTW eLet 2L26T TL6T Botnp wouley peynyyTysuosseyY puerq uolieTesy “20 2E/eT ASOD eTAeTAeA TeENUUY eHereay DYAVWWILYIIN, LIVU. ite 669 Initial Decision [123] 174. Borden’s formulation of average variable cost differs from that of complaint counsel in three ways. First, Borden treated advertising as a fixed cost, whereas complaint counsel treated it as a variable cost. Dr. Greenberg testified that although there is some controversy among economists as to this issue, in his opinion advertising is a variable cost. He stated that in many cases, advertising expenditures will vary with a firm’s output. At zero output advertising costs are usually zero, while the largest firms in an industry are generally the ones which advertise the most (Dr. Greenberg, Tr. 4712).

175. Citing for support a law review article, Areeda and Turner, “Predatory Practices under Section 2 of the Sherman Act,” 88 Harv. L. Rev. 697 (1975), Dr. Greenberg stated that the method by which a company treats advertising on its books is an indication of whether advertising expenditures should be treated as a fixed or variable cost. Borden treats its advertising as an expense, rather than as an investment. Therefore, Dr. Greenberg stated, advertising should be treated as a variable cost in this case (Dr. Greenberg, Tr. 4713-14). ‘Dr. Greenberg also cited economic literature which suggests that advertising is a variable cost, but in contexts other than a discussion of the components of average variable cost (Tr. 4694-97). However, he conceded that economists or accountants do not typically treat advertising as a variable cost (Tr. 4696). 176. Respondent Borden, on the other hand, treated advertising expenditures as a fixed cost (Goluszka, Tr. 4454). Dr. Morton Kamien, a Professor of Managerial Economics and an expert witness for respondent, testified that he considers advertising to be a fixed cost, and that his opinion is an accepted one among economists (Dr. Kamien, Tr. 5767). [124] 177. Borden’s Realemon advertising expenditures are not in fact related, at least in the short-run, to the level of its output. Mr. Goluszka testified that the level of advertising for Realemon was set at the beginning of the year and maintained throughout the year regardless of the number of units produced during that period (Goluszka, Tr. 5662). Yearly expenditures for Realemon advertising increased in 1972 although production dropped, and decreased in 1973 while production increased (CX 288, CX 292). 178. In rebuttal] to Dr. Greenberg’s testimony about the possibility of treating advertising as an investment, John Dillon, a certified public accountant and Price, Waterhouse partner, testified that in his 15 years’ experience he is not personally familiar with any company which treats advertising cost as anything other than an expense item, and that in his opinion it is proper only to expense Initial Decision 92 F.T.C.

advertising in the year incurred, and not to defer or capitalize in any way advertising cost (Dillon, Tr. 4864). Dr. Greenberg himself stated that he knows of no company which treats advertising only as an investment (Tr. 4716-17).

179. Based on the foregoing, the undersigned finds that advertising was not a variable cost in the case of Realemon, and should not be included in a calculation of ReaLemon’s average variable cost for production of its bottled lemon juice.

180. The second difference between Borden’s formulation of average variable cost and that of complaint counsel is the following. Borden considered only a portion of the cost of average selling expense found in CX 2938 in its calculation of average variable cost (Goluszka, Tr. 4456-58). Complaint counsel, based on Dr. Greenberg’s testimony that he understood that the selling expense item [125] was composed solely of commissions paid to salesmen or brokers (Dr. Greenberg, Tr. 4700-4702), included the entire item in their calculation of average variable cost. However, Mr. Goluszka, who prepared CX 293, testified without contradiction that selling expense contains elements other than commissions, such as salesmen’ salaries and their administrative costs (Goluszka, Tr. 5672-74). Dr. Greenberg admitted in his testimony that salary and administrative sales costs would constitute fixed costs which properly should be excluded from the average variable cost equation (Tr. 4701-4702). Borden’s RX 654 eliminates these elements of fixed expense and contains only the variable expenses of commissions paid to brokers or salesmen (Goluszka, Tr: 5671-74; RX 654(a), p. 3). That figure is the one adopted in these findings.

181. Complaint counsel attack Mr. Goluszka’s inclusion only of commissions paid to Borden salesmen in his calculation of 1973 selling expense (RX 654(a), p. 3). Mr. Goluszka testified that he did not know whether Realemon employed any brokers in that year (Goluszka, Tr. 5674), and complaint counsel point out that CX 79 shows ten brokers were retained by Borden for sale of Realemon reconstituted lemon juice. That exhibit, however, shows that no brokers were retained in Buffalo or Philadelphia, the cities in which below cost sales are alleged to have been made, or anywhere on the East Coast (CX 179). This discrepancy, therefore, does not cast substantial doubt on the accuracy of the selling expense figure contained in RX 654 as it pertains to the issues raised in this case. 182. The final area of disagreement between Borden and complaint counsel concerns the treatment of distribution costs. Complaint counsel used the distribution costs found in CX 293. Average distribution costs in that document were computed by DUVALL. ve 669 Initial Decision allocating total distribution and warehousing costs [126] against all Realemon product shipped throughout the country, to arrive at a “one weight” basis or standard figure which was then allocated to the 382-ounce equivalent product. Average “Direct Ship” is a subdivision of total distribution costs, which refers to shipments ‘made directly to customers, bypassing the normal distribution system (Goluszka, Tr. 4449-50). For a reason not wholly clear from their findings, complaint counsel used a “direct shipment” cost for Acme and a “distributed” cost for Niagara in calculating the cost of supplying those accounts (compare complaint counsel’s findings 186- 87 with 183). Dr. Greenberg, on the contrary, indicated that he would use the “average direct ship” figure for sales in both Philadelphia and Buffalo (Tr. 4702-4704).

183. Borden, on the other hand, attempted to determine the actual distribution costs incurred in selling to Acme and Niagara, rather than using the average nationwide cost. Borden asserts in its proposed findings (No. 244) that products sold to Buffalo customers which purchased in large quantities, such as Niagara, were shipped in carload lots directly from the Minot or Comstock plant, while products sold to large customers in Philadelphia, such as Acme, were picked up by the customer while the Bridgeton plant was in operation, and thereafter shipped in carload lots from Comstock. RX 654, therefore, reflects as distribution costs the carrier rates for carload shipments to Buffalo from Comstock or Bridgeton and to Philadelphia from Comstock in 1973. Since, it is claimed, Realemon incurred no distribution costs when Philadelphia customers picked up at the Bridgeton plant, no rate is specified for those sales (Goluszka, Tr. 4457-58; RX 654(a), pp. 1, 2). 184. Mr. Goluszka testified that ReaLemon’s average variable cost is usually computed from the total costs for all Realemon Foods plants nationally, rather than on a city-by-city basis (Goluszka, Tr. 5660-61), and freely conceded that his calculations [127] in RX 654 apply only to those companies taking delivery by the method assumed, and from the common carrier whose rates were used, in making the calculation (Goluszka, Tr. 5674-79). It is also clear from the record that Realemon did not consider its actual cost of serving Acme and Niagara at the time the sales in question were made. RX 654 was prepared solely for the purposes of this litigation (Goluszka, Tr. 4454-4460). Dr. Greenberg testified that in determining distribu- _ tion costs for various customers it would be preferable to have information as precise as possible with regard to actual shipping costs rather than to rely on average shipping costs for all customers (Dr. Greenberg, Tr. 4709-4710). It is determined, therefore, that it is Initial Decision 92 F.T.C.

proper for respondent Borden to attempt to isolate the variable cost of those sales made to particular customers which are alleged to have been below variable cost.

185. The cost estimates for Philadelphia which are contained in RX 654 apply only to a company picking up from the Bridgeton plant in 1971 or 1972, and taking delivery from Comstock in 1973 by the Todds Transport Company (Goluszka, Tr. 5692). The distribution costs for Buffalo found on RX 654 were computed using the full truckload rates of LoBiando Motor Express (Goluszka, Tr. 5678). However, the record does not establish that Acme and Niagara received all their deliveries in the manner assumed for the purpose of RX 654. A comparison of the invoices contained in the record with Borden’s price lists (CX 37-54) shows that Acme received all its shipments of Realemon quarts recorded in the invoices from Minot at the FOB plant or ex-plant pickup price in 1971, 1972 and the first part of 1973 (see CX 219, pp. 1-216), and received a number of shipments in 1973 from Comstock at the price applicable to carload ' delivery (see CX 219, pp: 218, 225, 240, 252, 288, 295, 301, 305). Acme also received some shipments in 1973 [128] from Acme’s warehouse in Hanover, Pennsylvania (CX 219, pp. 282, 244, 256, 263, 277; Sankey, Tr. 4811), and some deliveries at a charge for less than carload lots (CX 219, pp. 256, 268, 271). Mr..Goluszka testified that transportation costs for less than full truckloads are higher than full truckload rates (Goluszka, Tr. 5682-83), and that the cost of storing a finished product is a variable cost (Goluszka, Tr. 5666). However, neither of these costs is reflected in RX 654 (Goluszka, Tr. 5667, 5692). Thus, respondent Borden’s variable cost figures for Acme are slightly understated for 1973.

186. The invoices contained in the record show that, in accordance with the assumptions underlying RX 654, Niagara bought Realemon reconstituted lemon juice from Minot in 1971 and 1972 at the list price for carload deliveries (CX 203-210). In 1973, however, one sale was made from Comstock at the delivered price (CX 211, 215). In one other instance Niagara received product from Comstock at the plant pick-up list price (CX 212). The invoices thus support the conclusion that the cost estimates for Niagara contained in RX 654 are generally reliable, and are perhaps slightly overstated for 1973. 187. In the opinion of the undersigned the evidence establishes that Borden did not sell its Realemon processed lemon juice at a price below average variable cost in Buffalo. The sale in that city alleged by complaint counsel to have been below average variable cost was one made to Niagara in December 1973 at a net price of $4.05 per case (CX 212; Gerace, Tr. 2011). However, Borden’s 1973 DUDVLDIN, LIVU. uu 669 Initial Decision average variable cost for that sale, according to RX 654, which has been found to be reasonably accurate, was $3.75, or 20 cents below the price paid by Niagara. Even if Borden’s national average cost for direct shipment found in CX 293, 40.8 cents, is substituted for the distribution cost of 25 cents in RX 654, the average variable cost would be $3.99, or 6 cents below the price given to Niagara. [129] 188. The parties are not in agreement as to the lowest net price paid by Acme for Realemon quarts in 1973. Complaint counsel contend that Acme made a purchase in December 1973.at a net cost of $3.20 per case and two purchases in May of that year at a net cost of $3.65 per case (complaint counsel’s proposed finding No. 186; CX 219, pp. 218-231, 288-293). Sales at these prices would be below even Borden’s statement of its costs (RX 654). Acme deducted $2.80 from the invoice list price of $6.45 in the May transactions for a net payment of $3.65 per case, and deducted a total of $3.25 per case, including a $1.00 per case off-invoice promotional allowance, from the invoiced list price of $6.45 per case for a total net payment of $3.20 per case on the December transaction (CX 219, pp. 218-231, 288-293). As has been previously discussed, $1.00 per case of the ‘deductions made by.Acme in each of these transactions was claimed to be accrued coop allowances which were deducted in the aggregate, rather than a $1.00 per case price concession granted to Acme on these particular purchases.

189. Itisclear from the record, as previously found, assuming the $1.00 deducted per case by Acme was accrued coop money, that such deduction was permitted by Borden although it violated the provisions of the cooperative merchandising program which required payments of coop funds to be made by check, after proof of performance was submitted, with no off-invoice deduction to be allowed (CX 70, 74, 94-100).

190. Accepting the $1.00 per case deducted by Acme in the foregoing transactions as accrued coop money, the lowest price paid by Acme in 1973 was $4.05 per case, or the list price of $6.45 less a $2.25 promotional allowance (see CX 31), less 15 cents per case cooperative advertising allowance. [130] 191. Borden’s calculation of its variable cost of sales to Acme in 1973 was $3.83, or 22 cents below the lowest sale price. If one adds to that cost estimate the difference between Borden’s national average cost of direct shipment from CX 298 and the distribution cost found in RX 654, the average variable cost is $3.99, or only 6 cents below the sale price to Acme of $4.05.

192. Complaint counsel do not allege any other sales below cost. In summary, in the opinion of the undersigned, the record does not Initial Decision 92 F.T.C.

establish by a preponderance of the evidence that Borden sold Realemon processed lemon juice at a price lower than its average variable cost of producing that product.

193. The record does establish, however, that Borden sold lemon juice to Acme markets in Philadelphia and to Niagara Frontier Services (Tops Markets) in Buffalo at an extraordinarily low price. The lowest price which the record shows was given to another Philadelphia supermarket was $4.20, given to Frankford-Quaker (CX 218, pp. 6, 8, 9, 10). In Buffalo, the lowest price reflected in the record which Flickinger received in 1973 was also $4.20 (CX 216, pp. 13-16). The $4.05 per case price is close to ReaLemon’s National average per case cost on a direct shipment basis. This cost appears to have been the only data available to Borden management at the time the subject sales were made. As previously stated, ReaLemon’s financial manager, Mr. Goluszka, testified that he generally computed the company’s average costs using nationwide data from all Realemon plants (Goluszka, Tr. 5660-61). Thus, at the time of the sales in question, Borden either failed to consider its cost before agreeing to the low sale prices, or knew that it was selling very close to the cost figures reflected in the data that was then available to it. [131] 194. As has previously been described and found, Realemon commands a price premium over other brands of processed lemon juice. Nielsen data for 1973 indicated that Realemon sold for 10 to 21 cents more than Golden Crown in the 32-ounce size in Eastern and North Central area markets (CX 4, p. 873). The Realemon Foods president stated in ReaLemon’s 1972 Marketing Plan, as also described earlier, that in a “completely unique situation” Realemon lemon juice commanded a premium of 25 to 30 cents per unit over competitive brands (CX 2, p. 665).

195. Realemon received from its brokers and employees competitive information with regard to Golden Crown promotional levels (CX 81), and attempted to analyze Golden Crown’s cost structure. In 1972 Realemon estimated that Golden Crown’s cost of goods alone (including a 20 percent reduction in the cost of ingredients for suspected adulteration)? was $2.83 (CX 3, p. 762). Adding the cost of distribution, selling and overhead, ReaLemon’s estimate of Golden 2 In fact, Golden Crown’s reconstituted lemon juice was adulterated with citric acid and sugar, and respondent Borden's suspicions in this respect were well founded. The evidence proves beyond question that Golden Crown routinely, at least during significant production periods, manufactured its reconstituted lemon juice using substantial amounts of citric acid and sugar, and the undersigned so finds. See the testimony of Scotellaro, Tr. 3559-3705 and Bello, Tr. 3740-3784, and RX 12, pp. 1 through 56, RX 13, pp. 1 through 19, RX 560, pp. 1-2; see also respondent's proposed findings 7 through 14, pp. 11 through 15, which are accurate on this issue. Scotellaro and Bello were former workers in the Golden Crown plant. Their testimony was thoroughly credible, and was backed up by completely convincing documentary evidence. There was no disclosure, it may be noted, on the Golden Crown table of the presence of sugar and citric acid. ‘BORDEN, INC. 755 669 Initia] Decision Crown’s cost was $3.74 (CX 3, p. 762). Paul Hansfield, Golden Crown’s president, estimated in late 1973 or early 1974 that its costs were $3.11 before freight and selling expenses, and approximately $4.00 including those items (CX 145; Hansfield, Tr. 137-148). ReaLemon’s estimate of Golden Crown’s costs were thus relatively accurate. [132] 196. Like any other marketer Golden Crown had to provide a satisfactory retailer markup in order to secure distribution, shelf space, display and feature activity. According to Realemon’s sources, the markup was 20 percent to 30 percent in 1972 and 1973 (CX 3, p. 763; CX 4, p. 855). In the words of former ReaLemon’s broker, Alan Wrisley, “[t]here is only one reason why a retailer would want to stock another brand [in addition to Realemon].. . [t]hat would be because he could make more gross margin dollars by stocking it . . .” (Wrisley, Tr. 2181). Golden Crown also expected retailers to make a 20 to 22 percent markup (Hansfield, Tr. 158). 197. As its Marketing Plans and other internal documentation establish, Realemon determined to maintain its dominant market share and remain the featured brand of bottled lemon juice at the retail level because it considered this factor to be the best way to restrict the growth of competition (CX 2, p. 679). As has already been recounted, Realemon throughout the years 1971 and 1974 used price promotions to reduce the price spread between it and competing brands (CX 1, p. 656; CX 2, pp. 677, 700; CX 3, pp. 788, 792; CX 4, p. 873). For example, in the fall of 1973 Realemon initiated promotional allowances of $2.25 per case in the Northeastern United States and Chicago (CX 4, p. 894; CX 31). The Realemon representative suggested to Acme markets that with a $2.25 promotional allowance it should feature Realemon quarts at a retail price of 39 cents (CX 219, p. 274). As discussed, Acme deducted an additional dollar off invoice, which Borden ratified, for a total of $3.25 off invoice, and did price Realemon at a 39-cent retail, a 16-cent reduction from its regular price (CX 98). [133] 198. ReaLemon’s former Philadelphia broker observed that to compete with Realemon another brand of reconstituted lemon juice needed to be 10 to 15 cents per quart cheaper at retail and “would still have hard sledding” (Vinocur, Tr. 2105-2106). For Golden Crown to maintain even a 10 cent retail price differential, and for the retailer to maintain a 20 percent markup, Golden Crown would have had to have been purchased at $2.90 per case by Acme. That would have been 84 cents under ReaLemon’s estimate of Golden Crown’s cost and $1.10 under Golden Crown’s cost, as stated by Mr. Hansfield.

suv Raw LIA UULVLIVLOOLUIN DIEULOLUIND Initial Decision 92 F.T.C.

199. In Buffalo, the continuous $4.40 per case price received by Niagara (Tops Markets) in 1971 and 1972 allowed it to feature Realemon at 37 to 39 cents per quart (CX 203-210, CX 215; Gerace, Tr. 2025). For a retailer selling Realemon at 39 cents per quart to maintain a Golden Crown price differential of 15 cents, he would have to sell Golden Crown for 24 cents a bottle. If he were going to maintain the margin that made it profitable to purchase a second brand, this would mean (using a 20 percent markup figure) that he would have to be able to purchase Golden Crown at $2.40 per case. If he priced Golden Crown only 10 cents under Realemon, at 29 cents, he would have to be able to purchase Golden Crown at $2.90 per case. Even if he priced Golden Crown at only five cents under Realemon at 34 cents, probably far less than the differential needed to cause purchasers to abandon the premium Realemon brand for a relatively unknown new entrant, he would have to be able to purchase Golden Crown at $3.40. ReaLemon’s $4.05 price to Niagara in December of 1973 would have required an even lower Golden Crown cost, assuming the same margin and price differential (CX 212). [134] 200. In sum, respondent Borden priced its Realemon lemon juice so low in the foregoing transactions in Philadelphia and Buffalo that competing brands, such as Golden Crown, could not market their brands without selling near, at, or even below cost. The fact that — Golden Crown, a new entrant, in attempting to break into the market may have been the first to offer bottled lemon juice at extremely low or below cost prices (see, for example, RX 175 and, for additional instances, Borden’s proposed finding 203) did not justify, in the opinion of the undersigned, Borden’s pricing practices. It is obvious from the record of this proceeding that Golden Crown, or any other new entrant in the marketing of bottled lemon juice, had only one way of breaking into the market in the face of the consumer acceptance of the Realemon brand, and that was price. 201. What cannot be overlooked is that Borden possessed a monopoly share of the bottled lemon juice market, and was the beneficiary of a barrier to entry in the form of the “consumer franchise” conferred by the Realemon brand. To permit Borden to price Realemon at or near cost as a competitive weapon to combat a new entrant, on the ground that such new entrant, using the only means available to it for breaking into the market, itself priced at or near cost, would allow Borden free reign to maintain its monopoly position and restrict new entry.

5. Borden maintained its monopoly position DUNVEIN, LINU. ful 669 Initial Decision 202. Realemon was successful in maintaining its monopoly position, both nationally and in most metropolitan markets. In 1974, as previously described, ReaLemon’s nationwide volume share of the processed lemon juice market was 75.3 percent compared with [135] Golden Crown’s 14.9 percent. Two other companies in the market had shares of only 1.4 percent each. ReaLemon’s 1974 dollar share was even higher: 77.8 percent compared to 10.6 percent for Golden Crown and 1.9 percent and 2.9 percent for other companies in the industry (CX 239). As has been previously stated, ReaLemon’s market share in many metropolitan areas was much higher than its national share, and in many large cities ReaLemon’s market share continued in excess of 90 percent (see CX 258). According to complaint counsel’s tabulations, in early 1974 Realemon had 90 percent or more of the bottled lemon juice business (equivalent case sales) in Seattle/Takoma, San Francisco, Minneapolis/St. Paul, Memphis/Little Rock, Kansas City, Houston, and Cincinnati/Dayton/Columbus, 85 percent or more in St. Louis, Indianapolis, Pittsburgh, New Orleans, and Miami, 80 percent or more in New York, Phoenix/Tucson, Dallas/Ft. Worth, and Birmingham/Montgomery, and 75 percent or more in Atlanta, Baltimore/Washington, Chicago, Cleveland and Syracuse (CX 258). In only one metropolitan area, Los Angeles, out of all the major cities in the United States, according to complaint counsel’s tabulation, did the Realemon share of the bottled lemon juice business in 1974 fall below 60 percent, and in only two, Denver and Buffalo, did it fall below 70 percent (CX 258). Dollar share figures were even higher (CX 258). According to respondent’s own marketing plan for 1974, in Atlanta, Birmingham, Baltimore/Washington, Cincinnati, Cleveland, Houston, Indianapolis, Kansas City, Memphis/Little Rock, Minneapolis/St. Paul, New Orleans, New York City, Pittsburgh, Seattle/Takoma, St. Louis and San Francisco, containing almost 40 million people, Realemon had over 75 percent of the reconstituted lemon juice business, and in a substantial number of these Cities ReaLemon’s market share ranged upwards of 80 percent (CX 4, p. 883). [136] 203. Although Realemon declined from control of 90 percent or more of the processed lemon juice business nationally to around 75 percent in 1975 (according to respondent’s own figures, RX 669), the latter, under the circumstances disclosed by this record, remains a monopoly share. And as described in the preceding — finding, respondent’s control of the processed lemon juice business in the * ReaLemon's “equivalent case” share of the processed lemon juice market was 74.7 percent in 1975, while Golden Crown had a 15.2 percent share (RX 669). Initial Decision 92 F.T.C.

bulk of the nation’s urban markets remained at monopoly levels of 70 percent or more, even if there were declines in some cities by September 1975, that is, to 68 percent in Buffalo, to 67.5 percent in Philadelphia (RX 669). In short, respondent succeeded in maintaining its monopoly position in the nation overall, and in most of the nation’s metropolitan areas.

204. Furthermore, Realemon itself recognized that checking Golden Crown’s growth in those areas where it was making a substantial effort to enter the market was likely to significantly impair its ability to expand into new markets (CX 4, p. 864). Thus, even though Realemon lost some of its market share in some cities, it can be concluded that its efforts against Golden Crown in those cities contributed to its ability to maintain its historic monopoly position in other areas.

Ill LEGAL AND Factual Issues Relevant Product Market As stated at the beginning of this decision, a paramount issue in this proceeding concerns proper definition of the relevant product market. Respondent Borden has contended from the start that fresh lemons and processed lemon juice compete for the same end [137] uses among the consuming public, and consequently are in the same relevant market. Complex and extensive economic testimony was presented by Borden on this issue through Doctors Massy and Kamien, particularly the former. See respondent’s proposed findings, pp. 34-60, reply memorandum, pp. 9-45.

Based upon data relating to consumer use of fresh lemons and commercial (bottled) lemon juice developed by a menu census conducted by the Market Research Corporation of America, Dr. Massy concluded there was reasonable interchangeability of end uses for both products, that no demographic or socioeconomic factors prevented any significant number of persons from using either fresh lemons or processed lemon juice, and that substitution was taking place among consumers (see respondent’s proposed findings, p. 48). In short, there was a “similarity of uses of the products.” Dr. Kamien examined the results of Dr. Massy’s study and saw no evidence that fresh lemons and processed lemon juice should be in separate submarkets (Dr: Kamien, Tr. 5753-5756). Dr. Massy further calculated elasticity of substitution, cross-elasticity of demand, and the ratio between “own price elasticity and cross-elasticity.” He concluded BORDEN, INC. 759 669 Initial Decision that there was a significant relationship between the prices of fresh lemons and processed lemon juice, and the sales volume of the products, and a high degree of competition between processed lemon juice and fresh lemons (see respondent’s proposed findings, pp. 48- 60).

Complaint counsel vigorously dispute Dr. Massy’s conclusions. They deny his view that potential interchangeability of use is adequate to define a relevant market, and deny that the prices of fresh lemons and processed lemon juice are interrelated. On the contrary, complaint counsel assert that fresh [138] lemons and bottled lemon juice are priced independently of each other. Complaint counsel attack Dr. Massy’s interpretation of the menu census data of the Market Research Corporation of America as arbitrary, and attack Dr. Massy’s conclusions from his elasticity of substitution and cross-elasticity of demand studies. Complaint counsel contend, among other things, that there are substantial data problems in the material underlying Dr. Massy’s work “which make the results of Dr. Massy’s regressions [econometric equations] unreliable.” More particularly, complaint counsel question Dr. Massy’s elasticity of substitution model, which respondent asserts demonstrates a relationship between the relative prices of fresh lemons and processed lemon juice and the relative sales volumes of the products. Complaint counsel question this study of Dr. Massy on the ground that in order to compute a cross-price elasticity from an elasticity of substitution, the “own-price elasticity” of the product must be known (Dr. Massy, Tr. 5204). Inasmuch as Dr. Massy did not know the own-price elasticity of either fresh lemons or bottled lemon juice, he was compelled to use a “surrogate,” and used the own-price elasticity of sugar. Complaint counsel characterize this as “pure speculation,” pointing out that greatly different results would have been obtained in Dr. Massy’s regressions had he used oranges or shortening. Depending on the surrogate used, the results of Dr. Massy’s calculations would have variously shown fresh lemons and bottled lemon juice to have been complements, weak substitutes, or independent and unrelated to each other.

Dr. Kaplan, an expert economist, pointed out the deficiencies in Dr. Massy’s methodology for attempting to define the relevant product market by means of an elasticity of substitution measure, particularly without knowing “own-price elasticity” (Tr. 6026-28): {139] Q. Dr. Kaplan, on the basis of the four exhibits that you have described and the methodology employed by Dr. Massy, what is your professional opinion of the use of the elasticity of substitution in defining the relevant market in this case? Initial Decision 92 F.T.C.

A. Well, initially, elasticity of substitution has a problem because you need to know your own price elasticity, but even ignoring that problem, it seems that we have gotten an array of possible elasticity of substitution going from minus .92 all the way to a positive .4190 using a variety of plausible model specifications, plausible data definitions in cases of a time trend which seem plausible as well and, therefore, we have got just a morass of different numbers and, therefore, it seems difficult to be able to single out any particular one of these with any confidence and point to that one and say this is what, indeed, the elasticity of substitution is. In fact, these numbers, assuming that the own-price elasticity is consistent with these goods, one [sic] complements independent or weak substitutes. I don’t think particularly, they are consistent with their being strong substitutes, however. This is not to suggest that I think that it is plausible, that they are complements, but the fact of the matter is that in defining statistical procedures and in analyzing these things, [140] you must be able to differentiate between various relationships, and this particular methodology and the procedures employed, just don’t allow you to do that. Q. What is your professional opinion, Dr. Kaplan, of using elasticity of substitution in defining a relevant market? A. Again, as I have indicated time and time again, that without own-price elasticity of the product involved, its usefulness is very limited. Q. Suppose, for a moment, Dr. Kaplan, that two consumer goods had an estimate of elasticity of substitution of negative .9. Could you conclude that these two goods are complements and have no relationship at all or weak substitutes? A. Yes, you could conclude any of those.

Q. What is the reason that this number is consistent with all these possible results? A. Again, depending on what the own-price elasticity is, all those results are possible.

Q. Could you give an example why this is true? A. I think I indicated earlier, if you have the price and quantity of one variable remaining constant through the period though there are price changes with respect to the other item and there is, since it has own-price elasticity, there are quantity changes, you would estimate in that case [141] an elasticity of substitution and if, for instance, own-price elasticity was minus .9, which is not an excessively large number and perfectly plausible, you would come up with an elasticity substitution of minus .9 and clearly, there is no interdependence between the price of one good and the quantity of demand of another. :

Serious uncertainties thus underlie Dr. Massy’s calculations purporting to show a relationship between the prices of fresh lemons and processed lemon juice and the sales volume of the products. In contrast, the record in this proceeding establishes substantial retail price differences to exist, and to have existed over the years, between fresh lemons, that is, the juice in them on a per ounce basis, and bottled lemon juice (see findings 25 through 29). The record also BORDEN, INC. 761 669 , Initial Decision establishes that bottled lemon juice was priced independently of fresh lemons, and fresh lemons were priced independently of bottled lemon juice. Neither fluctuated in response to price changes of the other at the wholesale or retail level.

The undersigned thus cannot accept Dr. Massy’s testimony and calculations if he is suggesting the existence of price sensitivity between fresh lemons and bottled lemon juice. Such does not exist, as the record discloses. Of course, at some point price differentials, if large enough, may cause some segments of the public to shift from virtually any product to a substitute, if there is a substitute. Cf. United States v. Grinnell Corp., 384 U.S. 568, 574 (1966). The record here does not establish that consumers in day-to-day supermarket purchases switched between fresh lemons and bottled lemon juice [142] in response to changes in the prices of the two products. On the contrary, as stated in the findings, the two continued side-by-side in the market-place notwithstanding the fact that, as a Realemon advertising brochure to the trade publicized, one could obtain for 2.8¢ the same amount of Realemon lemon juice as one would have had to pay 12.3¢ for in the form of a fresh lemon, about one-fourth as much.

Turning to the question of standards for market definition, the principles applicable to determination of “line of commerce” under Section 7 of the Clayton Act are clearly applicable to determination of relevant product market under monopoly charges. United States v. Grinnell Corp., supra, 384 U.S. at 573; L. G. Balfour Co., 74 F.T.C. 345, 497 (1968), aff'd in part, rev'd in part, L. G. Balfour Co. v. Federal Trade Commission, 442 F.2d 1, 9-11 (7th Cir. 1971); United Fruit Co., 82 F.T.C. 58, 149 (1973), rev’d in part and affd in part, Harbor Banana Distributors, Inc. v. Federal Trade Commission, 499 F.2d 395 (5th Cir. 1974). See also Columbia Broadcasting System, Inc. v. Federal Trade Commission, 414 F.2d 974, 978-79 (7th Cir. 1969), cert. denied, 397 U.S. 907 (1970).

As already stated, the undersigned has no doubt that processed lemon juice constitutes, at the least, a valid submarket for antitrust purposes. The fact is that fresh lemons and processed lemon juice are very different products, as the findings herein disclose. Bottled reconstituted lemon juice simply does not taste as good as juice from fresh lemons. Indeed, the difference between the taste of the two products seemingly is severe (findings 18 and 19). Bottled lemon juice contains additives which are objectionable to much of the public (finding 24). The study done by the Center For Advanced Marketing Practice reported comments of persons interviewed on [143] this score (CX 286, pp. 7673-74). One illustrates the point: “Most bottled 277-685 O—79—~—49 Initial Decision 92 F.T.C.

things have chemicals added to it [sic] and you pick that up, the chemical taste.” See also the comments of RealLemon_ Foods’ president in the 1972 Marketing Plan (CX 2, p. 674). There are many other economically important differences (findings 10 through 17, and 20 through 23). Not to be ignored, furthermore, is the fact that there are important uses for which processed lemon juice cannot be substituted for fresh lemons, for example, as a garnish in serving food, a lemon wedge in a glass of iced tea, lemon peel in a beverage. Even if there is a degree of interchangeability, however, and some substitution actually takes place as Dr. Massy maintains, there is a serious loss of utility, for example, accepting poor taste and additives if bottled lemon juice is used instead of fresh lemons, and a great loss of convenience, risk of spoilage and much higher cost if fresh lemons are purchased instead. Ignoring these factors, and recognizing that fresh lemons and processed lemon juice are used for many of the same purposes by the public, does not dictate that they must be placed in the same product market where serious, important and economically substantial distinguishing characteristics differentiate the products, as in this case. The same consideration applies to the many examples of lemon flavored and lemon based products introduced in evidence by respondent (RX 382). See United States v. Aluminum Co. of America, 377 U.S. 271, 275 (1964) (insulated aluminum conductor considered a separate market although competition with copper conductor would also have permitted grouping into a single product market); Union Carbide Corp., 59 F.T.C. 614, 655 (1961) (competition between polyethylene film and other flexible packaging materials, yet former held to constitute separate lines of commerce); United States v. Lever Bros. Co., 216 F. Supp. 887, 891 (S.D.N.Y. 19638) (direct competition between low sudsing [144] detergents and high sudsing detergents, yet placed in separate lines of commerce); United States v. Aluminum Co. of America, 233 F. Supp. 718 (E.D. Mo. 1964), aff'd per curiam, 382 U.S. 12 (1965) (separate market for aluminum curtain wall, notwithstanding competition with other types of building materials for same use). The most comprehensive statement of the criteria for market definition is contained in Brown Shoe v. United States, 370 U.S. 294, 325 (1962). It was there established that although the outer boundaries of a product market may be determined by reasonable interchangeability of use or cross-elasticity of demand between a product and substitutes for it, well-defined submarkets may exist within the broad market which in themselves constitute product markets for antitrust purposes. Among the factors enumerated by Brown Shoe are (370 U.S. at 325):

BORDEN, INC. 763 669 Initial Decision . industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors. A consideration of these factors compels the conclusion that processed lemon juice constitutes a separate submarket. Processed lemon juice producers recognized the production, marketing and sale of that product as a separate business (findings 36 through 64). See also Z. G. Balfour, supra, 74 F.T.C. at 497; Reynolds Metals Co. v. Federal Trade Commission, 309 F.2d 228, 227 (D.C. Cir. 1962); General Foods Corp., 69 F.T.C. 380, 412 (1966), aff-d, 386 F.2d 936, 941 (8rd Cir. 1967), cert. denied, 391 U.S. 919 (1968); Columbia Broadcasting System, Inc., 72 F.T.C. 27, 325 (1967), [145] aff'd in part, rev'd in part and remanded, Columbia Broadcasting System, Inc. v. Federal Trade Commission, supra, 414 F.2d at 978-79. The prices of fresh lemons and processed lemon juice were completely distinct, as already stated, and fresh lemons cost around four and one-half times as much per ounce of juice as bottled lemon juice (see e.g., RX 546, p. 6, and findings 25 through 27). Comparable differentials have prevailed over the years, and as noted earlier, the differential between juice from fresh lemons and non-premium brands of bottled lemon juice was even greater since such brands had to have a lower retail price to compete with the dominant Realemon brand (see finding 82). Although the price differences between Realemon lemon juice and competing brands reflected artificial differentiation due to brand acceptance, length of time in the market, etc. (see CX 2, p. 673, where Realemon Foods’ president states “Processed lemon juice is processed lemon juice’), the price differences between bottled lemon juice and fresh lemons reflected genuine and actual product differences. As stated, fresh lemons have not been driven from the market notwithstanding their greatly higher cost, but continue to have a sales volume many times greater than processed lemon juice. The distinct and substantial price differences prevailing between fresh lemons per ounce of juice and bottled lemon juice, as stated earlier, are strong evidence that they inhabit separate markets. See, in addition to Brown Shoe, United States v. Aluminum Co. of America, supra, 377 U.S. at 276; Reynolds Metals v. Federal Trade Commission, supra, 309 F.2d at 229; Aunet, Inc., 82 F.T.C. 391, 450-51 (1978), aff'd, Avnet, Inc. v. Federal Trade Commission, 511 F.2d 70, 77 (7th Cir. 1975), cert. denied, 44 U.S.L.W. 3202 (October 6, 1975); Litton Industries, Inc., 82 ¥.T.C. 793, 997 (1973). [146] In the day-to-day retail grocery trade, as also stated earlier, the record discloses little or no sensitivity between the prices of fresh Initial Decision 92 F.T.C.

lemons and the prices of the various sized bottles or plastic containers of processed lemon juice. Fresh lemon prices fluctuate on a weekly and even a daily basis whereas the price of processed lemon juice changes at infrequent intervals (finding 28). Processed lemon juice marketers priced their product to compete with other processed lemon juice brands, not fresh lemons (findings 30 through 38). Retail food store buyers purchased processed lemon juice without considering the price of fresh lemons, and produce buyers stocked fresh lemons without consulting the price of processed lemon juice (findings 34 and 35). There is no evidence that when the price of fresh lemons rose or fell in the produce departments of retail food stores the prices of processed lemon juice were remarked or changed to be competitive, or that the public switched back and forth as prices of fresh lemons fluctuated. The retail price of respondent’s Realemon lemon juice was determined primarily by the promotional allowances per case prevalent or offered by respondent from time to time (see CX 1, pp. 650, 656-57; CX 2, p. 716; CX 3, p. 781; CX 4, p. 873).

In fact, respondent offered higher promotional allowances in “highly competitive” markets than it did in “low competitive” markets, completely inconsistent with day-to-day, direct price sensitivity with fresh lemons (findings 30 through 32). The lack of sensitivity between fresh lemon prices and processed lemon juice prices is a most significant factor indicating the existence of those products in separate product markets or submarkets. See in addition to Brown Shoe, General Foods Corp. v. Federal Trade Commission, ' supra, 386 F.2d at 942. [147] Processed bottled lemon juice has a variety of distinct and unique characteristics which strongly differentiate it from fresh lemons, and by the same token obviously fresh lemons have unique characteristics differentiating them from bottled lemon juice (findings 10 through 24). Convenience, economy, presence of additives, shelf-life and spoilage are economically highly significant, as emphasized already, and distinguish processed lemon juice from fresh lemons for purposes of market definition. See in addition to Brown Shoe, United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 593, (1957); General Foods Corp., supra, 69 F.T.C. at 414-15, aff'd, General Foods Corp. v. Federal Trade Commission, supra, 386 F.2d at 941-42; Union Carbide Corp., supra, 59 F.T.C. at 655; United States v. Aluminum Co. of America, supra, 233 F. Supp. at 725. It is clear from the record that one or more of these characteristics was sufficient to cause segments of the public to purchase processed lemon juice, and others to buy only fresh lemons. For members of the public who want the taste of BORDEN, INC. 765 669 Initial Decision fresh lemons or the appearance of a lemon wedge or peel, or who refuse to ingest chemical additives, there is no reasonable interchangeability in use or cross-elasticity of demand. Likewise, for segments of the public who demand convenience or economy, or immediate availability without the trouble and mess of squeezing lemons, or who refuse to accept spoilage in the refrigerator, there was no reasonable interchangeability of cross-elasticity of demand. Further indications that fresh lemons and processed lemon juice are properly components of separate markets or submarkets is the fact that each is marketed through specialized vendors, and each is produced in distinct and unique facilities. Fresh lemons are marketed as fresh produce, whereas processed bottled lemon juice is sold as a grocery product through brokers or, since 1973 in the case of respondent’s Realemon, by the Borden sales organization (findings 65 and 66). Worth noting, furthermore, is [148] the fact that fresh lemons are purchased by the produce buyers of supermarkets and sold in the produce departments along with oranges, grapefruit, fresh vegetables, lettuce, etc. Bottled lemon juice, except for the small lemon-shaped and colored squeeze bottle, is purchased by grocery buyers and sold in the supermarket grocery departments (finding 67).

Fresh lemons and processed lemon juice, of course, have wholly different production facilities (finding 68). There is obviously no ability on the part of a processed lemon juice plant to produce fresh lemons, or fresh lemon producers to produce processed lemon juice without constructing a plant. In other words, there was no elasticity of production facilities. Brown Shoe, supra, 370 U.S. at 325, n. 42; Liggett & Myers, Docket No. 8988, final order of April 29, 1976. The significance of any one of the foregoing factors may be debated, but combined they certainly establish, in the opinion of the undersigned, distinct markets for fresh lemons and processed lemon juice rather than the converse. United Fruit Co., supra, 82 F.T.C. at 148, affd, Harbor Banana Distributors, Inc. v. Federal Trade Commission, supra (specialized vendors); United States v. Aluminum Co. of America, supra, 233 F. Supp. at 725 (specialized vendors); Budd . Company, CCH Trade Reg. Rep., 420998 (F.T.C. 1975) (distinct production facilities); General Foods, supra, 69 F.T.c. at 417, aff, General Foods Corp. v. Federal Trade Commission, supra, 386 F.2d at 943 (distinct production facilities). There has been no mechanical counting of the indicia enumerated in Brown Shoe. The distinguishing characteristics between fresh lemons and processed lemon juice are of substantial economic significance, and dictate beyond question, in the opinion of the undersigned, the placing of processed Initial Decision 92 FTC.

lemon juice in a separate market or submarket from fresh lemons. [149] Comment is warranted upon the so-called Cellophane case, United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377 (1956), and the glass/metal container case, United States v. Continental Can Co., 378 U.S. 441 (1964), upon which respondent places considerable reliance in arguing for the inclusion of fresh lemons and processed lemon juice in the same market. The qualifications added to the market delineation principles of the Cellophane case by the subsequent Brown Shoe decision were set out by now Chief Justice Burger in his decision in Reynolds Metals, supra, 309 F.2d at 226: . .n the [Brown Shoe case], the concepts of interchangeability of use and crosselasticity of demand underwent certain important qualifications and development. It is now clear that mere potential interchangeability or cross-elasticity may be insufficient to mark the legally pertinent limits of a “relevant line of commerce.” The “outer limits” of a general market may be thus determined, but sharply distinct submarkets can exist within these outer limits which may henceforth be the focal point of administrative and judicial inquiry under Section 7. Similarly, the Supreme Court found a broad market in assessing the merger of two major companies, Continental Can Co., the nation’s second largest producer of metal containers and Hazel-Atlas Glass Company, the third largest producer of glass containers, but this did not imply that separate submarkets did not also exist. In General Foods, supra, the Commission recognized this fact (69 F.T.C. at 411): [150] in Continental Can, the Court was confronted with just the reverse of the situation in Alcoa. In Continental Can, the acquiring company, Continental, produced metal containers and the acquired company produced glass containers. Thus, the issue before the Court was whether a broader market encompassing both products was meaningful; the Court was not concerned with the question as to whether a more limited product market also existed. The Court held that metal and glass containers were in the same product market for the purposes of considering the effects of the acquisition, even though the Court considered the products of the two companies to be in “separate industries” and to comprise distinct “product markets.” The market defined by the Court in Continental Can was that delimited by the ‘‘outer boundaries” referred to in the Brown Shoe opinion; but the Court took pains to point out that its finding with respect to this broader market did not preclude the finding of narrower submarkets within the more comprehensive market. . . . (Emphasis added.) See also Liggett & Myers, supra, where the finding of a broad market did not imply that valid submarkets within a broad dog food market did not exist. As noted at the beginning of this section, the principles of Brown Shoe are not limited to Section 7, but apply fully to monopoly charges whether under Section 2 of the Sherman Act or Section 5 of the Federal Trade Commission Act. BORDEN, INC. 767 669 Initial Decision Monopoly Power As the findings establish, respondent Borden possessed monopoly power in the processed lemon juice industry, having the power to control prices and to [151] exclude competition. The acceptance of the Realemon brand in the marketplace was ‘such that it was virtually synonymous with bottled lemon juice itself, and commanded a premium price. Competing brands could only maintain sales through a substantial differential between their retail price and the price of Realemon. By lowering the price of Realemon respondent had the power to force down the price of competing brands and ultimately to force them off the shelves of the nation’s supermarkets and retail food stores (findings 81 through 87, and 95 through 100). Monopoly power has long been defined as the power to control prices or unreasonably restrict competition. American Tobacco Co. v. United States, 328 U.S. 781, 811 (1946); United States v. E. I. du Pont & Co., supra, 351 U.S. at 391; United States v. Griffith, 334 U.S. 100, 107 (1948). Realemon Foods at all relevant times shown by this record had between 90 percent and 75 percent of the national market for processed lemon juice, and comparable market shares in a large number of major metropolitan areas (findings 75 through 78). The existence of monopoly power may be inferred from a predominant share of the market. United States v. Grinnell, supra, 384 U.S. at 571. Whatever may be the threshold market share permitting an inference of monopoly power, see Judge Hand’s dictum in United States v. Aluminum Co. of America (Alcoa), 148 F.2d 416, 424 (2nd Cir. 1945), in the opinion of the undersigned, respondent far exceeded it in this case.

It is unnecessary, however, to ground the finding that réspondent possessed monopoly power in the processed lemon juice industry solely upon ReaLemon’s predominant market share, although in the opinion of the undersigned the facts would justify that result. [152] United States v. Grinnell, supra, 384 U.S. at 571; Cliff Food Stores Ine. v. Kroger, Inc., 417 F.2d 203, 207 n. 2 (5th Cir. 1969). The following additional factors, inter alia, are strongly demonstrative of monopoly power when combined with ReaLemon’s preponderant market share: (1) ReaLemon’s enormous size and resource advantages over most competing processed lemon juice brands, including advantages such as nationwide marketing and the consequent ability to advertise nationally through national media; (2) the overwhelming dominance of the Realemon brand, and its acceptance over the years by the trade and the public as the premium brand; (8) the concomitant relative impotence and small market share of compet- Initial Decision 92 F.T.C.

ing brands except possibly Golden Crown recently in some metropolitan areas; (4) the premium price commanded by the Realemon brand; (5) the competitive necessity for other lemon juice brands to sell at substantially lower retail prices on peril of losing shelf space and being forced from the market; (6) the exceptionally high profitability of Realemon lemon juice over the years amounting to three to four times the rate of return on assets realized by other firms in the “Food and Kindred Products” industry group. The great market share controlled by Realemon historically, and at the conclusion of this record, viewed in conjunction with the foregoing factors, renders the existence of monopoly power of Realemon Foods in the processed lemon juice market beyond doubt. Instructive in this context is the Commission’s comment in Golden Grain Macaroni Co., 78 F.T.C. 68, 162, n. 7 (1971), order enforced in part, 472 F.2d 882 (9th Cir. 1972), cert. denied, 412.U.S. 918 (1978): A firm with roughly 50% of the market might possess monopoly power if the remaining firms, for some reason, were competitively impotent vis-a-vis the major firm. Such might be the case [153] if the major firm possessed capital assets far in excess of those of its competitors, in a market where assets were essential to competitive vitality; or if the dominant firm marketed a product with a strong consumer preference over its rivals, or if the remaining portion of the market was divided in small fragments, so that no one firm represented a meaningful countervailing force to the pricing activities of the dominant firm. However, none of these circumstances, nor any similar one, was shown to exist in the relevant market here.

All of the factors enumerated in the foregoing are present in this case.

The recent decline in market share of Realemon from a historic 90 percent to the present 75 percent does not establish that monopoly power does not exist in respondent Borden in the processed lemon juice industry. As the undersigned has found, the size of respondent’s current market share, combined with the factors set out, among others, continues to confer on respondent control over prices and competition in the processed lemon juice industry. In the vast majority of metropolitan markets respondent Borden maintains dominant market shares from 75 to 90 percent, as well as 75 percent nationally.

Unlawful Maintenance of Monopoly Power The most recent definition of the elements of monopolization by the Supreme Court is found in United States v. Grinnell, supra. The Supreme Court there held that the components of the offense of monopolization are two-fold (884 U.S. at 570-71): [154] DUDVUIN, LLU. vue 669 Initial Decision (1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident: The Commission followed this standard in Golden Grain Macaroni Co., supra, 78 F.T.C. at 157.

It has been found that Borden possesses monopoly power in the relevant market. The legality of Borden’s acquisition of monopoly power is not here an issue. Thus, under the foregoing standard, the question in this proceeding is whether Borden willfully maintained that power.

The basic principles governing the law of monopolization were well established before Grinnell. Specific intent to obtain or to maintain a monopoly is not a necessary element of the offense. Rather, “[iJt is sufficient that ... a monopoly results as the consequence of a defendant’s conduct or business arrangements.” United States v. Griffith, supra, 334 U.S. at 105. Monopolization is established by the possession of monopoly power “coupled with the purpose or intent to exercise that power.” Griffith, at 107, citing American Tobacco Co. v. United States, supra, 328 U.S. at 809, 811, 814. To the same effect: Schine Chain Theatres, Inc. v. United States, 334 U.S. 110 (1948); United States v. Paramount Pictures, Inc., 334 USS. 131 (1948).

The Supreme Court in Griffith and its companion cases, Schine Chain Theatres and Paramount Pictures, built upon Judge Learned Hand’s landmark opinion in Alcoa, supra. The Court found that Alcoa monopolized the aluminum ingot market in that it “meant to keep, and did keep, that complete and exclusive hold upon the ingot market with which it started.” 148 F.2d at 432. In language specifically endorsed by the [155] Supreme Court in American Tobacco Co., supra, 328 U.S. at 814, the Second Circuit dispensed with Alcoa’s contention that it was not chargeable with active perpetuation of its monopoly position (148 F.2d at 431): It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel. Only in case we interpret “exclusion” as limited to manoeuvres not honestly industrial, but actuated solely by a desire to prevent competition, can such a course, indefatigably pursued, be deemed not “exclusionary.” So to limit it would in our judgment emasculate the Act; would permit just such consolidations as it was designed to prevent.

See also L. G. Balfour Co., supra, 74 F.T.C. at 498-99. Initial Decision 92 F.T.C.

The facts disclosed in the record of this case show clearly that Borden took deliberate actions to maintain its monopoly position in the processed lemon juice market, and did maintain a monopoly position despite some reduction in market share. Borden thereby “monopolized” as that term is understood in Grinnell and in the earlier cases just discussed. As did Alcoa, Borden “meant to keep, and did keep” a monopoly market share. The Realemon marketing plans and other evidence heretofore discussed leave no question that Borden saw its predominant position threatened by emerging competition from other processed lemon juice producers, [156] particularly Golden Crown, and set out specifically to preserve its. monopoly power, viz., its historic 90 percent market share. As the record also shows, Borden engaged in a number of acts and practices, heretofore described, with the purpose of maintaining its monopoly position, and which had the effect of hindering, restraining or preventing competition in the processed lemon juice market. These acts and practices included geographically discriminatory prices, promotional allowances tailored to combat competition in particular areas where competition had arisen, granting to selected key retail stores special allowances designed to eliminate, hinder or restrict sales of competitive processed lemon juices, and taking steps selectively to reduce the retail price of its premium priced product to a level so low as to make it virtually impossible for other producers of processed lemon juice to sell their products at prices above their own cost. The record shows, as stated, that through these methods Borden succeeded in maintaining a monopoly position. Thus, Borden engaged in unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act.

Respondent denies that it. engaged in conduct sufficient to constitute monopolization. Relying largely on Telex Corp. v. International Business Machines Corp., 510 F.2d 894, 925-26 (10th Cir. 1975), cert. dismissed 96 S. Ct. 8 (1975), Borden asserts that two factors must be present before maintenance of monopoly power in violation of Section 2 can be found (respondent’s reply memorandum at 59): “Tflirst, the behavior must be the product of monopoly power, ie, constitute a use of monopoly power and second, must be exclusionary as distinct from legitimate business behavior.” [157] The Court’s discussion of monopolization as a whole in Telex reveals that its conclusion that IBM had not violated Section 2 was based on what it termed the “unusual market circumstances” present in that case. The court’s basic conclusion was a limited one (510 F.2d at 927):

There must be some room to move for a defendant who sees his market share acquired BORDEN, INC. — o71 669 Initial Decision by research and technical innovations being eroded by those who market copies of its products. It would seem that technical attainments were not intended to be inhibited or penalized by a construction of Section 2 of the Sherman Act to prohibit the adoption of legal and ordinary marketing methods already used by others in the market, or to prohibit price changes which are within the “reasonable” range, up or down. Under the unusual market circumstances before us, to so interpret the Act to prohibit such actions is to protect the others in the market from ordinary competition, and was an incorrect interpretation of applicable law. Borden’s attempt to bring itself within the protection afforded by this pronouncement is unavailing. Unlike IBM, Borden was not faced with erosion of a market share “acquired by research and technical innovation” by firms marketing copies of its products developed through misappropriation of its trade secrets and infringement of its copyrights. Rather, Borden was faced with market entry and price competition from [158] other sellers of its technologically simple product, differentiated from other brands of processed lemon juice only by the unique consumer acceptance of its brand name. Second, as has previously been found, Borden’s marketing methods can hardly be characterized as “legal and ordinary,” and some of its prices have been found to be unreasonable. Borden relies on Griffith, supra, 334 U.S. at 107, for the proposition that “a prerequisite of illegality. under Section 2 is the use of monopoly power.” Respondent’s reply memorandum at 57. This interpretation, in the view of the law judge, is a misreading of Griffith. While in that case the Supreme Court did find a use by the defendants of their monopoly power in some cities to gain competitive advantage in cities where they did not enjoy a monopoly position, which conduct the Court found to violate Section 2, it is evident that this conduct was considered merely a particularly clear form of monopolization. The statement on which Borden relies, when placed in context, reads as follows (334 U.S. at 107): So it is that monopoly power, whether lawfully or unlawfully acquired, may itself constitute an evil and stand condemned under §2 even though it remains unexercised. For §2 of the Act is aimed, inter alia, at the acquisition or retention of effective market control. See United States v. Aluminum Co. of America, 148 F.2d 416, 428, 429. Hence the existence of power “to exclude competition when it is desired to do so” is itself a violation of §2, provided it is coupled with the purpose or intent [159] to exercise that power. American Tobacco Co. v. United States, 328 U.S. 781, 809, 811, 814. It is indeed “unreasonable, per se, to foreclose competitors from any substantial market.” International Salt Co. v. United States, 382 U.S. 392, 396. The anti-trust laws are as much violated by the prevention of competition as by its destruction. United States v. Aluminum Co. of America, supra. It follows a fortiori that the use of monopoly power, however lawfully acquired, to foreclose competition, to gain a competitive advantage, or to destroy a competitor, is unlawful. Borden’s conduct as shown in this record is not simply “ordinary Initial Decision 92 F.T.C.

business behavior,” unrelated to its monopoly position (respondent’s reply memorandum at 57-58). On the contrary, the course of conduct shown here was intentionally devised and carried out for the purpose of maintaining its dominant market position in the sale of processed lemon juice. Moreover, it was because of Borden’s dominant market position nationwide, and the power over price conferred on it by the premium commanded by the Realemon brand, that the acts shown by this record were effective in maintaining a monopoly position. Nor were the acts and practices reflected in the record “nothing more than legitimate business activities designed to allow Realemon to compete, not to exclude competition.” As stated, ReaLemon’s conduct was intended to, and did, maintain a monopoly position. By doing so, Borden plainly hindered and restricted and, in fact, excluded competition.® Thus, for example, [160] the 1974 Marketing Plan, quoted earlier, set out the Realemon objective of reducing Golden Crown’s market share by 20 percent in 4 key metropolitan areas, and stated that reducing Golden Crown’s effectiveness in these 4 markets may result “in a significant reduction of expansion leverage” (CX 4, p. 864). This is the core of monopolization. it is well established that a finding of monopolization.does not require that “predatory” cr independently unlawful means be used. Hanover Shoe Inc. v. United Shoe Machinery Corp., 390 U.S. 481, 497- 99, (1968). In Alcoa Judge Hand assumed that the defendant was guilty of no “moral derelictions,” but found that the company had sought to maintain control of the market, and had maintained control. That was sufficient to establish a violation. 148 F.2d 431. See also United States v. United Shoe Machinery Corp., 110 F. Supp. 295, 344-45 (D. Mass., 1953), aff'd per curiam, 347 U.S. 521 (1954); L. G Baifour Co., supra, 14 F.T.C. at 498-99; ZL. G. Balfour v. Federal Trade Commission, supra, 442 F.2d at 14.

As has previousiy been discussed, Borden’s actions cannot be justified by Golden Crown’s sales at or below cost. Given the market conditions shown by this record, primarily the limited grocery store shelf space available to processed lemon juice, the consumer acceptance of the Realemon trade name and the price premium it commanded, the only competitive tocol available to a new entrant like Golden Crown in its efforts to break into the market was to offer [161] its product at a very low price. Allowing Borden to respond to - + Jt is not necessary, however, that competitors actually be excluded from the market to establish a violation of Section 2. American Tobacco Co., supra, 328 U.S. at 809, 311: “{TJhe material consideration in determining whether a monopoly exists is not that prices are raised and that competition actually is excluded but that power exists to raise prices or to exclude competition when it is desired to do so.”

Monopoly power. whether lawfully or unlawfully acquired, may violate Section 2 even if it remains unexercised provided it is coupled with an intent to use it. Griffith, supra, 334 US. at 107, as just quoted. 669 Initial Decision this type of competition by all of the actions reviewed herein would give it free rein to preserve its monopoly position. In this case, in the judgment of the undersigned, Borden overstepped the bounds of permissible response to a new entrant of limited resources by one possessing monopoly power.

_ What Borden fails to acknowledge is that the law imposes on one in possession of monopoly power limitations on conduct not applicable to one lacking such power.* A monopolist may not react to each new entry into its market with an unrestrained attempt to protect its market position, for to do so preserves the “effective market control” condemned by the law. United States v. Griffith, supra, 334 U.S. at 107. Borden’s actions taken to preserve its market control, as shown by this record, violated Section 5 of the Federal Trade Commission Act.

IV CONCLUSIONS 1. Respondent Borden, Inc. has been engaged at all times relevant hereto in the production, marketing and sale of processed lemon juice in interstate commerce as defined in the Federal Trade Commission Act, and the acts and practices utilized by respondent Borden in connection therewith have been in such interstate commerce. [162] 2. The production, marketing and sale of processed lemon juice, and the United States as a whole, constitute valid and lawful product and area markets within which to determine the charges against respondent Borden, Inc., set out in the complaint. 8. Respondent Borden, Inc. possesses, and has possessed, a monopoly position and monopoly power in the processed lemon juice market, and has unlawfully engaged in acts and practices with the purpose and intent, and with the effect, of preserving and maintaining that monopoly position and power, and has unlawfully hindered, restrained and prevented competition in the production, marketing and sale of processed lemon juice in violation of Section 5 of the Federal Trade Commission Act.

4. This proceeding and the order set out herein are in the public interest.

© For this reason, in the opinion of the undersigned, Jnternational Air Industries v. American Excelsior Co., 517 F.2d 714 (5th Cir. 1975), cert. denied, 44 U.S.L.W. 3493 (1976), Balian Ice Cream Co. v. Arden Farms Co., 231 F.2d 356 (9th Cir, 1955) and Golden Grain Macaroni Co., supra, cited by Borden in support of its contention that its pricing policies were lawful, are simply not pertinent to the issues present in this case. Initial Decision 92 F.T.C.

Vv REMEDY It has been found that respondent Borden possessed a monopoly position and power in the processed lemon juice industry, that it engaged in business conduct with the purpose and intent, and with the effect, of preserving and maintaining that monopoly position and power. Jt has been found that respondent Borden succeeded in maintaining its monopoly position and power nationally, and in the great majority of the country’s major metropolitan iz.markets. Under the circumstances, the question becomes one of proper relief. In a “monopolization” case, adequate relief must put an end to the monopoly position, and break up or render impotent the monopoly power found to have been preserved and maintained in [163] violation of law. United States v. Grinnell, supra, 334 U.S. at 577; United States v. Paramount Pictures, supra, at 171. In Schine Theatres v. United States, supra, at 128, the Court stated: In this type of case we start from the premise that an injunction against future violations is not adequate to protect the public interest. If all that was done was to forbid a repetition of the illegal conduct, those who had unlawfully built their empires could preserve them intact. They could retain the full dividends of their monopolistic practices and profit from the unlawful restraints of trade which they had inflicted on competitors. Such a course would make enforcement of the Act a futile thing unless perchance the United States moved in at the incipient stages of the unlawful project. For these reasons divestiture or dissolution is an essential feature of these decrees. See, likewise, United States v. Crescent Amusement Co., 323 U.S. 178, 188-89 (1944). Doubts respecting relief are to be resolved in favor of the government. United States v. Bausch & Lomb Optical Company, ‘821 U.S. 707, 726 (1944). The Commission has wide discretion in determining the type of order necessary to bring an end to the violation found to exist, so long as the remedy has a reasonable relation to such violation. Federal Trade Commission v. National Lead Company, 352 U.S. 419 (1957).

Enjoining the acts and practices by which respondent knowingly preserved and maintained its monopoly position, and prohibition of a repetition [164] thereof, will not constitute an adequate remedy in this proceeding and end the monopoly power possessed by Realemon Foods in the processed lemon juice industry. The heart of the monopoly power preserved and maintained by respondent Borden lies in the Realemon trademark and its dominant market position. For competition to enter the processed lemon juice industry, the barrier to entry which inheres in the Realemon trademark must be eliminated. As a consequence, in the judgement of the undersigned, BORDEN, INC. 115 669 Oo Initial Decision the only effective relief under the facts shown by the record in this case requires the licensing of the Realemon brand name to others wishing to enter the production, marketing and sale of processed reconstituted lemon juice.

Such a course is not unprecedented. In American Cyanamid Co., 63 F.T.C. 1747 (1963), the Commission, after a finding of suppression and exclusion of competition through the use of a patent obtained by deliberate misrepresentations of material facts, directed compulsory licensing to open the tetracycline industry to competition. A two and one-half percent royalty of net sales under such licenses was granted. 63 F.T.C. at 1910. The Commission’s compulsory licensing order was approved by the Court of Appeals although the decision was vacated and remanded because of the disqualifications of a Commissioner. American Cyanamid Co. v. Federal Trade Commis- | sion, 363 F.2d 757, 771-72 (6th Cir. 1966). After hearings on remand, compulsory licensing of the tetracycline patent was again ordered by the Commission and affirmed on appeal. American Cyanamid Co., 12 F.T.C. 623, 690 (1967), aff'd, sub nom. Chas. Pfizer & Co. v. Federal Trade Commission, 401 F.2d 574 (6th Cir. 1968), cert. denied, 394 U.S. 920 (1969). In issuing its order the Commission further stated that it was not limited to instances of patent abuse in employing compulsory licensing decrees, citing United States v. United Shoe Machinery Corp., supra, 110 F. Supp. at 351, where Judge Wyzanski stated: [165] [Defendant] is being required to reduce the monopoly power it has, not as a result of patents, but as a result of business practices. And compulsory licensing on a reasonable royalty basis, is in effect a partial dissolution, on a non-confiscatory basis. . . . [T]he decree does no more than what defendant’s own expert recognized would be appropriate if the Court found defendant had monopolized the shoe machinery market.

A requirement for compulsory licensing of a trademark, such as Realemon, is not essentially different from a requirement of ‘compulsory licensing of a patent. Accordingly, it is clear that the Commission has such authority and, as stated, compulsory licensing of the Realemon trademark is not only reasonably related to the violation here found, but is indispensable to the restoration of competition in the processed lemon juice industry. In this connection see Dr. Mann (Tr. 499-501, 6131-32; and findings among others, 80 through 87).

Complaint counsel propose a royalty of one-half of one percent of net sales of reconstituted lemon juice made by the licensee, pointing out that the after tax profits for manufacturers of food and kindred products for the three (3) years ending in the third quarter of 1975, was 2.88 percent of sales (FTC Quarterly Financial Reports). Under T16 FEDERAL TRADE COMMISSION DECISIONS Initial Decision, 92 F.T.C.

these circumstances, and assuming in time the processed lemon juice industry becomes as competitive as the food and kindred products industry generally, the one-half of one percent appears to the law judge to be reasonable, and is probably sufficient to compensate respondent Borden for costs attendant upon such licensing and the quality control requirements. However, if experience with. the licensing provision of the order shows after a reasonable time that the [166] cost to Borden of administering the quality control standards exceeds’ the amount of royalties received from the licensees, Borden may apply to the Commission for a modification cf the order, showing the inadequacy of the royalty and the amount which would be sufficient to compensate Borden for its expenses. Complaint counsel urge that respondent Borden be required to manufacture and pack reconstituted lemon juice, for a period of five years, for any firm other than Golden Crown or Sunkist desiring such an arrangement. The purpose of this co-packing requirement is to facilitate the entry of new producers into the processed lemon juice industry by sparing them the necessity for making an initial capital investment. The record, however, does not provide a basis for such relief.

Processed lemon juice of the type sold by Borden under the Realemon brand is a fairly simplé product to manufacture requiring relatively inexpensive equipment (Finding 9). Furthermore, complaint counsel assert that co-packing is an “accepted industry practice” (complaint counsel’s memorandum in support, p. 110) suggesting that packing facilities are available to new entrants, if needed. The co-packing provision of the proposed order does not appear necessary to restore competition to the processed lemon juice industry, and has therefore been omitted from the order issued herein. [167] BP RUE ELT, BL 669 Initial Decision VI ORDER It is ordered, That respondent, Borden, Inc.,.a corporation, for a period of ten (10) years from the date of this order, upon written request from any person, partnership, corporation or business entity engaged in or desiring to enter the business of producing and marketing processed lemon juice, grant a license to such person, partnership, corporation or business entity to use the name “Realemon” and the label design of Realemon on containers of reconstituted lemon juice. The “Realemon” name and label design may be used under such licenses in conjunction with other brand names. Such licenses shall contain no restrictions or limitations, unless approved by the Federal Trade Commission, except the following: (1) licensees must agree to disclose conspicuously on all containers of reconstituted lemon juice produced and marketed pursuant thereto the identity of the manufacturer or distributor, and (2) licenses may contain provisions (a) allowing respondent Borden to collect royalties of not more than one-half of one percent (0.5%) of the dollar sales of [168] reconstituted lemon juice produced and marketed thereunder, and (b) providing for reasonable quality control standards for the production of reconstituted lemon juice by licensees, equal to the quality of respondent Borden’s ReaLemon reconstituted lemon juice. Such quality control standards shall be administered by an independent third party or parties acceptable to both Borden, Inc., and the licensee, and such party or parties shall be compensated by Borden, Inc. If after a reasonable time it is demonstrated that the one-half of one percent royalty is inadequate to compensate Borden for the cost of administering the foregoing quality control standards, Borden may apply to the Commission for modification of this order, showing the fact and the amount of royalty which would adequately compensate it for such expenses. It is further ordered, That respondent, Borden, Inc., shall advertise the availability of the licensing provisions of this order in three significant trade journals once every three (3) months for a period of five (5) years from the date of this order. [169] It is further ordered, That Borden, Inc., and its successors and 277-685 O—-79——50 778 FEDERAL TRADE. COMMISSION. DECISIONS Opinion 92 F.C.

assigns, officers, agents, representatives and employees, directly or indirectly, or through any corporation, subsidiary, affiliate, division or other device, in connection with the production, marketing and sale of processed lemon juice in or affecting commerce, as “commerce” is defined in the Federal Trade Commission Act, shall forthwith cease and desist from:

(1) Granting price reductions, directly or indirectly, which result in different net prices among Borden’s Realemon customers competing in the same geographic area, the effect of which is to hinder, restrain or eliminate competition between respondent Borden and _ its competitors in the production, marketing and sale of processed lemon juice;

(2) Selling Realemon lemon juice below its cost or at unreasonably low prices, the effect of which is to hinder, restrain [170] or eliminate competition between respondent Borden and its competitors in the production, marketing and sale of processed lemon juice; (3) Granting promotional allowances or payments of any kind for customers’ promotional services, the effect of which is to hinder, restrain or eliminate competition between respondent Borden and its competitors in the production, marketing and sale of processed lemon juice.

It is further ordered, That Borden, Inc., shall, within sixty (60) days from the date of this order becomes final, and periodically thereafter as required by the Federal Trade Commission, submit a detailed written report of its actions, plans and progress in complying with the provisions of this order, and fulfilling its objectives. OPINION OF THE COMMISSION By PERTSCHUK, Commissioner:

The complaint in this proceeding, issued in July 1974, charged Borden, Inc., through Realemon Foods, a unit of its Borden Foods division, with unlawfully maintaining monopoly power in the production, distribution and sale of reconstituted lemon juice in the United States. On August 19, 1976, after extensive hearings, Administrative Law Judge (“ALJ’’) Daniel H. Hanscom issued an initial decision sustaining the complaint, from which Borden has appealed.

The initial decision contains a comprehensive and cogent review of the evidence, in far greater detail than this opinion will permit. The ALJ’s order contained several conduct provisions ordering Borden to 669 Opinion cease and desist from certain pricing and promotional practices. Borden was also required, for a period of 10 years, to grant a license for the use of the ““Realemon” name and label design to any person engaged in or wishing to enter the business of producing and marketing processed lemon juice.

Judge Hanscom found that Borden possessed monopoly power in the production, marketing, and sale of processed lemon juice in the United States, which he found to be the relevant market for analytical purposes. He also found that Borden had unlawfully maintained its monopoly power through a variety of acts and practices. Since the [2] dominance of the “Realemon” brand was found to be “the heart of the monopoly power” possessed and preserved by Borden, Judge Hanscom found it necessary to go beyond ordinary cease-and-desist relief and to order compulsory licensing of the “Realemon” trademark and label design in order to dissipate Borden’s monopoly power and restore competition to the processed lemon juice market.

On appeal, Borden attacks the ALJ’s conclusions with regard to the definition of the relevant market, Borden’s possession and unlawful maintenance of monopoly power, and the Commission’s power to order compulsory licensing of the “Realemon” trademark. We affirm the ALJ’s conclusions on the liability issues. However, we feel that an appropriately crafted conduct order should permit competition to flourish in the processed lemon juice market, and thus find it unnecessary to reach the question of trademark relief.” The Processed Lemon Juice Industry In the 1930’s Irvin Swartzberg founded the Realemon business when he began selling pre-squeezed lemon juice in bottles to bars, hotels and other institutional customers (Tr. 2972-73).? The product’s original attraction was [3] its convenience, as compared with squeezing fresh lemons. Over the years, Realemon began selling its juice directly to consumers, and also changed the composition of the TY The United States Department of Commerce and the United States Trademark Association, a non-profit association of businesses, filed amicus curiae briefs supporting Borden's position on the trademark licensing issue. 2 Chairman Pertschuk disagrees with the majority on this issue, as elaborated in his separate opinion on relief. 3 The following abbreviations are used herein: ID Initial Decision (Finding No.) ID p. Initial Decision (Page No.).

Tr. Transcript of Testimony, Page No.

CX Complaint Counsel's Exhibit No.

RX Respondent's Exhibit No.

RAB Respondent's Appeal Brief, Page No.

CAB Complaint Counsel’s Answering Brief, Page No. RRB Respondent's Reply Brief, Page No.

RPF Respondent's Proposed Findings of Fact and Conclusions of Law, Finding No. Opinion 92 F.T.C.

product from pre-squeezed fresh lemon juice to a reconstituted product made from lemon juice concentrate, water, and a preservative (ID 9). In the early 1940’s the company began to use the “Realemon” trademark in connection with its product, and in the ensuing years heavily advertised and promoted Realemon brand reconstituted lemon juice. In fact, for years prior to the 1970’s Realemon was the only nationally advertised and distributed brand of processed lemon juice. In 1962, Borden, Inc., purchased the Realemon-Puritan Co. for approximately $12.4 million. In 1978, Borden’s sales of Realemon reconstituted lemon juice amounted to $22 million, out of total corporate sales of over $2 billion. Reconstituted lemon juice is used primarily as an ingredient in tea, lemonade, and other foods and beverages. Among the features Realemon has stressed in its promotions are the convenience, economy, and shelf life of reconstituted lemon juice. Processed lemon juice is not difficult to manufacture (ID 9 and p. 166). The raw materials are readily available, although there have been times when lemon juice concentrate has been on allocation. There are no secret formulas or processes involved, and the product can be produced using relatively inexpensive equipment. Any plant which bottles other juices can pack processed lemon juice and, in fact, two of the facilities at which Borden bottles Realemon are used to pack other Borden products.

Since its introduction into the market, Realemon has dominated the processed lemon juice industry. Sunkist, which is the leading supplier of lemons and lemon juice concentrate to the industry, was once a national competitor, but substantially retrenched in the late 1950’s and early 1960’s (Tr. 681-82). Other competitors have generally distributed their products only on a local or regional basis (ID 102), and have frequently encountered difficulty in holding on to customers. .

As the ensuing discussion will show in greater detail, the primary reason for ReaLemon’s longstanding dominance of the processed lemon juice market has been its successful [4] product differentiation. The heavy promotion of the Realemon brand has created a strong consumer “franchise” whereby consumers typically associate the name “Realemon” with the processed lemon juice product. This product differentiation is artificial in the sense that it cannot be attributed to any superior qualities of Realemon. Product differentiation is critical to this case in two respects: (1) it enabled Borden to price its product at a level substantially above that at which other brands could be sold; (2) it gave Borden an BORDEN, INC. 781 669 Opinion instrumentality that it could use to prevent competitors from obtaining a secure position in the market. I. RELEVANT MARKET In determining whether respondent maintains monopoly power over the marketing and sale of processed lemon juice, our analysis begins with the delineation of the market or “part of commerce” in which it allegedly possesses monopoly power. United States v. EL dupont de Nemours & Co., 351 U.S. 377, 380 (1956) (“Cellophane”). The parties are agreed that the relevant geographic market is the United States as a whole, but are in sharp dispute as to the appropriate product market. Judge Hanscom determined that although the outer boundaries of a broad product market may include fresh lemons, processed lemon juice constitutes a valid submarket within which to test the allegations of the complaint. Borden argues that the ALJ erroneously employed submarket analysis in a monopolization case, and that if the appropriate legal standard were applied, processed lemon juice could not be found to be a market separate and apart from fresh lemons. [5] A. Legal Standard Judge Hanscom found that processed lemon juice constitutes “at the least, a valid submarket for antitrust purposes” (ID, p. 142), and concluded that it belonged “in a separate market or submarket from fresh lemons” (ID, p. 148). It is respondent’s contention that submarket analysis, which originally developed as a part of the law of mergers, is not appropriate in a monopolization case. The Cellophane case was the Supreme Court’s first attempt to provide an analytical framework for definition of relevant markets in antitrust cases. There, the Court delineated the relevant product market within which to test the claim that dupont had monopolized trade in violation of Section 2 as embracing not merely cellophane, of which dupont controlled almost a 75 percent share, but rather all flexible packaging materials, of which duPont’s share was under 20 percent. The Court said:

* Although this case was brought and is decided under Section 5 of the FTC Act, it sounds basically in monopolization. Accordingly, the law under Section 2 of the Sherman Act is used to provide guidance for the application of Section 5, both as to the issue of market definition and the substantive standard of illegality. It is clear that conduct constituting monopolization under Section 2 also violates Section 5. See L.G. Balfour Co. v. FTC. 442 F.2d 1, 9 (7th Cir. 1971); cf. FTC v. Cement Institute, 333 U.S. 683 (1948). In relying on the law of Section 2, however, we in no way intimate that the scope of Section 5 is bounded by the scope of Section 2. ’ Although the complaint alleged reconstituted lemon juice to be the relevant product market, complaint counsel in their pretrial brief shifted the focus of the proceeding to processed lemon juice, which is a slightly broader market consisting of frozen reconstituted lemon juice, processed fresh lemon juice, frozen fresh lemon juice, and imitation lemon juice in addition to the bottled reconstituted variety (ID 8). Opinion 92 FTC.

In considering what is the relevant market. for determining the control of price and competition, no more definite rule can be declared than that commodities reasonably interchangeable by consumers for the same purposes make up that “part of the trade or commerce,” monopolization of which may be illegal. 351 U.S. at 395. If price changes in one product materially affect the sales of another, such responsiveness, or cross-elasticity of demand, suggests that the products in question should be treated as being part of the same market. Jd. at 400. Respondent argues, on the basis of the Cellophane standard, that the relevant product market in this proceeding “must be nothing less inclusive than the total ‘lemon juice’ market,” including both bottled lemon juice and the juice of fresh lemons (RAB 19).

Six years after the Cellophane decision, the Supreme Court elaborated on the appropriate test for market definition in Brown Shoe Co. v. United States, 370 U.S. 294 (1962). The Court stated: [6] The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. However, within this broad market, well-defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. Id. at 325. The Court then described the criteria to be applied in determining the existence of submarkets:

The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.

Id.

We cannot accept respondent’s view that the Brown Shoe submarket criteria, by now well established in the law, are of no relevance in this proceeding. The Brown Shoe formulation reflects a synthesis of the “reasonable interchangeability” test of Cellophane and the “peculiar characteristics and uses” standard employed in United States v. EL. dupont de Nemours & Co., 353 U.S. 586, 593-94 (1957) (“General Motors”). Cf. Sargent-Welch Scientific Co. v. Ventron Corp., 567 F.2d 701, 710 (7th Cir. 1977), petition for cert. filed, 46 U.S.L.W. 3695 (U.S. May 1, 1978)(No. 77-1566). Thus the same market analysis must be undertaken in actions charging violation of the antimonopoly provisions of the Sherman Act as in actions charging violation of the antimerger provisions of the Clayton Act. See e.g., Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1271 (9th Cir. 1975).

BORDEN, INC. 783 669 Opinion In United States v. Grinnell Corp., 384 U.S. 563, 573 (1966), the Supreme Court observed that there is “no reason to differentiate between ‘line’ of commerce in the context of the Clayton Act and ‘part’ of commerce for purposes of [7] the Sherman Act.”* This view was adopted by the Seventh Circuit in L.G. Balfour Co. v. FTC, 442 F.2d 1, 11 (Vth Cir. 1971), which expressly held that submarket criteria may appropriately be used to define the relevant market in a monopolization case arising under Section 5 of the FTC Act. Citing Grinnell, the court noted that [N]o policies have been proffered by petitioners to show why the submarket analysis of Section 7 should not also be applicable to Section 2 cases. The ultimate objective of the criteria is to delineate markets which conform to areas of effective competition and to the realities of competitive practice.’ Id. A number of recent Sherman Act cases discussing the issue have recognized the propriety of using submarket analysis in a monopoli- ‘zation case. See, eg, Columbia Metal Culvert Co. v. Kaiser Aluminum & Chemical Corp., 1978-1 Trade Cas. 62,064, at 74,623-24 (3d Cir. May 24, 1978); Greyhound Computer Corp. v. International Business Machines Corp.,559 F.2d 488, 494 n.7 (9th Cir. 1977), cert. denied, 434 U.S. 1040 (1978); Cass Student Advertising, Inc. v. National Educational Advertising Service, Inc., 516 F.2d 1092, 1094- 95 (7th Cir.), cert. denied, 423 U.S. 986 (1975); George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 508 F.2d 547, 552-54 (1st Cir. 1974), cert. denied, 421 U.S. 1004 (1975); Case-Swayne Co. v. Sunkist Growers, Inc., 369 F.2d 449, 454-55 (9th Cir. 1966), rev’d on other grounds, 389 U.S. 384 (1967); cf. Heatransfer [8] Corp. v. Volkswagenwerk, A.G., 553 F.2d 964, 980 (5th Cir. 1977), cert. denied, 434 U.S. 1087 (1978); Sargent-Welch Scientific Co. v. Ventron Corp., supra, 567 F.2d at 710-11; United States v. Empire Gas Corp., 587 F.2d 296, 304 (8th Cir. 1976), cert. denied, 429 U.S. 1122 (1977). But cf. United States v. Mrs. Smith’s Pie Co., 440 F. Supp. 220, 230 (E.D. Pa. 1976). Thus, we believe it is well settled that the same standard for delineation of the relevant market may be applied in cases whether they are brought under the Sherman, Clayton, or Federal Trade y What was made explicit in Grinnell — that “[i]Jn §2 cases under the Sherman Act, as in §7 cases under the Clayton Act. . . there may be submarkets that are separate economic entities,” 384 U.S. at 572, — was intimated prior to Brown Shoe in International Boxing Club, Inc. v. United States, 358 U.S. 242 (1959), a monopolization case. Applying the reasonable interchangeability test enunciated in Cellophane. the Court concluded that championship boxing “‘is a sufficiently separate part of the trade or commerce to constitute the relevant market for Sherman Act purposes.” Jd. at 252. In language that bridges the apparent differences in the language of Cellophane and General Motors, the Court determined that “[b]y analogy [championship boxing] bears those sufficiently ‘peculiar characteristics’ found in automobile fabrics and finishes such as to bring them within the Clayton Act's ‘line of commerce’ [citing General Motors]. Id. at 252 n.8, See also United States v. Columbia Pictures Corp., 189 F. Supp. 153 (S.D.N.Y. 1960).

7 The court also observed in this connection that “the Commission under Section 5 is not bound to follow antitrust standards as strictly as the courts must under the Sherman and Clayton Acts.” 442 F.2d at 11. Opinion 92 FTC.

Commission Acts. See Luria Bros. & Co., 62 F.T.C. 248, 604 (1968), aff'd, 389 F.2d 847 (8d Cir.), cert. denied, 393 U.S. 829 (1968); cf. Z.G. Balfour Co. v. FTC, supra, 442 F.2d at 11; Columbia Broadcasting System, Inc. v. FTC, 414 F.2d 974, 978-79 (7th Cir. 1969), cert. denied, 397 U.S. 907 (1970).

B. Application of Submarket Criteria On the basis of the Brown Shoe criteria, the administrative law judge determined that processed lemon juice was a valid submarket within which to test the allegations of the complaint. After an examination of the record in light of the relevant criteria we agree with the ALJ’s conclusion.

1. Unique Characteristics Although it is true that consumers can substitute fresh lemons for processed lemon juice (and vice versa) in some and uses-that is, there is some functional interchangeability between the two products unique taste and convenience factors substantially differentiate processed lemon juice from fresh lemons.® Cf. United States v. Grinnell Corp., supra, 384 U.S. at 573-74; Smithkline Corp. v. Eli Lilly & Co., 427 F. Supp. 1089, 1116-18 (E.D. Pa. 1976), aff'd. 1978-1 Trade Cas. {62,007 (3d Cir. April 3, 1978), petition for cert. filed, 47 U.S.L.W. 3009 (U.S. June 30, 1978) (No. 77-1869); United States v. Lever Bros. Co., 216 F. Supp. 887, 891(S.D.N.Y. 1963); United States v. Mrs. Smith’s Pie Co., supra, 440 F. Supp. at 228; Union Carbide Corp., 59 F.T.C. 614, 653 (1961). Because the processed juice can be stored for longer periods without spoilage (Tr. 980-81, 1202-03, 2630) and, as stressed in Realemon promotions (RX 196; RX 203; RX 546, p. 6), can be ready for use without preparation, it has been generally recognized by consumers as a convenience product (CX 2, p. 678). The superior taste and palatability of the fresh [9] juice has been recognized by consumers (CX 286, pp. 16-18) and industry (Tr. 3969) alike. This is attributable partly to the presence in processed juice of sulfur dioxide, which is used as an additive to prevent spoilage (CX 2, p. 674). Because of substantial differences in palatability, many consumers will use the processed variety for general family needs, but reserve the fresh juice for special occasions (Tr. 5025; CX 286, p. 22). Others will do entirely without lemon juice if the fresh variety is unavailable (CX 286, p. 27).

Respondent’s experts relied on statistical data comparing the * Some degree of interchangeability does not, by itself, rebut the existence of submarkets. See, e.g, General Foods Corp: v. FTC, 386 F.2d 936, 940 (3d Cir. 1967), cert. denied, 391 U.S. 919 (1968). BORDEN, INC. 785 669 Opinion usage patterns and user profiles of fresh lemons and processed lemon juice in concluding that the two products competed in. the same relevant market (RX 318-29; Tr. 5144-45, 5755).2 However, we agree with complaint.counsel’s expert (Tr. 6127-29) that it is impossible to determine the extent of competition between the two products from the mere tabulation of similar uses and demographic data regarding users of the two products.? 2. Industry and Public Recognition The recognition of separate markets or submarkets by industry members has been identified as an important factor in market analysis. See, e.g., General Foods Corp. v. FTC, 386 F.2d 936, 941 (3d Cir. 1967), cert. denied, 391 U.S. 919 (1968). Identifying what firms and what products a particular company views as competitors, both in general corporate decision-making and, in particular, in making pricing decisions, is an important indicium of industry recognition of the bounds of the market. Jd. See also Abex Corp. v. FTC, 420 F.2d 928, 930-31 (6th Cir.), cert. denied, 400 U.S. 865 (1970); General Foods, supra, at 941; United States v. Pennzoil Co., 252 F. Supp. 962, 972 (W.D. Pa. 1965). The extent to which industry members recognize other products as exerting competitive influences on them has a direct bearing on the existence and degree of competition. [10] There is considerable record evidence of respondent’s recognition of the processed lemon juice market as a separate and distinct economic entity. Although one objective of respondent’s advertising strategies was enlargement of the processed lemon juice market by the conversion of fresh conclusion users to Realemon (e.g., CX 8, p. 788), on a day-to-day basis price promotional activities were aimed at the low-priced competition posed by other manufacturers of processed lemon juice (e.g., CX 1, p. 656; CX 2, p. 700; CX 3, p. 792). Respondent’s Marketing Plans calculated ReaLemon’s market share on the basis of all manufacturers of processed lemon juice, without reference to fresh lemon sales. (CX 1, pp. 639-40; CX 2, p. 669, CX 3, pp. 790-91; CX 4, pp. 853-55). Respondent’s assertion that the competitive market includes fresh lemons is further belied by the testimony of the President of the Realemon Foods Division, who stated that on a day-to-day basis the concern was with other S Similar statistical data collected by the same organization were held to be unpersuasive in establishing frozen dessert pies to be in the same market as other dessert. products in United States v. Mrs. Smith's Pie Co., supra, 440 F. Supp. 220, 226-27 (E.D. Pa. 1977).

5 1 4 3 1 2 720 2455 22 18 92.863976 In5 1 4 3 1 3 760 2455 77 19 96.435898 United5 1 4 3 1 4 850 2455 69 19 92.929375 States5 1 4 3 1 5 933 2461 17 12 91.976997 v.5 1 4 3 1 6 964 2455 126 20 96.004715 Aluminum5 1 4 3 1 7 1105 2455 31 20 96.154396 Co.5 1 4 3 1 8 1152 2456 27 24 96.154396 of5 1 4 3 1 9 1187 2457 100 20 96.440117 America,5 1 4 3 1 10 1303 2456 37 20 76.111290 3175 1 4 3 1 11 1357 2456 44 20 95.169800 U.S.5 1 4 3 1 12 1417 2457 42 22 93.647324 271,5 1 4 3 1 13 1475 2457 37 19 95.742523 2755 1 4 3 1 14 1526 2458 67 22 93.248581 (1964)5 1 4 3 1 15 1607 2458 185 24 66.804718 (“Alcoa-Rome), the fact that insulated copper conductor comprised 22.8 percent of the gross additions to insulated overhead distribution lines, which was the most important end use for insulated aluminum conductor, did not preclude placing the two products in separate submarkets.

Opinion 92 F.T.C.

manufacturers of processed juice (Tr. 1783). Moreover, correspondence in respondent’s own files by and between Realemon, Borden, salesmen, and brokers relating to competitive conditions discussed conditions in the processed lemon juice market only. See CX 81. The evidence shows that other manufacturers of processed lemon juice structured their prices in relation to Realemon, and not to fresh lemons (e.g., Tr. 158-89, 546-47, 686-87). In making decisions on purchases of the processed variety, retail grocery buyers did not consider either the price or movement of fresh lemons (e.g., Tr. 1963, 974). Similarly, the Lemon Administrative Committee, which operates under the supervision of the United States Department of Agriculture and determines the volume of lemons to be shipped pursuant to the federal marketing agreement, does not consider the availability of processed juice in reaching its determinations. (Tr. 1712-18).

8. Price Differences Substantial price differences may place two products in separate markets, although price alone will not always be a determining factor. Compare Cellophane, supra, 351 U.S. at 396, with Philadelphia World Hockey Club, Inc., v. Philadelphia Hockey Club, Inc., 351 F. Supp. 462, 501-02 (E.D. Pa. 1972). See also Alcoa-Rome, supra, 377 USS. at 276. In the Hockey Club case the district court’s determination that major league professional hockey was a separate market from minor and amateur league hockey was based in part on a much higher average ticket price for major league hockey than for the other two. See also International Boxing Club, Inc. v. United States, 358 U.S. 242, 250-51 (1959). The evidence shows that juice squeezed from fresh lemons [11] costs from three to five times more than Realemon, and from four to seven times more than other bottled lemon juices, depending upon fluctuations in the price of fresh lemons. The substantial price difference was stressed in Realemon advertising (Tr. 4557; RX 546, p. 6; RX 375). Complaint counsel’s economic expert testified that a sustained price differential of this magnitude is itself strong evidence that the two products are not close substitutes (Tr. 6180, 6186-87). Cf. General Foods, supra, 386 . F.2d at 942; Reynolds Metals Co. v. FTC, 309 F.2d 228, 229 (D.C. Cir. 1962).

4. Price Sensitivity Since market analysis concerns the identification of products that exert competitive pressures on the product in question, products that — eee, ne 669 Opinion respond to each other’s price changes are likely to be included in the same relevant market, while products that do not exhibit such responsiveness may be held to be in separate markets. See Cellophane, supra, 351 U.S. at 400. The record is replete with evidence that competitive conditions in the fresh lemon market have no impact on the sales or price of processed lemon juice (eg, Tr. | 4557). Buyers for the large grocery chains testified that increases in the price of fresh lemons are not accompanied by an increase in the sales of the bottled variety (Tr. 1521-22; Tr. 2628-29). Moreover, the price of fresh lemons changes on a week-to-week basis (Tr. 4623; CX 371) while the price of Realemon exhibits much less volatility (e. g. CX 37-54). Cf. Smithkline, supra, 1978-1 Trade Cas. at 74,303; General Foods, supra, 386 F.2d at 942.

Respondent’s expert witness conducted a study of the “elasticity of substitution,” between processed lemon juice and fresh lemons, the results of which purported to show substantial interchangeability between the two products (RX 330-34; Tr. 5187, 5760-61). We agree with the ALJ [12] that there are substantial defects in the study, particularly in the absence of a reliable figure for ‘“own-price elasticity.” * See ID pp. 187-42. We do not view respondent’s study or the conclusions drawn therefrom as reliable, in the face of the overwhelming evidence in the record demonstrating that processed lemon juice and fresh lemons may be found to be in separate markets."

5. Other Submarket Criteria The marketing of products through distinct channels of distribution has been recognized as a factor indicating that the products are in different competitive markets. See, eg., United States v. Mrs. Smith’s Pie Co., supra, 440 F. Supp. at 229; United States v. Blue Bell, Inc., 395 F. Supp. 538, 546 (M.D. Tenn. 1975). Fresh lemons are marketed through produce brokers, who then sell through produce wholesalers (Tr. 744, 6203), while processed lemon juice is sold through grocery brokers or salesmen (Tr. 180, 149-50, 540). It is 5 1 6 1 1 2 667 2065 121 25 94.895744 “Elasticity5 1 6 1 1 3 798 2066 23 19 96.982880 of5 1 6 1 1 4 829 2067 150 19 92.798805 substitution”5 1 6 1 1 5 989 2067 18 19 96.442741 is5 1 6 1 1 6 1024 2073 5 13 96.442741 a5 1 6 1 1 7 1041 2073 96 13 96.736053 measures 1 6 1 1 8 1147 2068 24 19 96.761292 of5 1 6 1 1 9 1179 2068 45 20 96.519821 how5 1 6 1 1 10 1235 2069 36 19 96.882652 thes 1 6 1 1 11 1283 2070 54 19 96.838928 ratios 1 6 1 1 12 1346 2070 24 19 96.998596 of5 1 6 1 1 13 1378 2070 37 19 96.961601 thes 1 6 1 1 14 1424 2070 101 20 96.981377 demands5 1 6 1 1 15 1536 2071 32 19 96.966133 for5 1 6 1 1 16 1579 2074 40 16 96.675613 two5 1 6 1 1 17 1629 2073 98 22 96.635902 products5 1 6 1 1 18 1737 2074 91 24 96.838882 changes5 1 6 1 1 19 1837 2081 24 13 96.941078 as5 1 6 1 1 20 1872 2076 35 19 96.566429 thea 1 6 1 2 0 596 2099 558 25 -1 5 1 6 1 2 1 596 2099 54 19 96.919250 ratios 1 6 1 2 2 656 2099 24 19 96.787064 of5 1 6 1 2 3 685 2099 56 19 96.477318 theirs 1 6 1 2 4 748 2100 114 22 96.859253 respective5 1 6 1 2 5 869 2100 67 23 96.679153 prices5 1 6 1 2 6 943 2100 91 23 96.733315 changes5 1 6 1 2 7 1041 2100 40 23 96.701660 (Tr.5 1 6 1 2 8 1090 2100 64 24 94.261162 5149).3 1 6 2 0 0 593 2132 1314 221 -1 4 1 6 2 1 0 638 2132 1269 32 -1 5 1 6 2 1 1 638 2132 158 23 41.161186 “Own-prices 1 6 2 1 2 803 2132 117 24 87.268875 elasticity”5 1 6 2 1 3 928 2133 65 19 96.334427 refers5 1 6 2 1 4 1001 2135 21 17 96.911606 to5 1 6 2 1 5 1030 2133 36 20 96.002464 thes 1 6 2 1 6 1073 2133 63 20 96.794922 effects 1 6 2 1 7 1143 2134 40 20 96.971603 of5 1 6 2 1 8 1176 2128 13 37 96.971603 a5 1 6 2 1 9 1192 2136 104 22 28.140167 product's5 1 6 2 1 10 1304 2142 44 13 96.864754 owns 1 6 2 1 11 1357 2136 56 24 96.702682 prices 1 6 2 1 12 1420 2142 26 13 96.702682 on5 1 6 2 1 13 1456 2137 25 18 96.894142 its5 1 6 2 1 14 1488 2137 90 20 93.274742 demands 1 6 2 1 15 1587 2138 113 23 74.276138 (Tr..5169).5 1 6 2 1 16 1708 2139 118 25 96.462250 Obviously,5 1 6 2 1 17 1836 2141 71 20 96.911400 unless4 1 6 2 2 0 595 2165 1312 31 -1 5 1 6 2 2 1 595 2170 40 14 96.962227 ones 1 6 2 2 2 647 2165 71 20 96.192505 knows5 1 6 2 2 3 731 2165 45 19 96.968239 how5 1 6 2 2 4 789 2166 61 19 96.368858 much5 1 6 2 2 5 863 2166 23 19 96.292107 of5 1 6 2 2 6 896 2172 12 13 96.954803 a5 1 6 2 2 7 920 2166 81 24 96.950417 changes 1 6 2 2 8 1013 2167 20 18 95.861168 in5 1 6 2 2 9 1046 2166 90 20 96.553925 demands 1 6 2 2 10 1149 2168 31 18 96.958008 for5 1 6 2 2 11 1192 2174 12 13 96.958008 a5 1 6 2 2 12 1216 2168 88 23 96.868599 products 1 6 2 2 13 1316 2169 17 19 96.880562 is5 1 6 2 2 14 1344 2170 75 18 96.741249 caused5 1 6 2 2 15 1432 2169 25 25 96.594955 by5 1 6 2 2 16 1469 2169 92 25 96.594955 changes5 1 6 2 2 17 1573 2171 21 19 96.965141 in5 1 6 2 2 18 1608 2171 26 20 96.965141 its5 1 6 2 2 19 1645 2178 46 13 97.005173 owns 1 6 2 2 20 1705 2173 61 23 96.268524 price;5 1 6 2 2 21 1778 2179 39 14 96.268524 ones 1 6 2 2 22 1829 2177 78 17 96.798271 cannot4 1 6 2 3 0 595 2198 1309 33 -1 5 1 6 2 3 1 595 2198 115 20 96.436600 determines 1 6 2 3 2 721 2199 50 19 96.832092 with5 1 6 2 3 3 782 2205 40 18 96.434364 any5 1 6 2 3 4 833 2205 113 13 96.478027 assurances 1 6 2 3 5 957 2199 45 19 96.410126 how5 1 6 2 3 6 1012 2200 61 19 95.302063 much5 1 6 2 3 7 1085 2200 17 19 95.302063 is5 1 6 2 3 8 1111 2200 138 21 96.502190 attributable5 1 6 2 3 9 1260 2203 20 18 96.593941 to5 1 6 2 3 10 1291 2202 35 19 96.849762 thes 1 6 2 3 11 1336 2202 80 24 96.674461 changes 1 6 2 3 12 1426 2203 21 18 96.567093 in5 1 6 2 3 13 1457 2203 91 20 96.750229 another5 1 6 2 3 14 1558 2204 103 23 73.997673 product's5 1 6 2 3 15 1672 2205 56 24 96.858177 prices 1 6 2 3 16 1738 2207 47 23 21.926338 (e.g.5 1 6 2 3 17 1797 2207 32 19 96.591225 Tr.5 1 6 2 3 18 1841 2207 63 24 95.687088 6027).4 1 6 2 4 0 594 2231 1310 37 -1 5 1 6 2 4 1 594 2231 91 20 96.905937 Because5 1 6 2 4 2 694 2232 142 24 73.466949 respondent's5 1 6 2 4 3 844 2234 74 22 96.961990 experts 1 6 2 4 4 925 2232 34 20 96.550674 did5 1 6 2 4 5 967 2234 38 18 96.851471 not5 1 6 2 4 6 1012 2233 52 19 96.750412 have5 1 6 2 4 7 1072 2233 49 20 96.601776 data5 1 6 2 4 8 1131 2234 31 19 97.005730 for5 1 6 2 4 9 1170 2234 35 20 93.305267 thes 1 6 2 4 10 1213 2235 112 23 93.018486 own-prices 1 6 2 4 11 1332 2235 103 25 96.993401 elasticity5 1 6 2 4 12 1442 2236 23 19 96.754166 of5 1 6 2 4 13 1471 2236 55 20 96.754166 fresh5 1 6 2 4 14 1535 2237 81 20 96.122169 lemons5 1 6 2 4 15 1623 2244 23 13 96.708450 or5 1 6 2 4 16 1653 2239 108 22 96.704506 processed5 1 6 2 4 17 1770 2239 67 20 96.810081 lemons 1 6 2 4 18 1843 2237 61 31 96.228142 juice,4 1 6 2 5 0 595 2265 1310 32 -1 5 1 6 2 5 1 595 2265 26 19 96.970222 he5 1 6 2 5 2 631 2265 49 19 96.951324 used5 1 6 2 5 3 691 2271 69 18 96.951324 sugar,5 1 6 2 5 4 772 2265 31 19 96.991676 for5 1 6 2 5 5 812 2265 67 20 96.983887 which5 1 6 2 5 6 891 2266 50 19 96.548492 such5 1 6 2 5 7 952 2265 49 20 96.983673 data5 1 6 2 5 8 1012 2272 53 14 96.483299 were5 1 6 2 5 9 1075 2267 110 22 96.684586 available,5 1 6 2 5 10 1196 2274 23 13 96.684586 as5 1 6 2 5 11 1229 2274 12 13 96.748726 a5 1 6 2 5 12 1253 2274 69 18 96.980598 proxy.5 1 6 2 5 13 1333 2268 43 20 96.933502 Thes 1 6 2 5 14 1387 2269 112 24 96.631889 testimony5 1 6 2 5 15 1509 2270 23 19 96.883301 of5 1 6 2 5 16 1539 2271 116 23 96.635506 complaints 1 6 2 5 17 1663 2272 103 19 39.021179 counsel's5 1 6 2 5 18 1775 2276 73 21 96.574577 experts 1 6 2 5 19 1858 2274 47 19 96.293190 that4 1 6 2 6 0 593 2298 1310 31 -1 5 1 6 2 6 1 593 2298 51 19 96.447075 such5 1 6 2 6 2 654 2304 12 13 96.932098 a5 1 6 2 6 3 676 2298 71 19 96.895798 choices 1 6 2 6 4 757 2304 41 14 96.869301 was5 1 6 2 6 5 808 2298 133 25 96.555939 speculative,5 1 6 2 6 6 952 2299 67 20 96.551971 which5 1 6 2 6 7 1030 2305 29 14 96.661949 we5 1 6 2 6 8 1069 2300 43 20 96.661949 finds 1 6 2 6 9 1124 2301 125 23 96.532127 persuasive,5 1 6 2 6 10 1259 2304 55 17 96.870102 casts5 1 6 2 6 11 1324 2302 63 19 96.845505 doubts 1 6 2 6 12 1396 2308 26 14 96.182907 on5 1 6 2 6 13 1433 2302 36 20 96.956184 thes 1 6 2 6 14 1479 2303 86 24 92.444023 validity5 1 6 2 6 15 1575 2304 23 19 89.725182 of5 1 6 2 6 16 1605 2304 36 19 96.686218 thes 1 6 2 6 17 1651 2305 130 20 96.686218 conclusions5 1 6 2 6 18 1790 2307 40 22 93.243942 (Tr.5 1 6 2 6 19 1842 2307 61 19 89.726524 6029-4 1 6 2 7 0 593 2331 38 22 -1 5 1 6 2 7 1 593 2331 38 22 96.509201 30).3 1 6 3 0 0 592 2364 1312 91 -1 4 1 6 3 1 0 635 2364 1269 34 -1 5 1 6 3 1 1 635 2367 13 10 46.782875 Even if the data accurately represented the elasticity of substitution between the two products it appears that the figure derived is well below the range in which two products would be considered in the same market (Tr. 6033-38; see also Tr. 6124-26).

Opinion 92 F.T.C.

particularly significant that Sunkist and Ventura Coastal, which sell both fresh lemons and processed juice, have separate marketing groups for distribution of the two products. (Tr. 678; 738-39). Finally, it is clear that fresh lemons and processed lemon juice are produced in very different facilities, and there is no supply-side _ interchangeability between the two products (ID 68). [13] C. Summary To summarize, our examination of the factors outlined in Brown Shoe in light of the record developed in this proceeding supports the conclusion that processed lemon juice constitutes the relevant product market within which to test the allegations of the complaint. Moreover, on this record, the supply and demand characteristics and relationships of processed lemon juice and fresh lemons are sufficiently distinct that they are not “reasonably interchangeable” within the meaning of Cellophane. Cf. United States v. Grinnell Corp., supra, 384 U.S. at 573-75; Smithkline, supra, 1978-1 Trade Cas. 62,007 (8d Cir. April 3, 1978), petition for cert. filed, 47 U.S.L.W. 3009 (U.S. June 30, 1978) (No. 77-1869). In particular, the significant and longstanding price difference between the two products, and the lack of any demonstrated price responsiveness between them, persuade us that processed lemon juice is an appropriate “part of commerce” in this case even without resort to the Brown Shoe criteria. See Tr. 6130.

II. MONOPOLIZATION The offense of monopolization has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).

A. Monopoly Power Monopoly power is defined as the power to control prices or exclude competition. United States v. Grinnell Corp., supra, 384 U.S. at 571; Cellophane, supra, 351 US. at 391 (1956); American Tobacco Co. v. United States, 328 U.S. 781, 811 (1946). The existence of monopoly power can ordinarily be inferred from a predominant share of the market. United States v. Grinnell Corp., supra, at 571. The record demonstrates that Borden possesses monopoly power, as it is commonly understood, in the processed lemon juice market. BORDEN, INC. 189 669 Opinion © Realemon has persistently controlled a monopoly share of the processed lemon juice market. Data compiled by complaint counsel show that during 1969-74, Borden’s market share ranged from 75.3- 88.7% on a gallonage basis and 77.8 - 88.9% on a dollar basis [14] (CX 239; Tr. 2806). Similar estimates are derived from Borden’s marketing plants. For example, data collected and published by Selling Areas - Marketing, Inc. (“S.A.M.I.”)** showed ReaLemon’s nation-_ wide market share hovering around the 90% mark during 1970-72 (CX 1, p. 639; CX 2, pp.668, 706; CX 3, pp. 787, 759). In April - May 1974, “S.A.M.I.” data showed Borden holding market shares over 70% in 27 of 30 major metropolitan markets, over 80% in 17 such markets, and over 90% in 7 such markets (CX 258). Similarly, for the 52 weeks ending August 31, 1973, Borden’s market share exceeded 70% in 23 of the same 30 markets, and exceeded 80% in 12 such markets. (CX 4, p. 883). Local market breakdowns indicate continuous dominance by Realemon in most metropolitan areas throughout 1971-74, with market shares generally well in excess of 75% (CX 258).

Without question, these market shares are well within the range of those found to evidence monopoly power in prior cases,!® and show sufficient dominance on the part of Borden to justify an inference of monopoly power. United States v. Grinnell Corp., supra. We need not rely solely on inferences drawn from dominant market share, however, for the record offers ample evidence that Borden possessed. and exercised the power to control prices and exclude competition. Although Realemon brand reconstituted lemon juice is virtually [15] indistinguishable in its properties from competing brands of processed lemon juice (e.g., CX 1, p. 650; CX 2, p. 673),'°© Realemon was consistently able to command a substantial price premium over the price at which other brands sold (e.g, Tr. 978, 1188, 1515-16, 1628, 1850, 1960-61, 1987, 2104-06, 2606-07). As the 1971 Realemon Marketing Plan stated:

In a completely unique situation, Realemon Lemon Juice presently commands a ‘* Selling Areas - Marketing Inc. is a recognized, well-established market research organization. “S.A.M.1.” data are considered reliable and are used by Borden and its competitors in making business decisions (ID 71). 1s E.g., United States v. Grinnell Corp., supra. 384 U.S. at 567 (87%); International Boxing Club, Inc, v. United States, 358 U.S. 242, 249 (1959) (81%), American Tobacco Co. v. United States, 328 U.S. 781, 196-97 (1946) (68%); Case-Swayne Co. v. Sunkist Growers, Inc. 369 F.2d 449 (9th Cir. 1966), rev'd on other grounds, 389 U.S. 384 (1967) (67%), Power Replacements Corp. v. Air Preheater Co., 356 F. Supp. 872 (E.D. Pa. 1973) (15%). See also Greyhound Computer Corp. v. International Business Machines Corp., 559 F.2d 488, 496 n.18 (9th Cir. 1977), cert. denied, 434 U.S. 1040 (1978).

+6 It appears that Golden Crown, a competing brand, may have sold an adulterated product (ID pp. 131-32), and it is thus possible that consumers may have preferred the taste of Realemon to Golden Crown (see CX 3, p. 756; but see, e.g., Tr. 1514). However, the record does not indicate any objective differences in quality between Realemon and any of the other brands of processed lemon juice, and ReaLemon’s Marketing Plans acknowledged the fungible nature of the product (ID 83).

Opinion 92 F.T.C.

premium of as high as 25 to 30 cents per unit over competitive offerings. No such differential on any other foods product, frozen or non-frozen, exists anywhere in the industry. :

CX 1, p. 665. The premium sometimes exceeded 30%. (CX 38, p. 740; CX 4, p. 855). This price differential, achieved through the successful differentiation of the Realemon brand, served as the instrument by which Borden could control prices and entry in the processed lemon juice market.

The Realemon brand provides almost a case study of product differentiation. In the 1972 Marketing Plan, ReaLemon’s president described the brand as “one of the greatest brand names in the history of the supermarket” (CX 2, p.. 670). Witnesses consistently referred to the Realemon name as “almost generic” (Tr. 1284), or “almost a generic term” (Tr. 1022); as one grocery buyer put it, “Lemon juice was almost synonymous, as far as a grocery product was concerned, with Realemon” (Tr. 1514; see also Tr. 3436 (“synonymous with the name”)). Another grocery buyer summarized ReaLemon’s success in differentiating its brand name from other competing brands:

Personally I think that the Realemon people, being in the Wisconsin market, for the length of time that they have built a brand image that they have, that when a consumer walks into a retail store to pick up a bottle of concentrated [16] lemon juice, she’s got in her mind that it is Realemon, regardless of whose it is; and we found this true in many other categories that we carry. The first in, that constantly promotes their own brand themselves, seems to almost create a brand identity in the consumer’s mind that she just can’t get out of it. Tr. 1960-61. See generally ID 83-85. That this was Borden’s intention is clear from the objective stated in the 1971 Marketing Plan.

Although reconstituted lemon juice is virtually indistinguishable one brand from another, heavy emphasis on the Realemon Brand name through its media effort should create such memorability for the brand, that an almost imaginary superiority would exist in the mind of the consumer, a justification for paying the higher price we are asking.

CX 1, p. 650.

Dr. Michael Mann, complaint counsel’s economic expert, testified that a new entrant into a market dominated by a firm with a successfully differentiated product such as Realemon might try to detach customers from the dominant brand by charging a lower price. The firm in the dominant position could then reduce its price, to narrow or even eliminate the price differential, and thereby prevent the new entrant from becoming a significant competitor. DUNRUDIN, LINU. tan 669 Opinion The new entrant would then be forced to respond by further lowering its price so as to restore the original price differential which is considered necessary to detach customers. Dr. Mann testified that this could set in motion a “ratchet effect” that could ultimately drive the entrant out of the market, since the price charged by the new entrant would likely be the first to fall below average variable cost. (Tr. 956-57; ID 96-97). It is precisely this situation that existed in the processed lemon juice market. ReaLemon’s competitors perceived the need to price their products at a level below Realemon in order to capture sales and supermarket shelf space (Tr. 158-59, 650-52, 687). Realemon likewise recognized its ability to preserve its dominant market share by maintaining the existing price differential vis-a-vis competing brands (ID 99). [17] The Commission discussed the effect of product differentiation as an entry barrier in Procter & Gamble Co., 63 F.T.C. 1465 (1963), vacated & remanded 358 F.2d 74 (6th Cir. 1966), rev'd, 386 U.S. 568 (1967): ° [I]Jn an industry in which product differentiation is an important factor, not only may the new entrant find it especially difficult to pry customers loose from the established firms, but the higher price obtainable for a brand that has been successfully differentiated in the public mind from competing brands may impart a flexibility in pricing, akin to that imparted by cost advantages, which the newcomer may not be able to achieve for many years.

63 F.T.C. at 1553. The successful differentiation of the Realemon brand thus served not only as a restraint on competitors’ prices, but as a barrier to entry.

There was abundant industry testimony to the effect that supermarket shelf space is limited, and that if a supermarket had room on its shelves for only one brand of lemon juice, that brand would be Realemon (ID 86). The record also establishes that Borden enjoyed tremendous advantages over its competitors in terms of advertising and promotion (ID 91-94). For example, between 1969 and 1973 Realemon spent $3.8 million on advertising (CX 288), while competitors’ expenditures were negligible (CX 2, p. 681; CX 3, p. 772). ReaLemon’s total expenditures on advertising and promotion during the same period were $13.8 million (CX 288). Finally, although there is sharp dispute between the parties as to whether Realemon earned an above average rate of return on assets, the weight of evidence supports the ALJ’s finding that Realemon persistently earned a rate of return far above the norm, Opinion 92 FTC.

both for manufacturing corporations generally and for food [18] manufacturing corporations. (ID 89-90; Tr. 6118, 6121).17 This persistent high profitability is further evidence of Borden’s monopoly power (Tr. 6131, 6152). See United States v. General Electric, Co., 82 F. Supp. 753, 894-95 (D.N.J. 1949).

Thus, with a dominant share of the market, a dominant tradename which was virtually synonomous with processed lemon juice, a persistent ability to command supermarket shelf space and premium prices despite an essentially fungible product, and high profitability, Borden clearly possessed ‘monopoly power in the processed lemon juice market.

B. Maintenance of Monopoly Power Under the Grinnell test, supra, it is not sufficient to show the mere possession of monopoly power; it must also be shown that that power was [19] willfully acquired or maintained. Since Realemon was the first firm to develop and market a bottled lemon juice, it naturally had a monopoly in that market at the outset.’* The record makes clear, however, that it later took steps to ensure that that monopoly position would not be lost or eroded, and engaged in acts and practices designed to frustrate competition. 1.. General Principles It is important to recognize that acts and practices need not in themselves be independently unlawful or predatory to constitute acts and practices of monopolization. See eg., United States v. Griffith, 334 U.S. 100, 105 (1948); American Tobacco Co. v. United States 328 U.S. 781, 809, 814 (1946); United States v. Aluminum Co. of America, 148 F.2d 416, 481-32 (2d Cir. 1945) (“Alcoa”); United States v. United Shoe Machinery Corp., 110 F. Supp. 295, 344-45 (D. Mass. 7 The parties disagree as to whether, in computing ReaLemon's rate of return on assets, one should disregard the sum of $9,602,895, which represents the difference between the price Borden paid for the Realemon-Puritan Company and that company's adjusted net worth at that time. Complaint counsel's witness computed rates of return excluding that figure, and arrived at rates ranging from 16.9 to 35.2% during 1968-73 (CX 294). This compares, for the same period, with a range of 5.0 to 6.9% for all manufacturing corporations, and 5.5 to 6.4% for the food and kindred products industries (CX 300-01). Respondent argues that the $9.6 million figure is appropriately treated as good will, and hence part of the asset base for computation of rate of return. By respondent's calculation, ReaLemon’s rate of return ranged from 8.1 to 10.2% during 1968-1973 (RX 363). If Realemon had never been acquired by Borden, a value would never have been placed on ReaLemon's “good will” (Tr. 4914), and, consequently, ReaLemon's profitability as an independent entity would be calculated without reference to any such figure. Since the $9.6 million in Dr. Mann's words, “discounted a rather handsome stream of future earnings ” (Tr. 6118), we agree with the ALJ that there is good reason to exclude it from the total assets upon which the rate of return is computed. We also note that even if respondent's calculations are used, Real.emon earned a rate of return during the period 1963-1973 which was roughly one and one-half times that of all food and kindred products firms, a difference which some economists, including Dr. Mann, regard as indicative of market power (Tr. 6117-18).

1% Borden acquired the Realemon-Puritan Co., the original maker of Realemon, in 1962 (ID 2). BORDEN, INC. 793 669 Opinion 1958), aff'd per curiam, 347 U.S. 521 (1954). When a firm possessing monopoly power uses that power “to foreclose competition, to gain a competitive advantage, or to destroy a competitor,” United States v. Griffith, supra, 334 U.S. at 107, it is guilty of monopolization. Moreover, the cases establish that a firm that has monopoly control of a market may not engage in practices that are designed to continue such control. Greyhound Computer Corp. v. International Business Machines Corp., supra, 559 F.2d at 508; Alcoa, supra, 148 F.2d at 432; United Shoe Machinery Corp., supra, 110 F. Supp. at 345. Here, as set forth above, Borden possessed monopoly power in the relevant market, which was rooted largely in its successful and spurious product differentiation that enabled it to command a substantial price premium over essentially identical offerings of other sellers, as well as to have a virtually unshakable spot on the grocer’s shelf. Borden’s manipulation of this price differential was a key element in its ability to resist competitive inroads and maintain its monopoly share of the market. , Alcoa contains perhaps the most eloquent statement of the law of monopolization. There, Alcoa had for years maintained a 90% share of the relevant market. It had achieved its dominance through a combination of patents [20] and various unlawful practices; the former expired in due course, and the way in which Alcoa thereafter maintained its monopoly share of the market for 28 years was the issue in the case before the Court of Appeals." The principal “conduct” attributed to Alcoa in support of the assertion that it had “monopolized” the market for aluminum ingot”? was its practice of expanding existing plants and constructing new facilities in anticipation of increased demand for the product. This expansion of capacity had the effect of discouraging and frustrating entry into the field by other firms. Judge Learned Hand, writing for the court, delineated the proper means of analyzing the conduct of a firm with monopoly power:

We need charge it with no moral derelictions after 1912; we may assume that all it claims for itself is true. The only question is whether it falls within the exception established in favor of those who do not seek, but cannot avoid, the control of a market. It seems to us that that question scarcely survives its statement. 148 F.2d at 431 (emphasis added). Reviewing Alcoa’s expansion policy, the court stated that it could “think of no more effective Because there was not a quorum of the Supreme Court to hear the Government's appeal, the case was referred to the Second Circuit sitting as a final appellate court pursuant to a statute now codified at 28 U.S.C. 2109, 2° Other practices of Alcoa were alleged to be unlawful, but these were considered wholly apart from the question whether Alcoa had unlawfully “monopolized” the ingot market. 148 F.2d at 432. 277-685 O—79-——51 Opinion 92 F.T.C.

exclusion than to embrace each new opportunity as it opened,” and concluded:

Only in case we interpret “exclusion” as limited to manoeuvres not honestly industrial, but actuated solely by a desire to prevent competition, can such a course, indefatigably pursued, be deemed not “exclusionary.” So to limit it would in our judgment emasculate the Act; would permit just such consolidations as it was designed to prevent.

Id.

[21] While Alcoa was an opinion only of one court of appeals?', its authority is well-recognized, and one year later, in American Tobacco Co. v. United States, 328 U.S. 781 (1946), the Supreme Court “welcome[d] this opportunity to endorse” the conclusions of the Alcoa court, including the last-quoted passage. Jd. at 813-14. See also Hanover Shoe, Inc. v. United Shoe Machinery, Inc., 392 U.S. 481, 496- 502 (1966).

One point made clear by the Alcoa case is that the conduct of firms with monopoly power is viewed differently from that of firms without such power.” Taken together, Alcoa, American Tobacco and United States v. Griffith, supra, lead to the conclusion that firms with monopoly power may not maintain that power through means which are not economically inevitable. Cf. United States v. United Shoe Machinery Corp., supra, 110 F. Supp. at 343. This conclusion follows naturally from the strong policy of the antitrust laws, to which monopoly is repugnant.”? These policies have been described many times in many places, not least in the decisions of this Commission. For present purposes, we feel that the Alcoa opinion nicely summarizes some of these policies: Many people believe that possession of unchallenged economic power deadens initiative, discourages thrift and depresses energy; that immunity from competition is a narcotic, and rivalry is a stimulant, to industrial progress; that the spur of constant stress is necessary to counteract an inevitable disposition to let well enough alone. * * * * * * * [22] Throughout the history of [the antitrust laws] it has been constantly assumed that one of their purposes was to perpetuate and preserve, for its own sake and in spite of possible cost, an organization of industry in small units which can effectively compete with each other.

2 But see note 19 supra.

22 As the Ninth Circuit stated in Greyhound Computer Corp.. supra: “If the jury concluded that IBM possessed monopoly power in the leasing of general purpose computers, IBM would be precluded from employing otherwise lawful practices that unnecessarily excluded competition from the submarket.” 559 F.2d at 498, citing United Shoe Machinery Corp., supra. Cf. Lorain Journal Co. v. United States, 342 U.S. 143, 155 (1951). 2 See generally Turner, The Scope of Antitrust and Other Regulatory Policies, 82 Harv. L. Rev. 1207, 1217-24 (1969), arguing that Section 2 of the Sherman Act can be applied to monopoly power that has been persistently maintained over a substantial period of time, except where based solely on economies of scale or unexpired patents. BORDEN, LNU. “9 669 Opinion Id. at 427, 429. Some monopolies are inevitable, some are natural, and others are “thrust upon” their owners. But where a firm with monopoly power interfers with natural economic forces which would otherwise dissipate its monopoly, the law rightfully condemns it. In light of these overriding policies we must determine whether Borden’s maintainance of monopoly control over. the processed lemon juice market was economically inevitable, or whether, like Alcoa, it “meant to keep, and did keep” that control over the market with which it started. Id. at 432.

2. Borden’s Unlawful Maintenance of Monopoly Power That Borden, in the words of the Alcoa court, “meant to keep” its monopoly share is evident from its marketing plans. For example, its 1971 Marketing Plan described the company’s long range objective as expanding the total market for processed lemon juice, inasmuch as Realemon had “become a protective umbrella over all lemon juice activity,” and increase in overall demand would redound to ReaLemon’s benefit (CX 1, p. 649). The Plan went on to describe Borden’s “Short Range Objectives” as follows: 1. The spread between Realemon prices and those of competitors preclude any possibility of price increases to offset higher costs. By not permitting this spread to increase, at the expense of short term profits, Realemon anticipates maintaining its ‘market share close to its present level. Market share is the key, since industry or total market growth will be reflected more toward Realemon than its competitors by virtue of ReaLemon’s present 90% market share. [23] 2. Although reconstituted lemon juice is virtually indistinguishable one brand from another, heavy emphasis on the Realemon Brand name through its media effort should create such memorability for the brand, that an almost imaginary superiority would exist in the mind of the consumer, a justification for paying the higher price we’ are asking.

CX 1, pp. 649-50. This document evidences Borden’s intent to hold on to its monopoly share of the market by sacrificing somewhat higher prices over the short-run to assure continued monopoly returns over the long haul. Borden’s ability to achieve this objective, the record demonstrates, rested on the price premium it enjoyed and its ability to manipulate that price differential to the detriment of competitors. The 1971 Marketing Plan further described one technique by which Borden sought to carry out its goal of maintaining a monopoly. This involved the use of geographically discriminatory promotional allowances. In prior years allowances had ranged from 60 to 90 cents per case, or 5 to 5 1/2 cents per bottle. The Plan described a proposed change in promotional policy: 7196 ‘FEDERAL TRADE COMMISSION DECISIONS Opinion 92 BTC.

Based on the success of these promotions in the past, Realemon will repeat them in 1971, with variations. In those markets where competition has been making inroads, tentative plans are to increase the size of the allowances to as much as $1.20 per case, or 10¢ per bottle . . . We will again be specifically attacking the problem of the retail price spread between Realemon and competition. Jn general terms, competitive activity exists in the Eastern half of the United States and for the Western Half, promotional allowances will be limited to a range of 60 to 75 cents per case. CX 1, pp. 656-57 (emphasis added). In other words, the price would be reduced selectively in those areas where some competition had arisen, but would be kept high in other areas. Similarly, the 1973 Marketing Plan summarized the strategy for that year in terms of two objectives. “Reversal of competitive inroads . in Realemon market share,” and “Increased category growth” (CX 3, p. 741). ReaLemon’s national market share at that time was 88% (CX 8, p. 759). “Strengthening of the consumer franchise to justify the price differential versus Golden Crown” was seen as a major opportunity (CX 3, p. 758). [24] The key strategy for Realemon in the 1973 Plan was to continue the geographically selective promotional policy, discriminating between “highly competitive” and “moderately or low competitive” localities, with the objective of boosting market share from 86.5 to 89.0% (CX 8, pp. 784, 786, 787).

For 1974, the Marketing Plant targeted four “key districts” - New York, Philadelphia, Chicago and Detroit - for major efforts to increase ReaLemon’s market share, as part of an overall plan “to reduce Golden Crown share by 20%” (CX 4, p. 864). Since these target districts were areas in which Golden Crown had made considerable gains, and in which per capita consumption of lemon juice was high, it was felt that “[dJecreasing Golden Crown effectiveness in these markets may result in a significant reduction of expansion leverage” (Jd.).

Once again, geographic price discrimination was the strategy chosen by Realemon to achieve its objective of reversing the Golden Crown inroads. ReaLemon’s plans for its spring promotion were to continue the winter 1973 level of $2.25 per case in the four key areas mentioned above, while reducing allowances elsewhere by some 30% (CX 4, p. 872). The budget for promotional expenses continued the steady increases exhibited since 1967 (ID 125). See also CX 4, pp. 884, 892-94, which graphically depicts the way promotional allowances and co-op advertising allowances were manipulated on a geographic basis. Similarly, planned price increases for quart bottles of Realemon, occasioned by cost increases, were not to go into effect in “highly competitive Golden Crown markets,” while the list price was to be increased by 15 cents per case elsewhere (CX 4, p. 878). BORDEN, INC. ‘ 797 669 . Opinion The record indicates that Borden carried out the anticompetitive pricing practices set out in the Realemon marketing plans.”* In particular, geographic price discrimination was a key element in Borden’s strategy to maintain its monopoly share of the processed lemon juice market. [25] In 1969 Borden departed from its uniform nationwide pricing system and divided the nation into two zones for pricing purposes, and in 1970 switched to a three zone system dD 132).5 Since then Borden has maintained a lower price in Zone 2, which comprises the Northeastern United States, than in the other two zones (ID 131); coincidentally, Zone 2 is where Borden has faced the most serious competitive inroads, notably those of Golden Crown. The lower prices in Zone 2 are not attributable to lower costs; in fact, the evidence shows that Borden’s costs of production were higher at its Eastern plant than at its Chicago plant (ID 181).2* With respect to list prices, the record shows that Borden was able to command a price considerably in excess of that of competing brands, and that it _reduced that price selectively in areas where it wished to suppress emerging competition.

More important in Borden’s scheme of discriminatory area pricing were discriminatory promotional allowances. Such allowances, whether deducted directly from the invoice or “billed back,” ie, _ subsequently remitted, amount to price reductions (to the retailer) designed to induce the retailer to promote the manufacturer’s product or to offer it for sale at a reduced price (ID 134). While price promotions represent “temporary” reductions from list price, their importance in the overall marketing scheme should not be underestimated. In 1972, fully 71.1 percent of ReaLemon’s sales in the 32-ounce size bottle were “on deal,” that is, made during a price promotion (CX 4, p. 872). ReaLemon’s 1974 Marketing Plan estimated that in 1973 that percentage rose to 84.1% (Id.). Clearly the price during promotional periods has more practical significance than list price in examining Borden’s pricing policies. Until 1971, Realemon’s policy with respect to price promotions was to offer such allowances on a uniform nationwide basis (ID 135). In 197], Realemon adopted the policy of tailoring the amounts of promotional allowances to the competitive situation in individual areas. In [26] that year it increased the allowance in 15 of its. highest volume Eastern markets where it faced new competition, to reduce the price * See generally ID 128-30, which recounts intra-corporate correspondence concerning Borden's efforts to implement the strategies and objectives of the marketing plans. * Zone I consists of the Midwestern states, Zone 2 the Northeast, and Zone 3 the South and West. Borden Produces Realemon at plants in Chicago, upstate New York, and California. 2s Similarly, lower distribution costs do not explain the difference, since f.0.b. plant prices were also lower in Zone 2 (ID 131).

Opinion 92 F.T.C.

differential between Realemon and competing brands, and thereby preserve its market share (Tr. 4468-69).27 In the summer of 1973, for example, Borden was offering promotional allowances of only 90 cents per case in areas. where there was little significant competition (CX 180). Yet, allowances amounted to $1.50 in more competitive cities in the Northeast and North Central regions, and were increased to $1.80 in Philadelphia and to $2.00 in Atlanta, Dallas, and Florida (/d.; RX 561; Tr. 4731- 32). See also ID 141-44. These allowances translated into reductions of 10 cents or more per quart bottle at the retail level (eg., CX 2, p. 677).

A summary of the evidence relating to geographic price discrimination reveals that Realemon historically sold at a premium price relative to competing brands while maintaining a dominant share of the market, both nationally and in numerous metropolitan areas. The emergence of a new competitor, Golden Crown, which marketed, priced, and promoted its product aggressively in certain local markets, caused Borden to seek ways to hold on to its dominant share of the market.”* It did so by selective price cuts (either through reductions in list price or through promotional allowances) that were aimed at reducing the price spread between Borden and _ its competitors, including Golden Crown,. with the intent of forestalling competitive inroads. Borden’s price cuts and promotional allowances were considerably higher in areas where competition was perceived as strong than in areas where it faced only weak competition, and were undertaken with the specific intent of recapturing market share from Golden Crown. [27] Borden recognized that reducing the price of Realemon left competitors with the choice of correspondingly reducing their own prices to maintain the traditional differential, hence threatening their own profitability, or losing market share. There is also evidence in the record showing that Borden sold to competing customers in the same local market at different prices, without cost justification. In Philadelphia and Buffalo it appears that favored retailers who were the leading chains in their respective areas received the benefit of discriminatorily lower prices (through additional promotional and cooperative advertising allow- 27 These levels were reduced in the summer of 1972, and then increased once again in the winter of that year (Tr. 4470-71).

28 Borden contends that Golden Crown was pricing below its costs in attempting to capture market share from Realemon. We agree with the ALJ that whatever the truth of this contention, it is no defense to the monopolistic practices of Borden (ID 200 and pp. 160-61). Clearly, only by offering an especially attractive price (even if it fell below its own costs) could Golden Crown hope to obtain a secure foothold in supermarkets and sustain a challenge to Realemon. Cf. II Areeda & Turner, Antitrust Law, 1716, contending that temporary promotional pricing, even when below cost, by new entrants or small firms without monopoly power, should be permitted, and should be prohibited only when engaged in by a monopolist. 669 Opinion ances) (ID 147-65). These discriminations had the short-term effect of preventing these customers from buying from Borden’s competitors (ID 152, 164) and are indicative of Borden’s overall strategy of using the pricing mechanism selectively, including discriminations arguably within the reach of the Robinson-Patman Act, to restrain competition.

The complaint also charged Borden with selling Realemon juice below cost or at unreasonably low prices with the effect of injuring, suppressing or destroying competition. One view of predatory pricing holds that pricing by a monopolist below marginal cost is predatory,® and that average variable cost, which can be ascertained with some precision, ‘is a valid proxy for marginal cost, which is considerably more difficult to determine.*® The [28] parties introduced considerable evidence on the issue of whether Borden sold Realemon in 32-ounce bottles to Acme Markets in Philadelphia and Niagara Frontier Services in Buffalo at prices below its average variable cost.

Complaint counsel and respondent offered differing computations of Borden’s average variable cost of producing cases of Realemon quarts for distribution in Buffalo and Philadelphia during 1971, 1972 and 1973 (Compare CX 293 with RX 654). The ALJ accepted Borden’s calculations, and concluded that Realemon juice was not sold below cost (ID 187, 192).

Borden’s and complaint counsel’s computations differed in the treatment of advertising expense, average selling expense, and distribution costs. We agree with Judge Hanscom that respondent’s treatment of average selling expense is preferred (ID 180-81),21 and we are not persuaded on this record that advertising costs should be included in the computation of average variable cost (ID 179).32 On GW See, eg, Janich Bros., Inc. vy. American Distilling Co., 570 F.2d 848, 857-58 (9th Cir. 1977), petition for cert. filed, 46 U.S.L.W. 3755 (U.S. May 30, 1978) (No. 77-1706). See also R. Posner, Antitrust Law: An Economic Perspective 188 (1976), Areeda & Turner, supra note 28, $715; but see Scherer, Predatory Pricing and the Sherman Act: A Comment, 89 Harv. L. Rev. 869 (1976); Williamson, Predatory Pricing: A Strategic and Welfare Analysis, 87 Yale L.J. 284 (1977). We do not find it necessary to decide whether this is the exclusive, or even the preferred, test for predatory pricing. Commissioner Pitofsky's concurring opinion points out some of the shortcomings of a strict marginal cost pricing rule in the situation where a monopolist enjoys a substantial price premium derived from successful product differentiation. However, the ALJ and the parties both utilized this approach, and we find it a useful one for illuminating the issue.

2° Areeda & Turner, supra, 715d. Marginal cost is simply the added cost of making and selling the last unit. Id. Variable costs are costs which vary as output varies, as distinguished from fixed costs, which remain constant at differing levels of output. E.g., Tr. 2791. % In computing average variable cost, Borden included only that portion of average selling. expense attributable to commissions paid to brokers and sal while plaint counsel included the entire average selling expense figures (ID 180). The latter figure includes sales managers’ salaries and administrative costs, such as sales offices, items which complaint counsel's expert conceded are fixed costs (Tr. 4701-02). We accept Judge ~ Hanscom's adoption of respondent’s treatment of this element of cost. 2 But see III Areeda & Turner, supra, §{715c at 173-74, contending that advertising and promotional expenditures should be included in the computation of variable costs. This is the conclusion adopted by Commissioner Clanton in his concurrence. However, the record reflects that ReaLemon’'s advertising expenditures (Continued) Opinion 92 F.T.C.

the issue of average distribution costs [29] we are inclined to view complaint counsel’s approach as more reliable.** While it does not appear that Realemon was sold below average variable cost, at least not as a consistent course of conduct, it does appear that Borden sold below average total cost, when fixed costs are added in. Professor Posner has offered an alternative definition of predatory pricing to the short-run marginal cost rule proposed by Areeda and Turner. [30] R. Posner, Antitrust Law: An Economic Perspective 188-93. Posner would condemn pricing at a level calculated to exclude from the market an equally or more efficient competitor. Jd. at 188. Two practices fit his definition: selling below short-run marginal cost; and selling below long-run marginal cost with the intent to exclude a competitor. He would use average total (“balance sheet”) cost as a surrogate for long-run marginal cost. Id. at 190.4 The record does not indicate that Borden was more efficient than Golden Crown (the only competitor for which cost estimates are available in the record). The lowest figure in the record for the variable cost of producing cases of Realemon quarts during 1971-73 was $3.58, respondent’s estimate for the costs of Realemon shipped to Acme Markets in Philadelphia on a “direct shipment” basis in 1971 (RX 654). Respondent’s high estimate was $4.02 (Id.). Complaint counsel’s calculations for the same period ranged from $3.84 to $4.39 (CX 293). Realemon estimated Golden Crown’s cost of ingredients (including an adjustment for suspected adulteration), distribution, selling, and overhead at $3.74 per case (CX 3, p. 762). Golden Crown’s president estimated his firm’s costs at $3.11 before freight and selling expenses, and approximately $4.00 including those items (CX 145; Tr. did not vary, at least in the short run, with the level of output. For example, Borden spent more on advertising in 1969 than in any of the subsequent four years, although sales increased almost steadily throughout that period (CX 288, 292). This is not surprising, inasmuch as advertising represents, at least in part, an investment in future consumer preference. Thus, advertising seems more like a long-run than a short-run marginal cost, and we will accept Judge Hanscom’s exclusion of advertising from the computation of average variable cost. 3” Complaint counsel computed the distribution component of their average variable cost figure by using average nationwide figures for Realemon, which is the manner used by Borden in its own internal computations (ID 182, 184; Tr. 5660-61). These records are used, inter alia, for the purpose of keeping Realemon senior management advised of current operating costs (Tr. 4445). Borden, on the other hand, for the purpose of introducing evidence in this proceeding, attempted to calculate the actual cost of distributing Realemon juice to the customers in Philadelphia and Buffalo, Acme and Niagara, which were the alleged beneficiaries of below cost sales (ID 183). Ideally, as complaint counsel's expert testified, it would. be preferable to have precise actual data in determining average cost for particular customers (ID 184; Tr. 4709-10). However, at least with respect to some sales to Acme in Philadelphia, respondent appears to have understated actual distribution costs by making some unwarranted assumptions as to the manner of shipment (ID 185). The fact that Borden, in the course of its business, uses national average figures for distribution costs seems highly persuasive. The object of the exercise is to determine whether Borden was selling at prices which it knew (or should have known) to be unprofitable in the short run. The fact that more precise analysis might have shown that Borden's cost of making a particular sale was less than it had been assumed to be seems irrelevant to a determination of predation.

% Commissioner Pitofsky adopts this approach as part of the predatory pricing information put forth in his concurring opinion.

BORDEN, INC. 801 669 Opinion 187-43). Thus, it appears that neither firm was appreciably more efficient than the other.

These facts form the basis of Judge Hanscom’s findings that Realemon was sold to Acme and Niagara at “an extraordinarily low price”. and that “Borden either failed to consider its cost before agreeing to the low sale prices, or knew that it was selling very close to the cost figures reflected in the data that were then available to it” (ID 193). The effect of these sales is detailed in the record. In 1973, Borden was selling at 10 to 21 cents per bottle more than Golden: Crown in the quart size in Eastern and North Central area markets, according to A.C. Nielsen data. The differential was larger at times, and it was clearly necessary for competitors to price substantially below Borden in order to survive in the market. Thus, if Acme, aided by heavy promotional allowances from Borden, featured Realemon at 39 cents per quart, as it did in the fall of 1978, it would be necessary for Golden Crown, in order to maintain the 10-cent differential, [31] to sell to the retailer at $2.90 per case,® an amount far below anybody’s reckoning of its average variable cost (ID 196-99). Likewise, Niagara purchased Realemon in 1971 and 1972 at a continuous price of $4.40 per case, permitting a retail price of 37-39 cents per quart; even a five cent price differential would require Golden Crown to sell to Niagara at $3.40 per case (ID 199). Even efficiency comparable to Borden in producing lemon juice would not be sufficient to protect competitors from Borden’s pricing practices which were made effective by the image-inducted price premium.

The price paid by Golden Crown, the only competitor which made an aggressive attempt to cut into the Realemon market share nationally, demonstrates the extent and effects of Borden’s power. In the 12 months ending October 31, 1973, for example, Golden Crown posted a net loss of roughly $500,000 (CX 147; Tr. 2384-85).%« Realemon Foods’ net income in 1973, by way of contrast, was $2,087,000, and its annual net income was never less than $1.6 million in any year between 1968 and 1974 (CX 289). When Golden Crown was sold to a Seven-Up subsidiary in 1974, the cash price was $1,239,676, less $934,085 in liabilities assumed by the buyer, or a net cash payment of only $305,591 (RX 665). The contract of sale, as is typical in speculative transactions of this nature, also provided for a five-year earn-out which could add as much as $1,750,000 to the purchase price (Id.). These figures illustrate the financial weakness 33 Taking into account a retailer mark-up of 20 percent, a figure at the low end of the estimates in the record (ID 196). .

26 In the previous 12 months the company had made a small profit ($17,584), and had recorded a smal! loss ($6,253) the year before that (CX 147).

Opinion 92 E.T.C.

of Borden’s “strongest” competitor, and the heavy toll Borden was able to inflict on those who challenged its dominance of the processed lemon juice market.

3. Conclusions of Law It can hardly be said that the maintenance of Borden’s monopoly power was “economically inevitable.” That power itself stemmed from the creation of ‘an almost imaginary [32] superiority” in the consumer’s mind (CX 1, p. 650), which enabled Borden to sell a product which was identical to its competition at a price which exceeded the competition’s by as much as 30 percent or more. Its maintenance was the result of a calculated strategy employing geographic price discrimination (with price cuts subsidized in part by continued monopoly pricing elsewhere), and favoring key retailers with discriminatorily low prices and prices that, in the market conditions that existed, would have the likely effect of forcing competitors to sell at a loss.*7 This pattern has its parallels in the decided cases under Section 2 of the Sherman Act. See, e.g, United States v. Grinnell Corp., 236 F. Supp. 244, 257 (D.R.I. 1964), aff'd, 384 U.S. 563 (1966); United States v. United Shoe Machinery Corp., supra, 110 F. Supp. 295 (D. Mass. 1958), aff'd per curiam, 347 U.S. 521 (1954). ° Respondent, in its defense, places principal reliance upon the decision in Telex Corp. v. International Business Machines Corp., 510 F.2d 894 (10th Cir. 1975), rev’g 367 F. Supp. 258 (N.D. Okla. 1973), cert. dismissed, 423 U.S. 802 (1975), and that case merits discussion. There, the Tenth Circuit reversed the district court’s ruling that IBM had unlawfully maintained monopoly power in the market for peripheral devices plug compatible with IBM processing units, and various submarkets thereof.** The principal means by which IBM was found by the district court to have maintained its monopoly position were the introduction of new peripheral devices at prices substantially lower than the products they replaced, the announcement and implementation of new leasing plans, and IBM’s pricing policies with regard to its memory products. [33] The district court had found that IBM had attained a monopoly position through research and technical innovation, but faced erosion of that position by lower-priced competitors. Accordingly, it developed new products selling at a lower price than the competi- 37 See Power Replacements Corp. v. Air Preheater Co., 356 F. Supp. 872, 897, 898 (E.D. Pa. 1973); cf. Smithkline Corp. v. Eli Lilly & Co., supra, 427 F. Supp. at 1128. 3« The court of appeals also reversed the district court’s conclusions on the relevant market, but assumed the existence of monopoly power for the purpose of assessing the legality of IBM's conduct. A BORDEN, INC. . 803 669 Opinion tion, but still capable of earning a reasonable profit. These acts stimulated concomitant price reductions by IBM’s competitors. IBM’s new leasing policies also had the effect of a price reduction. Similarly, IBM reduced its prices for memory products to a level below that which it calculated a new entrant would need to charge in order to enter the market. At the same time, it increased prices on other products (central processing units). The district court found that all these acts, although independently lawful, were unlawful when engaged in by a monopolist with the intent and for the purpose of maintaining its monopoly power. It stated: It is sufficient that monopoly power is willfully acquired or maintained as distinct from the growth or development in a consequence of a superior product, business acumen or historic accident.

367 F. Supp. at 841. The Tenth Circuit regarded the district court’s interpretation of the law as “extremely narrow,” and mentioned two ‘additional factors which must be considered: [W Jhether or not the acts are ordinary business practices typical of those used in a competitive market, and secondly whether the acts constitute the use of monopoly. power.

510 F.2d at 925-26 (emphasis in original). The court of appeals further noted:

The trial court did not find nor did it hold that the acts of IBM found to be illegal were derived from its power in the market or its size,.nor were they acts which could only have been performed by one with the requisite power. The “acts” found by the trial court to be illegal were ordinary marketing methods available to all in the market. [34] Id. at 926. This, in our view, spells out the principal difference between Telex and the instant case. For here, the acts of Borden which we hold to be illegal were derived from and, indeed, made possible by, its power in the market. Moreover, the record indicates that in this market these “acts” could only have been performed by one with Borden’s market power, and thus were not “ordinary marketing methods available to all in the market.” In the Telex case it appears that IBM attained a dominant position through superior technical attainments, and when competition arose it lowered prices, within .a reasonable range, to combat its competition. There is no indication that its strategy of price reductions guaranteed success. Rather, in a market of sophisticated buyers and sellers IBM would be forced, in order to hold onto its market share, to engage in ordinary price and quality competition, and rely upon its ability to produce a product which was satisfactory to buyers and Opinion 92 F.T.C.

upon its reputation for quality and reliability. Furthermore, there was no evidence of price discrimination by IBM. Borden, on the other hand, had the enormous market advantage conferred by the Realemon trademark and its magnetic pull on the consumer. In order to preserve its market dominance it manipulated the price premium which that trademark afforded, and engaged in price discrimination. ReaLemon’s juice was indistinguishable in its characteristics from competing processed lemon juices; only the market power inherent in the Realemon trademark enabled Borden to manipulate price differentials and discriminate among customers in different areas to maximize its advantage over other producers. Neither Golden Crown, nor Seneca, nor Vita-Pakt, nor even such well-known brands as Sunkist or Minute Maid were able to engage in the kinds of pricing practices engaged in by Borden. Clearly these methods were not: available to all in the market, and clearly they were directly attributable to Borden’s market power. Thus, we conclude that the Telex case is distinguishable from the present case, and offers no support for Borden’s position. [35] Professor Scherer has written:

An image advantage, permitting the maintenance of a price premium, is conceptually analogous to a unit cost advantage. Either enhances the dominant firm’s incentive to cut prices temporarily to exclude less-favored rivals. What society obtains following successful image-induced exclusionary pricing is not the freeing of resources that can be employed more effectively elsewhere, but rather, higher prices and profits accompanied by increased consumption of the “premium” product. . . . I find it hard to avoid a value judgment that temporary price cutting to eliminate producers handicapped only by an inferior brand image is socially undesirable. Scherer, Predatory Pricing and the Sherman Act: A.Comment, 89 Harv. L. Rev. 869, 889 (1976). Dr. Scherer’s analysis applies to this case.

Whether or not Borden sold below short-run marginal cost, it is incontrovertible that its pricing practices, including geographic discrimination which was not cost-justified and pricing very close to average variable cost, were exclusionary in intent and effect.** To * We agree with Commissioner Pitofsky that a strategic pricing rule should not require price reductions to be made uniformly across geographic markets without regard to the monopolist’s different costs in different markets and the competitive effects of its strategic pricing policies. Moreover, price discrimination among different geographic markets does not of itself constitute a violation of Section 2 of the Sherman Act or Section 5 of the FTC Act. We have found that Borden engaged in geographic price discrimination which injured competition and which was not attributable to lower costs in any market. Our order likewise only prohibits price discrimination which is not cost justified and the “effect of which is to hinder, restrain or eliminate competition between respondent Borden and its competitors. ...”

We do not agree with Commissioner Clanton's position that Borden can be condemned as a monopolist for selling below average variable cost (which cost is construed to include advertising) to two customers in two cities, but not for manipulating prices in a discriminatory and exclusionary fashion nationwide. Borden's strategy was aimed at more than merely cementing its monopoly in Buffalo and Philadelphia. DUD, 2a, 669 Opinion the extent that Borden priced below average total cost with the evident intent to exclude Golden Crown, its practices run afoul of Posner’s rule. See pages 30-31 supra. In any event, the effect of Borden’s spurious product differentiation, making it necessary for competitors to sell considerably below Realemon, created a [36] circumstance where even prices above marginal cost could, as the record indicates (ID 194-200), be predatory in the sense that even equally efficient competitors could be driven from the market.** See R. Posner, supra, at 188.

We find that Borden’s marketplace advantage is not attributable to a superior product. Nor has Borden been shown to be more efficient than its competitors; if it is, that fact is not reflected in its prices. Nor has Borden contributed anything in the way of innovation since Irvin Swartzberg first developed Realemon. Realemon is the same product, and is made the same way it has been for many years. Realemon is distinguished from its competitors only by the strength of its trademark. Borden sought aggressively to preserve its monopoly share of the processed lemon juice market, and even to increase it (e.g., CX 3, pp. 790-91; CX 4, pp. 861, 864). It tolerated only fringe competition, and manipulated its price premium to prevent its competitors from growing into serious threats to its monopoly position.*® We hold that Borden’s continued domination of the market was attributable to a design to maintain a monopoly share of the market, that it was not “economically inevitable,” and that, as such it violated Section 5.** 29 Cf. Knutson v. Daily Review, Inc., 548 F.2d 795, 814 n. 21 (9th Cir. 1976), cert. denied, 433 U.S. 910 (1977) (dictum); Smithkline Corp..v. Eli Lilly & Co., supra, 427 F. Supp. 1089, 1128 (E.D. Pa. 1976), aff'd. 1978-1 Trade Cas. 4 62,007 (3d Cir. April 3, 1978), petition for cert. filed, 47 U.S.L.W. 3009 (U.S. June 30, 1978) (No. 77-1869); Quaker Oats Co.. 66 F.T.C. 1131, 1193-94 (1964) (dictum). We do not suggest, however, a rule which permits a monopolist to price so as to exclude all but equally or more efficient rivals. There must be some room for new entrants which must incur substantial start-up costs (perhaps including intensive advertising) and who cannot be expected to commence production at optimal scale. Moreover, even when not producing at optimal scale, such new entrants may provide significant consumer benefits by selling at prices lower than those offered by a more efficient monopolist which is able to exact a higher price for what may be the identical product because of its trademark. «© Respondent expended considerable effort, and consumed over 800 pages of trial transcript, attempting to prove that Golden Crown sold an adulterated product, ostensibly for the purpose of impeaching the testimony of one Golden Crown witness called by complaint counsel. This protracted exercise elicited almost no material evidence in this case (whatever effect it may have had on private litigation between Borden and Golden Crown). We find that that witness’ testimony as to general facts about the industry was corroborated by other industry witnesses, and that his estimate of Golden Crown's costs was fairly consistent with Borden's own estimates (1D 195). Thus, we find Borden's contention that “the entirety of this proceeding has been permeated” by the testimony of a perjurer (RAB 47) to be a gross exaggeration. In particular, respondent's statement that “It is simply incredible that the Commission's staff and the ALJ’are continuing to give aid and comfort to Hansfield and his fellow perjurers by continuing the prosecution of this complaint” (RAB 52) goes beyond the bounds of responsible advocacy.

40+ [37a] In its reply brief in support of its appeal to the Commission, Borden attached “Exhibit A,” which consists of two charts prepared by Borden or its counsel from sales statistics compiled by AC. Nielsen, Inc., as explained in an accompanying affidavit. Complaint counsel moved to strike Exhibit A on the ground that the record had been closed nearly one year earlier. Complaint counsel's motion also apparently questioned the reliability of the data reflected in Exhibit A. Respondent replied to complaint counsel's motion with a counter motion to lodge Exhibit A in the record, to (Continued) Opinion 92 F.T.C.

Wl. REMEDY [87] Having found that Borden possessed and unlawfully maintained monopoly power in the processed lemon juice market in violation of Section 5, we must address the question of the remedy to be imposed. As Judge Hanscom noted, citing United States v. Grinnell Corp., supra, 384 U.S. at 577:

In a “monopolization” case, adequate relief must put an end to the monopoly position, and break up or render impotent the monopoly power found to have been preserved and maintained in violation of law. .

ID, pp. 162-63. The objective is to take the measures necessary to “pry open to competition a market that has been closed... .” International Salt Co. v. United States, 332 U.S. 392, 401 (1947). As in all Section 5 cases, the Commission has wide discretion in its choice of a remedy, so long as the remedy selected has a reasonable relation to the violation found. FTC v. National Lead Co., 352 U.S. 419, 428- 29 (1957); Jacob Siegel Co. v. FTC, 327 U.S. 608, 611, 613 (1946). Judge Hanscom’s order contained provisions barring respondent from using certain pricing practices, and also provided for compulsory licensing of the ““Realemon” name and label design for a ten-year period. With respect to pricing, Judge Hanscom ordered respondent, in connection with the production, marketing and sale of processed lemon juice, to cease and desist from:

(1) Granting price reductions, directly or indirectly, which result in different net prices among Borden’s Realemon customers competing in the same geographic area, the effect of which is to hinder, restrain or eliminate competition between respondent which complaint counsel responded. Respondent contended that Exhibit A contained probative evidence relevant to the question whether Borden possessed monopoly. power, whether the Realemon trademark constituted a barrier to entry, and whether the relief ordered by the ALJ was appropriate. Exhibit A consists of data compiled from Nielsen reports reflecting consumer sales of “selected lemon juices” (Realemon, Minute Maid, Golden Crown, Seneca and “all other lemon") for four two-month periods (April/May, June/July, August/September and October/November) in 1976, (the record was closed on February 23, 1976), on a dollar and gallonage basis. The apparent purpose of Exhibit A is to show that Minute Maid was able to enter the processed lemon juice market, and to gain a substantial share of that market quickly, while Realemon suffered a concomitant drop in market share. (Other producers’ shares also fell: Golden Crown from 8.5% to 7.1%; Seneca from 1.8% to 1.3%; and “all others” from 8.2 to 8.0%.) As a general rule, the presentation of evidence after a time when it can be challenged by opposing parties and considered by the administrative law judge is strongly disfavored. The Commission has, however, in its discretion, decided to lodge the exhibit in the record. Nevertheless, we cannot conclude that the evidence in Exhibit A, based on a two-year old “snapshot” of the market, negates the conclusion that Borden possessed monopoly power in the processed lemon juice market, a conclusion drawn not only from market share, but from a variety of other factors detailed above. Nor does it affect the conclusion that Borden engaged in a variety of exclusionary practices to maintain that power unlawfully. In the first place, such post-trial evidence is highly unreliable, inasmuch as a respondent may cease exclusionary practices during the pendency of administrative proceedings. Cf. FTC v. Consolidated Foods Corp.. 380 U.S. 592, 598 (1965); United States v. Continental Can Co., 378 U.S. 441, 463 (1964). The evidence amassed at trial clearly establishes that Borden unlawfully monopolized the processed lemon juice market for many years prior to this proceeding.

RVers, atv. wee 669 Opinion Borden and its competitors in the production, marketing and sale of processed lemon juice;

(2) Selling Realemon lemon juice below its cost or at unreasonably low prices, the effect of which is to hinder, restrain or eliminate competition between respondent Borden and its competitors in the production, marketing and sale of processed lemon juice; [38] (8) Granting promotional allowances or payments of any kind for customers’ promotional services, the effect of which is to hinder, restrain or eliminate competition between respondent Borden and its competitors in the production, marketing and sale of processed lemon juice. These provisions are intended to put a halt to the pricing practices described in Section II of this opinion. Although the ALJ did not find that “Realemon” was sold below cost, nor do we, we agree that an injunction against such conduct is “reasonably related” to the violation found, and is appropriate relief in the nature of “fencing in.” FTC v. National Lead Co., supra, 352 U.S. at 431. Subparagraph (8) of the ALJ’s order, which is quoted above, deals with promotional allowances which have an adverse effect on competition. However, promotional allowances were the medium by which all the acts and practices used by Borden in its monopolistic scheme, including price discrimination within a single geographic area and selling at unreasonably low prices,*! were accomplished. Those acts and practices are specifically forbidden in subparagraphs (1) and (2), yet none of the subparagraphs refers specifically to the geographic price discrimination which was the primary means used by Borden to preserve its monopoly position. Thus, we will revise subparagraph (1) to prohibit any price discrimination, not justified by cost differentials, that adversely affects competition. [39] A majority of the Commission is of the opinion that a pricing order, as set forth above, should be sufficient to prevent Borden from unreasonably excluding competition in the processed lemon juice market.*2 While an order requiring licensing or suspension of a trademark may be ordered as a means of dissipating illegally used or acquired monopoly power, we are mindful that the remedy is a severe one, and should be imposed only where less drastic means appear unlikely to suffice Jacob Siegel.Co. v. FTC, 327 U.S. 608 (1946); FTC v. Royal Milling Co., 288 U.S. 212 (1938). In the case before us it seems clear that there have been and remain a significant number of strong competitors willing to enter 41 Whether a price is “unreasonably low” must be determined by reference to Borden's own costs, its awareness of its competitors’ costs, historic price differentials, and competitive conditions in the market. 42 While Chairman Pertschuk subscribes to the majority's order, he feels that trademark relief should have been ordered as well. His views are set forth in his separate opinion. Opinion; 92 F.T.C.

the market for processed lemon juice and compete with Realemon, in some cases by selling at prices substantially below those charged © by Borden. Most barriers to entry, e.g, capital costs, absolute costs, and scale economies, are insignificant. What has deterred significant entry has been Borden’s practice of selectively cutting prices at different times and in different geographic markets, to prevent a competitor from gaining more than a token share of particular markets in which a challenge has been made. While the short-run consequences of such actions to the consumers affected may be positive in terms of lower prices, the longer-run consequences are almost certain to be ill, because as soon as the threat of entry vanishes, and as future potential entrants come to recognize the financial disaster that will attend efforts to enter, Borden is free to raise prices back to monopolistic levels and consumers will have lost a meaningful alternative to the monopoly brand. Under these circumstances, we believe that an order that simply prohibits Borden from pricing to exclude or minimize new entry should be sufficient to dissipate its unlawfully maintained monopoly position, which is the only permissible object of relief in this case. . Such an order will allow new or toehold entrants to penetrate markets without fear of the sort of retaliation by Borden that would force such entrants to sell at a sustained loss. Over time, the presence of new brands in the market should provide the competitive alternative that consumers need to determine whether they prefer Borden, at its price, or what seem to be substantially identical alternatives, at substantially lower prices. [40] Although it may be argued that the pricing order entered herein suffers from the defect of imprecision, it should be noted that this is not an objection that respondent has raised. Perhaps that is because it recognizes, properly, that some imprecision is inevitable in any order of this sort, or perhaps it feels that as a result of such imprecision any order entered will rest lightly upon its shoulders. The latter result, however, is not necessarily an inappropriate one. The purpose of our order, again, is only to prevent the use of short term price changes to exclude meaningful competition, and not to regulate in minute detail the prices or market shares of Borden. Asa monopolist it is obliged to refrain from the sort of retaliatory pricecutting that would be allowed a sub-monopolist. Should its monopoly dissolve, however, it is desirable that an order not deter Borden from vigorous price competition, or from enjoyment of the fruits of the trademark it has developed.

In sum, given the competitive climate in the processed lemon juice market, we are not persuaded that a restriction on trademark rights 669 Separate Opinion is needed to curb the unlawfully maintained monopoly. Prohibition of abuse of the trademark that led to this case should be sufficient to encourage the entry necessary to result in a competitive market.* An appropriate order is appended.“ SEPARATE OPINION OF CHAIRMAN PERTSCHUK ON THE ISSUE OF RELIEF The power inherent in the Realemon trademark, and the price premium it permitted, are the root of Borden’s monopoly power. Therefore, as Judge Hanscom recognized:

Enjoining the acts and practices by which respondent knowingly preserved and maintained its monopoly position, and prohibition of a repetition thereof, will not constitute an adequate remedy in this proceeding and end the monopoly power possessed by Realemon Foods in the processed lemon juice industry .... For competition to enter the processed lemon juice industry, the barrier to entry which inheres in the Realemon trademark must be eliminated. ID pp. 163-64. I am not optimistic that the conduct order we are issuing, standing alone, will be sufficient to end Borden’s unlawful monopoly hold on the processed lemon juice market. Courts and the Commission have consistently recognized that in antitrust cases relief should not be strictly limited to preventing a repetition of specific unlawful practices, because the aim is to undo the harm those practices have caused and to permit competition to flourish unimpaired. This is particularly true in monopolization cases, where acts and practices may be lawful in and of themselves, but serve as means for the acquisition and maintenance of monopoly power. As the Supreme Court stated in Schine Chain Theatres, Inc., v. United States, 334 U.S. 110, 128 (1948): [2] In this type of case we start from the premise that an injunction against future violations is not adequate to protect the public interest. If ail that was done was to forbid a repetition of the illegal conduct, those who had unlawfully built their empires could preserve them intact. They could retain the full dividends of their monopolistic practices and profit from the unlawful restraints of trade which they had inflicted on competitors. ;

Framing relief that will facilitate effective competition in the “7 Indeed, if Borden's post-hearing assertions are to be believed, the desired consequences may already have been produced merely by the institution of this lawsuit. On the basis of the Nielsen market research surveys, Borden alleges that subsequent to the complaint, Minute Maid has made substantial inroads into its position in various markets. Such evidence suggests that dissipation of the monopoly may not require drastic remedial steps. Should we be wrong in our asséssment of the evidence, of course, it remains open for the Commission to reopen the record to consider entry of the sort of trademark relief that presently appears unnecessary. *“« Respondent's “suggestion” that former Commissioner Collier “consider his further participation in this case” is treated as a motion to disqualify and dismissed as moot. 277-685 O—79-——52 Separate Opinion 92 F.T.C.

market is the key consideration. See, e.g., Ford Motor Co. v. United States, 405 U.S. 562, 573 (1972); United States v. EL dupont de Nemours & Co. 366 U.S. 316, 326 (1961); International Salt Co. v. United States, supra, 332 U.S. at 401 (1947); United States v. United Shoe Machinery Corp., supra, 110 F. Supp. at 346-47. The practices utilized by Borden to maintain its monopoly position in the processed lemon juice market were keyed to ReaLemon’s substantial price premium, itself the product of a highly effective strategy of product differentiation which created “an almost imaginary superiority . . . in the mind of the consumer” (CX 1, p. 650). The Commission’s order and Commissioner Pitofsky’s concurring opinion both attempt to formulate remedies which will prohibit Borden from manipulating its pricing so as to frustrate emerging competition. The imprecision of these approaches illustrates the elusiveness of a truly effective conduct remedy for a violation which has a prominent structural component, i.e, the potent trademark. Thus, I feel that a structural remedy is required.’ In urging compulsory licensing of the RealLemon trademark, complaint counsel attempted to draw an analogy to compulsory patent licensing, which is an accepted [3] antitrust remedy. See, e.g., United States v. National Lead Co., 332 U.S. 319 (1947); American Cyanamid Co., 63 F.T.C. 1747 (1963), vacated and remanded on other grounds, 363 F.2d 757 (6th Cir. 1966). Patent licensing has been ordered to dissipate monopoly power even when the patent has not been misused or implicated in the violation. United States v. United Shoe Machinery Corp., supra, 110 F. Supp. at 351. Respondent and the amici curiae point out that there are important differences between patents and trademarks. Patents are intended to create monopolies, limited in time, as a stimulus to innovation. The purpose of a trademark is not to create a monopoly, but to designate the source of a product’s origin. Hanover Star Milling Co. v. Metcalf, 240 U.S. 408, 412 (1916). It functions not merely to serve the interest of the seller, but to protect consumers from being deceived as to the source of a product. Smith v. Chanel, Inc., 402 F.2d 562, 566 (9th Cir. 1968).

Notwithstanding their general function, which respondent represents to be the antithesis of monopoly, there are cases in which trademarks can serve as instruments of monopoly, and this is such a case. The Realemon trademark serves not merely as an identifier of the lemon juice sold under that name, but provides respondent with ' Divestiture of stock or physical assets is a common form of antitrust relief that is often appropriate in monopolization cases. E.z., Standard Oil Co. v. United States, 221 U.S. 1 (1911). In this case, however, the relative ease of producing processed lemon juice (ID 9 and p. 166) makes such relief unnecessary. 669 Separate Opinion a mechanism to control prices and entry in the processed lemon juice market, and acts as a formidable barrier to entry. Professor Scherer has argued persuasively in favor of compulsory trademark licensing as a means of curing the dislocations caused by monopoly. Scherer, The Posnerian Harvest: Separating Wheat from Chaff, 86 Yale L.J. 974 (1977) (book review). Scherer aptly states the problem:

First, no amount of semantic waffling, by Posner or anyone else, can paper over the fact that the possession of a well-received brand image is a form of monopoly power. It permits the firm to elevate its price over its own long-run costs, perhaps by a substantial margin. Second, it seems to me that, at least in the consumer goods industries, image advantages confer a quantitatively important form of monopoly power — perhaps the most important . . . . Third, one may well conclude that the problem is already sufficiently serious that something should be done about it. [4] Id. at 998-99. The remedy prescribed by Scherer is compulsory trademark licensing. /d. at 999-1000.

Respondent contends that the Commission lacks the power to order licensing of a trademark. While the patent licensing analogy advanced by complaint counsel may not be entirely apposite, it does illustrate the range of remedies available to the Commission to restore effective competition to the market. The power of the Commission to implement effective relief is not extinguished by the fact that a trademark is involved. As one commentator has observed: When, however, the problem arises of awarding antitrust relief necessary to dissipate the effects of a monopoly, that question [whether a potent trademark is the creature or the cause of a monopoly] becomes academic, because trade-mark relief can be as effective to that end as other types of relief. Timberg, Trade-Marks, Monopoly and the Restraint of Competition, 14 Law & Contemp. Prob. 328, 344 (1949).

This is not to say that compulsory trademark licensing is without problems of its own: Scherer has assessed the benefits and costs: The benefit would presumably (although in the present state of knowledge, not demonstrably) be lower prices and reduced outlays on promotion. The costs would be some risk (in my judgment, slight) of weakened quality control, some additional inspection costs to ensure that quality standards are met, a possible loss of scale economies that would be weighed in advance before trademark licensing were decreed, an added information-processing burden on consumers, and a certain amount of violence to traditional property rights. I believe that in numerous cases the social benefits would outweigh the costs.

[5] Scherer, supra, 86 Yale L.J. at 999.2 2 1 do not agree with Scherer that the remedy does violence to property rights, since it would be applied only in (Continued) Separate Opinion 92 F.T.C.

The range of trademark remedies is not limited to compulsory licensing. The Commission might also enjoin the use of a trademark for a fixed period. Such an order in this case would strip Borden of the power over price and entry it has been shown to possess, and would permit other firms to compete with Borden on a reasonably equal footing. At the same time, it would not be confiscatory, contribute to consumer confusion, nor enmesh the Commission in questions of quality control and reasonableness of royalties. The same type of order was issued in Ford Motor Co. v. United States, 405 U.S. 562 (1972), a merger case decided under Section 7 of the Clayton Act.’ Ford’s acquisition of Autolite, a manufacturer of spark plugs, was held unlawful because it eliminated potential competition and also foreclosed Ford as a purchaser of about 10 percent of industry output. In addition to ordering divestiture of the Autolite spark plug plant, the district court issued a number of injunctions, including one barring Ford from using the Ford tradename on spark plugs for a five year period. The latter provision was justified on the ground that it was necessary to break the socalled “OE tie,” which is the tendency of consumers to ask for, and for mechanics to install, the original equipment brand when replacing spark plugs. The court held that permitting Ford to use its own name on OE plugs (even those purchased from the divested Autolite) would make it difficult for a divested Autolite or other competitors to compete in the replacement market. [6] The Supreme Court upheld the district court’s order in full, including the injunction against use of the Ford name. With respect to that provision, the Court explained:

Ford argues that.any prohibition against the use of its name is permissible only where the name deceives or confuses the public. But this is not an unfair competition case. The temporary ban on the use of the Ford name is designed to restore the preacquisition competitive structure of the market. 405 U.S. at 576. (footnote omitted).

If anything, the instant case is even stronger than Ford with respect to the appropriateness of enjoining the use of the trademark. cases where the trademark, a creature of the law, has ceased to perform its traditional function and has taken on the character of an instrument of monopoly power. The information burden on consumers could be more significant, since it could be argued that a profusion of “ReaLemons” on the supermarket shelf could lead to consumer confusion. However, to the extent that consumers perceive Realemon to be objectively superior to other brands of processed lemon juice, it appears that there is already considerable confusion extant. The quality control and inspection problems averted to by Scherer are not insoluble, but do represent issues which must be carefully considered in applying a licensing remedy. 3 Similar relief was ordered in United States v. General Electric Co.,115 F. Supp. $85,858-59 (D.N.J. 1953), the electric lamp cartel case, where General Electric was enjoined from using the “Mazda™ trademark in connection with more than one percent of its lamp sales in any year. BORDEN, LNv. wee 669 Concurring Opinion In Ford, the OE tie was incidental to the violation. The Court found, however, that elimination of the OE tie was necessary to the restoration of competition, and that measures short of enjoining the use of the Ford name would not suffice. Here, the “Realemon” trademark and the price premium associated with it are part and parcel of the violation found.

Deception cases have recognized the Commission’s power to order firms to cease and desist from using deceptive trade names. E.g.,, FTC v. Algoma Lumber Co., 291 U.S. 67 (1934). In such cases, the Supreme Court has directed that the Commission not prohibit the use of a trade name unless less drastic means will not accomplish the same result. Jacob Siegel Co. v. FTC, 327 U.S. 608 (1946); FTC v. Royal Milling Co., 288 U.S. 212 (1933). Here, “less drastic” means may not be effective in fostering competition in the processed lemon juice _ market, and a limited injunction against use by Borden of the “Realemon” trademark may be necessary in the public interest. See McCarthy, Compulsory Licensing of Trademark: Remedy or Penalty?, 67 Trademark Rep. 197, 242 (1977).* [7] Thus, I would, in addition to the pricing order issued by the Commission (in which I join), order some form of trademark relief, and would order additional briefing by the parties on the issue if necessary.

CONCURRING OPINION OF COMMISSIONER CLANTON I concur in the Commission’s determination that processed lemon juice sold in the United States is a relevant market and that Borden possessed monopoly power in that market. However, I support Commissioner Pitofsky’s treatment of the geographic price discrimination charge and I share his belief that inquiry into a monopolist’s alleged exclusionary intent is of limited utility in identifying predatory behavior.

I also concur in Commissioner Pitofsky’s application of a standard of reasonableness using cost-based considerations to delineate with some degree of precision the bounds of permissible pricing for a monopolist who wishes to respond to competitive forces in the marketplace. A rule which ordains a passive role for the monopolist under these conditions sacrifices both efficiency and consumer NGL, United States v. Wallace & Tiernan Co., 1954 Trade Cas. 967,828 (D.R.E. 1954); United States v. A B. Dick Co., 1948-49 Trade Cas. 462,233 (N.D. Ohio 1948); United States v. American Optical Co., 1948-49 Trade Cas. 162,308 (D. Mass. 1948); and United States v. Gamewell Co, 1948-49 Trade Cas. 962,236 (S.D.N.Y. 1948), (consent decrees enjoining defendants from interfering with the use by others of their trademarks (with certain exceptions)). In addition, the A.B. Dick and Wallace & Teirnan orders required dedication to the public of various trademarks. Concurring Opinion 92 F.T.C.

welfare and is contrary to the overriding goal of the antitrust laws to protect competition, not competitors.! [2] As Commissioner Pitofsky points out, the courts have generally adopted the so-called Areeda-Turner rule? in recent cases and have applied a marginal or average variable cost (‘““AVC’’) standard in adjudicating predatory pricing allegations. Moreover, where barriers to entry are “extremely high,” the courts have indicated a willingness to find monopolization if the monopolist is pricing below its short-run, profit maximizing price.’ In this regard, Commissioner Pitofsky correctly characterizes Borden’s ability to charge a higher price for its product due to brand allegiance as a barrier to entry which must be overcome by a new entrant just like any other startup cost. But while I agree with my colleague that a predatory pricing rule must take account of the nature of the entry barriers present in a market, I question whether application of a rule other than average variable cost is appropriate or necessary in this case. In particular, I have trouble with the notion that, where a pronounced consumer preference exists, a monopolist should be precluded from pricing below full cost until the preference disappears (or until the monopoly share is dissipated). Such a rule, in my view, threatens to prolong unduly the interval over which consumers must pay higher prices and during which less efficient firms are sheltered from fair competition. Although I agree with Commissioner Pitofsky and the courts that in appropriate circumstances new entrants must be afforded the opportunity to overcome high entry barriers, I am unwilling to compel a dominant firm to price at a fullcost level for the indefinite period that may be required to fully neutralize a pronounced consumer preference.‘ See Janich Bros. Inc. v. American Distilling Co., 570 F.2d 848, 855 (9th Cir. 1977), petition for cert. filed, 46 U.S.L.W. 3755 (May 30, 1978); Hanson v. Shell Oil Co., 541 F.2d 1352, 1358-59 (9th Cir. 1976), cert. denied, 429 US. 1074 (1977); cf. Telex Corp. v. IBM. 510 F.2d 894, 927 (10th Cir. 1975), cert. denied, 423 U.S. 802 (1975). 2 III P. Areeda & D. Turner, Antitrust Law 148-194 (1978) (hereinafter “Treatise’). 3 International Air Indus.. Inc. v. American Excelsior Co., 517 F.2d 714, 724-25 n. 31 (5th Cir. 1975), cert. denied, 424 U.S. 943 (1976), (“The lower the barriers to entry in a market, the closer to marginal cost a monopolist would have to set its price in order for a plaintiff to prevail as a matter of law, for we see no social utility in insuring the survival of inefficient firms where a new entry is possible."), [LC Peripherals Leasing Corp. v. IBM. 1978-2 Trade Cas. $62,177 (N.D. Cal. 1978); but ef, Hanson, supra at 1358 n. 5. (“There is some question, however, whether pricing below a profit maximizing point which is still above marginal and average variable costs should be considered predatory... .”) * Professor Williamson suggests that twelve to eighteen months is ordinarily sufficient to allow a new entrant to realize cost economies and establish a market identity, noting that a longer period of protection will weaken the incentives of new entrants to quickly achieve cost parity with the dominant firm. Williamson, Predatory Pricing: A Strategic and Welfare Analysis, 87 Yale LJ. 284, 296 (1977). It should be noted that in this case Borden did not respond immediately to Golden Crown's entry and growth. Borden seemed to recognize its peril in 1970, when it noted in its 1971 Marketing Plan that competition was making “serious inroads” and that Golden Crown, Seneca and Tropic Fresh were “causing the most difficulty." (CX 1, pp. 640, 645) Yet, as Commissioner Pitofsky correctly observes (at 16, n.), the timing of Borden's response reflects a degree of restraint on their part. Indeed, Borden's price response to those inroads did not reach its peak until 1973, when its national share had fallen by 8 percentage points and Golden Crown's had risen by 13 percentage points during the preceding three-year period. (CX 4, pp. 853, 881-83) DU tbisisis,. acer.

669 Concurring Opinion {3} Apart from my differences with Commissioner Pitofsky over the duration of proposed restrictions on a monopolist’s pricing practices, I further believe that it is unnecessary to devise a new rule for the purpose of determining whether Borden monopolized the processed lemon juice market. The Areeda-Turner rule would exclude from variable costs only the following items: (J) capital costs (interest on debt and opportunity cost of share capital) attributable to investment in land, plant and equipment; (2) property and other taxes unaffected by output; and (3) depreciation on plant (the life of which is little affected by use). (Footnote omitted) (Treatise at 173) Overhead items as well as advertising and promotional expenses would be included because portions of these expenditures are within the monopolist’s control’ and because it is impossible to identify advertising costs which represent a capital investment in goodwill and overhead expenses which cannot be eliminated in the shortrun.é While such an approach obviously [4] includes some fixed costs, I agree with Professors Areeda and Turner that it is better to sacrifice some measure of accuracy for a rule which has greater clarity and which, in its application, does not err in favor of the monopolist. Utilizing the Areeda-Turner definition of average variable cost, it is unnecessary to include any portion of overhead expense in order to discover pricing below AVC in this case.7 Adding only advertising costs, other promotional expenses,* and all selling expenses for 1973 to those costs conceded by respondent to be variable in nature produces an AVC of $4.10 for Realemon shipped to Buffalo and an AVC of $4.18 for product shipped to Philadelphia.® Yet in December of 1973, Acme Markets, Philadelphia’s price leader and largest retail chain with 20-28% of the market, purchased 1,815 cases of . Realemon (82 oz. bottles) at a net price of $4.05 per case. (IDF 147, 154, 190) This enabled Acme to sell Realemon at $.39 per quart in an area described in Borden’s 1973 Marketing Plan as a highly * Treatise at 174. ] am unable to adopt the majority's conclusion that Borden's advertising was unrelated to its output in the shortrun. A review of Borden‘s marketing plans indicates that Borden itself recognized the importance of the advertising/sales relationship. (CX 2, p. 667; CX 3, p. 172; CX 4, p. 848) © Treatise at 113-74. Areeda and Turner have apparently revised their views on the treatment of advertising expenses since the appearance of their 1975 article. Whereas they initially suggested examination of a company's books to determine whether advertising was classified as a current expense attributable to current sales, they now take the view that variable cost includes advertising and other promotional expenditures irrespective of a monopolist’s accounting system. Compare Areeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697, 728 (1975) with TIL Treatise at 191. 7 Inclusion of manufacturing and administrative overhead in the calculation of average variable cost might reveal predatory pricing in other cities. (CX 293, Complaint Counsel's Proposed Finding No. 158) Unfortunately, the record does not define overhead with the precision needed to isolate those items considered as fixed costs by Areeda and Turner.

* CX 293. Other promotional expenses include promotional materials and similar items. (Tr. 4451) * CX 293, RX 654. Respondent's estimates of actual distribution costs have been used, as well as packing costs for Comstock.

Concurring Opinion 92 FTC.

competitive market which ranked third in sales of Real.emon and contributed 5.5% of nationwide revenue. (CX 3, p. 838) Similarly, Borden sold 2,000 cases of Realemon quarts in December. 1973 at a net price of $4.05 per case to Niagara Frontier Services, which owns or franchises Tops Markets, the largest volume supermarket in the Buffalo area. (IDF 161, CX 212) Buffalo was, like Philadelphia, an area in which Golden Crown had made substantial inroads at Borden’s expense. (IDF 165)? Since these transactions can hardly be — characterized as inadvertent or insignificant, I am compelled to conclude that Borden illegally acted to maintain its monopoly power and thereby violated Section 5. [5] A finding of monopolization necessarily compels consideration of whether or not structural remedies are needed to restore competition to the relevant market. However, the potential for consumer confusion associated with various trademark-related remedies cautions against imposing a structural remedy of that nature where there is a reasonable likelihood that market forces, unfettered by predation, will return the market to a competitive status. In the context of the record of this proceeding, I am not persuaded that either compulsory trademark licensing or an injunction against use of the Realemon mark is necessary to dissipate Borden’s monopoly power. The record here reveals quite clearly that Golden Crown and others made substantial incursions upon Borden’s market share up until the deep price cuts of 1973 and 1974. It seems safe to assume that these competitive forces will continue with renewed vigor if Borden is free to price its product no lower than its average variable cost as defined pursuant to the Areeda-Turner rule.'! Additionally, it is important to reiterate that the record does not permit a definitive determination as to whether Borden’s predation was more pervasive than the Philadelphia and Buffalo sales described above. In view of these circumstances, I would order Borden to cease and desist only from selling Realemon lemon juice below its average variable cost, where the effect of such action is to hinder, restrain or eliminate competition between Borden and its competitors. Such adverse effects would be presumed so long as Borden retains monopoly or near monopoly power. I see no need for an additional “fencing-in” provision with respect to promotional allowances since any calculation of price would necessarily be net of such allowances. © On November 20, 197%, Realemon National Sales Manager. Harold Saving, reported the gains made by Golden Crown earlier in the year in Buffalo and expressed confidence that Borden's holiday promotion would reverse this trend and substantially slow Golden Crown's growth. (CX 81, p. 7440) In5 1 3 5 1 2 714 2483 99 23 96.545105 reaching5 1 3 5 1 3 822 2483 41 20 96.702042 this5 1 3 5 1 4 872 2484 120 19 96.906738 conclusions 1 3 5 1 5 1002 2484 6 19 91.598694 I5 1 3 5 1 6 1017 2485 46 22 96.241150 gives 1 3 5 1 7 1073 2491 26 12 96.909164 no5 1 3 5 1 8 1107 2485 75 23 96.768112 weights 1 3 5 1 9 1192 2487 22 17 96.967079 to5 1 3 5 1 10 1223 2485 144 23 56.326263 respondent's5 1 3 5 1 11 1375 2485 96 20 96.793686 eleventh5 1 3 5 1 12 1482 2486 52 19 96.745651 hours 1 3 5 1 13 1542 2489 91 22 96.388786 attempts 1 3 5 1 14 1642 2491 21 15 96.388786 to5 1 3 5 1 15 1672 2488 109 19 96.481316 introduces 1 3 5 1 16 1790 2495 44 13 96.798988 news 1 3 5 1 17 1843 2490 80 19 96.731094 market2 1 4 0 0 0 608 2516 1316 59 -1 3 1 4 1 0 0 608 2516 1316 59 -1 4 1 4 1 1 0 608 2516 1316 31 -1 5 1 4 1 1 1 608 2517 63 19 96.872627 shares 1 4 1 1 2 685 2516 48 20 96.935966 data5 1 4 1 1 3 748 2519 40 20 96.016357 (sees 1 4 1 1 4 802 2516 108 24 96.519661 Appendix5 1 4 1 1 5 925 2517 16 19 95.327591 A5 1 4 1 1 6 956 2517 22 19 95.327591 of5 1 4 1 1 7 990 2518 142 23 91.041756 respondent's5 1 4 1 1 8 1146 2518 65 24 96.590515 Reply5 1 4 1 1 9 1226 2518 63 21 95.836685 Brief)5 1 4 1 1 10 1303 2518 67 20 96.677834 which5 1 4 1 1 11 1385 2518 38 20 96.267097 has5 1 4 1 1 12 1436 2521 34 17 96.768288 not5 1 4 1 1 13 1486 2520 51 19 96.743263 been5 1 4 1 1 14 1550 2520 79 23 96.651672 subjects 1 4 1 1 15 1643 2522 21 18 92.547729 to5 1 4 1 1 16 1677 2522 208 20 91.958755 cross-examinations 1 4 1 1 17 1899 2523 25 24 96.951820 by4 1 4 1 2 0 609 2550 713 25 -1 5 1 4 1 2 1 609 2550 114 23 96.012131 complaints 1 4 1 2 2 730 2550 84 19 87.757202 counsels 1 4 1 2 3 823 2551 40 18 96.009514 ands 1 4 1 2 4 874 2551 73 18 96.950447 reviews 1 4 1 2 5 956 2550 24 24 96.896751 by5 1 4 1 2 6 990 2551 34 18 96.600266 thes 1 4 1 2 7 1032 2551 169 20 96.711311 administrative5 1 4 1 2 8 1210 2551 37 20 96.541451 laws 1 4 1 2 9 1253 2552 69 23 96.453796 judge. 669 Concurring Opinion CONCURRING OPINION OF COMMISSIONER PITOFSKY I agree that Borden illegally maintained a monopoly position in: the sale of reconstituted lemon juice in violation of Section 5 of the Federal Trade Commission Act, and I join Parts I and IIA of the majority opinion regarding the definition of relevant markets and the existence of Borden’s monopoly power. On the “monopolizing,” or conduct, aspect of the case, however, I believe a much narrower ground of decision than is spelled out in the majority opinion should be emphasized. Accordingly, I separately set forth my views on the issue of Borden’s maintenance of monopoly power. Reliance on this narrower ground of decision influences the determination of appropriate remedy and the order that should be imposed to correct Borden’s violation.

I. MAINTENANCE OF MONOPOLY POWER A. Predatory Intent and Exclusionary Effect. The question of - defining appropriate limits on permissible business behavior by a monopolist is perplexing. On the one hand, monopoly power and the market dislocations it generates (in terms of higher prices, lower output, and the potential for diminished efficiency) is abhorrent to an effective competitive system. United States v. Aluminum Co. of America, 148 F.2d 416, 427 (2d Cir. 1945); 2 P. Areeda & D. Turner, Antitrust Law, 9408, at 271-272 (1978); L. Sullivan, Antitrust, 25-26 (1977). Reflecting these policy concerns, there is sweeping language in several landmark Sherman Act Section 2 opinions suggesting that any willful business behavior which has an exclusionary effect on existing or [2] potential rivals of the monopolist will satisfy the conduct element of Section 2. In United States v. Grinnell Corp., 384 USS. 563, 570-71 (1966), the Supreme Court stated that a violation of Section 2 has but two elements: “(1) the possession of monopoly power in the. relevant market and (2) the willful acquisition or maintenance of that power. . . .” Jd. citing, United States v. dupont & Co., 351 U.S. 377, 391 (1956). Similarly, in Alcoa, supra, the court drew the distinction between a monopolist who had “achieved monopoly” and one who had monopoly “thrust upon it,” 148 F.2d at 429, reasoning from the premise that “no monopolist monopolizes’ unconscious of what he is doing.” Jd. at 432. The court concluded that Alcoa’s embracing of each new business opportunity, though > honestly industrial, clearly excluded competitors. Id. at 431. See also, United States v. United Shoe Machinery Corp., 110 F. Supp. 295, 340- 343 (1953).

On the other hand, it is fundamental to Section 2 enforcement that 818 - FEDERAL TRADE COMMISSION DECISIONS Concurring Opinion 92 RTC.

a monopolist will not be penalized if its success derives solely from its superior skill, foresight and industry. Extraordinary commercial success was distinguished from oppressive or unfair conduct leading to monopoly in the legislative debates attending passage of the Act and only the latter was to be proscribed by Section 2. United States v. dupont & Co., supra, 351 U.S. 378, 390 n. 15. The distinction has been maintained consistently by the courts. E.g., United States v. Grinnell Corp., supra, 384 U.S. 568, 570-71 (“willful acquisition or maintenance of [monopoly] power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”’); Alcoa, supra, 148 F.2d 416, 480. When we try to adopt as economic policy the implications of some of the more sweeping language found in Alcoa, United Shoe, and Grinnell, language which incidentally was almost certainly not necessary to the results in those cases, we find that these eloquent statements are difficult to apply sensibly and consistently. For example, emphasis on the word “willful” in Grinnell could suggest that intent is the critical element in determining whether conduct by a monopolist is legal. But when one tries to analyze “intent” in the context of monopoly litigation, it is immediately apparent that intent is an ambiguous indicator. What is the intent of a monopolist when responding to challenge by existing or new competition? Obviously, the monopolist wants to make as many profitable sales as possible, including sales that its new challengers seek, and to retain and [3] expand its market share. It may be aware that if it succeeds fully in repelling the competitive challenge of new rivals, those rivals may exit from the market or be satisfied with a less threatening, marginal market position. But if it achieves its intended aim by acceptable conduct - specifically superior skill or industry in making or marketing the item - the fact that it anticipates or even desires that its rivals will suffer adverse business fortunes hardly seems to be a state of mind that can fairly be the . basis of a violation of the antitrust laws. Language in Alcoa and United Shoe further suggests that any exclusionary business behavior, at least where not ecnomically inevitable, would violate Section 2.1 That formulation is similarly of dubious assistance when applied to actual business conduct. The problem is that there are many forms of conduct, not economically + The Alcoa court concluded that the mere existence of monopoly should not form the basis of a violation of Section 2 if monopoly were “thrust upon” the monopolist. 148 F.2d 416, 429. Judge Wyzanski in United Shoe Machinery Corp., supra, 110 F. Supp. 295, 341, interpreted the thrust upon theory to mean that a violation of Section 2 is made out if the exercise of controlling market power (the effect of which is to exclude competition) “though ‘honestly industrial’ were not economically inevitable but were rather the result of the firms free choice of business policies.”

PVE ELT, BLU. wee 669 ; Concurring Opinion inevitable, which can have an exclusionary effect, and which it would clearly be unwise policy to deter. A seller may improve its product or sales force and succeed thereby in obtaining additional . business. A monopolist may improve its production facilities so as to become more efficient and then pass that efficiency along to consumers in the form of lower prices. Such conduct may actually “exclude” existing or potential rivals, but surely should not be illegal under Section 2.

A fair and effective description of permissible business behavior by a monopolist must proceed beyond loose language dealing with “intent” or “exclusion” and come to grips with the specific conduct engaged in by the monopolist. For example, it is almost certainly legal for a monopolist to obtain a patent or an improvement on its products; on the other hand, it may not obtain a cluster of intricately related patents and erect a wall against challengers. [4] United States v. Hartford-Empire Co., 46 F. Supp. 541 (N.D. Ohio 1942), modified, 323 U.S. 386 (1945); Cf. 3 Areeda & Turner, supra, 1704b at 115-116. A monopolist may lease or sell its product but cannot engage in a lease-only policy. United States v. United Shoe Machinery, supra; Lapeyre v. FTC, 366 F.2d 117 (5th Cir. 1966) affg. in part Grand Caillou Packing Co., 65 F.T.C. 799 (1964). A monopolist may advertise its product but may not engage in massive advertising which erects insurmountable barriers to challengers. Bailey’s Bakery, Ltd. v. Continental Baking Corp., 235 F. Supp. 705 (D. Ha. 1964).

Patents, leases and advertising may all be intentionally exclusionary, in the sense that they are designed for and have the effect of taking business away from actual or potential rivals, but only certain unjustifiable forms of such conduct have been found to support a finding of monopolizing under Section 2. Ultimately, a description of permissible behavior by a monopolist must take on some of the characteristics of a rule of reason analysis, inquiring beyond intent and exclusionary effect into whether the conduct at issue was unreasonably exclusionary or anticompetitive — that is, whether the anticompetitive effects of a practice outweigh its procompetitive consequences, taking into account whether the same procompetitive consequences could have been achieved through a less restrictive alternative. But unlike the conventional rule of reason, this balance will be struck in light of the critical fact that the company engaging in the conduct is a monopolist and that competitive markets are to be preferred over monopoly power in the enforcement of the antitrust laws. See, Greyhound Computer Corp., Inc. v. IBM Corp., 559 F.2d 488, 498 (9th Cir. 1977), cert. denied, 484 Concurring Opinion 92 F.T.C.

US. 1040 (1978). By referencing the rule of reason, usually perceived as a standard to measure the legality of behavior by a submonopolist. under Section 1, I do not mean to say that permissible behavior by a monopolist is the same as permissible behavior by a non-monopolist. There can be no doubt that otherwise legal behavior becomes competitively unacceptable in the monopoly context. See, e.g., United States v. Griffith, 334 U.S. 100, 105 (1948); American Tobacco Co. v. United States, 328 U.S. 781, 809 (1946). Assuming a standard incorporating some concept of unreasonably exclusionary behavior must be applied to determine whether conduct by a monopolist violates the law, we next turn to the specific question of what price behavior is permissible in the monopoly context. [5] B. Alternative Rules of Pricing Behavior By a Monopolist. It frequently occurs that a business rival (sometimes a new entrant) cuts price significantly below the price of a monopolist in order to take away part of its market. Assuming the monopolist responds (as Borden did in the present case) with a price cut of its own, in what circumstances would such behavior violate Section 2 of the Sherman Act or Section 5 of the FTC Act? 1. Exclusionary and Discriminatory Pricing. It is possible to argue that a monopolist should not be permitted.to engage in responsive price cuts at all when a-new, smaller challenger appears on the scene. If a legally mandated supra-competitive price were imposed, the smaller rivals would eventually cut into the market shares of the monopolist until its market position fell below the monopoly level. At that point the monopolist might be free to respond with any otherwise legal price strategy it felt would be effective. An alternative formulation, and one which finds support in the language of Grinnell and United Shoe (and is relied upon in the majority opinion here) is that a monopolist may not respond to a new challenger by lowering prices [6] strategically in competitive markets.? The rule requires that the monopolist not discriminate in price (or as sometimes formulated with the same effect - not earn 2 The District Court in Grinnell discussed the issue of discriminatory pricing, United States v. Grinnell Corp. 236 F. Supp. 244, 257 (D.R.I. 1964), and the Supreme Court affirmed with little more than passing reference to the issue. The Court stated that Grinnell had reduced prices in competitive markets and raised prices in markets in which it faced no competition. 384 U.S. 563, 570. The Court also mentioned with approval, in discussing the appropriate remedy to be determined on remand, that the government proposed to require Grinnell to sell on nondiscriminatory terms. /d. at 579.

In United Shoe Machinery, there is discussion of United Shoe’s discriminatory pricing policy which “led to wide and relatively permanent variations on the rates of return” it secured on different machine types. The Court acknowledged that such discrimination constitutes no common law restraint of trade and though not “predatory, abusive, or coercive was in economic effect exclusionary" and hence a violation of Section 2. 110 F. Supp. 295, 340- 41. Interestingly, the Court, citing difficulties in judicial supervision, did not attempt to deal with discriminatory pricing in its order. /d. at 349.

BORDEN, INC. 821 669 - Concurring Opinion different rates of return) between geographic markets or between product categories, and thus that price reductions be across the board. ° Both formulations have serious deficiencies. A rule that prevents a monopolist from cutting price in response to new or augmented competition requires the monopolist to wait passively as small, perhaps less efficient arrivals take business away.* During this time, consumers who continue [7] to buy from the monopolist are paying higher prices because the law prevents the monopolist from pursuing its own best business interests by instituting price reductions that may be possible due to its efficiency. New entrants protected by a legally mandated umbrella price may themselves charge higher prices than would otherwise be the case - sufficiently below the monopolist price to take some of its business but sufficiently high to make supra-competitive profits themselves. Pursuing this scenario, the whole industry may become economically inefficient for the period of time the administered price umbrella is in effect. Finally, a legally mandated umbrella price generates extremely burdensome administrative problems in supervising the monopolist’s pricing policies. Suppose that raw material or labor costs increase for most members of the industry; is the monopolist required to increase its price to consumers on some proportional basis in light of its cost increase in order to avoid a violation? Suppose the monopolist improves the quality of its product. Must a court sit in judgment on the question of what constitutes a fair increase in price to take into account the more attractive features introduced? A rule that prohibits strategic pricing (to avoid differential rates of return) and requires price reductions to be made uniformly across geographic markets is deficient for many of the same reasons discussed above and also raises additional problems. The rule wholly fails to reckon with the fact that a monopolist usually faces different costs, demands and degrees of competition in different markets. Thus, a monopolist operating nationally or across a wide range of products and confronted with agressive new competition in only one or two competitive markets is caught in a dilemma. It may steer toward Scylla - making uniform price reductions in all markets, including those where a price reduction is not called for from a competitive point of view, or Charybdis - watching without price response as new arrivals capture geographic or product segments of its market.

2 If the challenger is as efficient as or more efficient than the monopolist, it doesn't need legal protection under most circumstances; as long as the monopolist sells above “cost,” at least when “cost” is sensibly defined, it cannot exclude an equally efficient rival.

Concurring Opinion 92 F.T.C.

Taking all of these considerations into account, it seems unwise as a matter of policy and common sense not to let a monopolist respond to some extent to inroads generated by small rivals pursuing aggressive price stategies. The monopolist’s price response is itself a wholesome part of the competitive process. Indeed, a major reason that antitrust law in other substantive areas preserves potential [8] competition and prevents the creation of undue and unnecessary barriers to entry is to induce companies with strong market positions to lower price in response to the threat or the presence of new entry.‘ Assuming flexible price responses by a monopolist are not unreasonably exclusionary in and of themselves, the next question is whether there may come a point at which those price cuts are so substantial or otherwise unreasonably exclusionary as to constitute illegal monopolization.

2. Cost-Based Rules of Predatory Pricing. In an influential article on the question of predatory pricing, Professors Areeda and Turner have argued that predatory or exclusionary pricing by a monopolist should be assessed by a series of cost-based rules. P. Areeda & D. Turner, “Predatory Pricing and Related Practices Under Section 2 of the Sherman Act,” 88 Harv. L. Rev. 697 (1975). The most important of these rules states that a monopolist should be held to violate Section 2 only where it sells “below cost,” defining cost as average variable cost.5 The authors assert that a firm which is selling at a short-term [9] profit-maximizing price is clearly not a predator even though it may be selling below its full cost. On the other hand, when a firm sells at less than average variable cost, it is taking an out of pocket loss on each unit sold. Excluding very special situations such as where the seller (though a monopolist) may be going out of business, such conduct can only be explained as part of the strategy to drive rivals out of business, and then recoup the earlier losses with higher than competitive prices. Also, sales at such low prices raise the spectre that success in the market will depend not on the relative efficiency of rivals but on which seller.has a sufficiently long purse to subsidize these unit-by-unit competitive losses. Thus, a price at or ‘ For example, Section 7 of the Clayton Act has been interpreted to proscribe mergers whose effect may be substantially to lessen potential competition. E.g., Procter & Gamble Co. v. FTC, 386 U.S. 568 (1967); United States v. Penn-Olin Chemical Co., 378 U.S. 158 (1964). s The authors suggest the use of average variable cost as a surrogate for short-run marginal cost which is believed to be a truer measure of economic cost but virtually impossible to calculate. Average variable cost is the sum of all variable costs divided by units of output. Variable cost is cost which varies with changes in quantity of output and is a function of size of output change and time. Variable cost is contrasted with fixed cost which is theoretically constant irrespective of quantity of output. Full or total cost is the sum of fixed and variable costs. P. Areeda & D. Turner, Predatory Pricing and Related Practices Under Section 2? of The Sherman Act, 88 Harv. L. Rev. 697, 700, 716-718. Unfortunately, there is no unanimous view of the correct allocation between fixed and variable costs, nor given the elusive nature of these calculations is there likely to be one. BORDEN, INC. 823 669 Concurring Opinion above average variable cost is presumed lawful; a price below is conclusively presumed unlawful.

This formulation has the considerable virtue of offering a single bright line formulation which would provide guidance as to permissible behavior to businessmen and also guidance to the courts and enforcement agencies. Several courts of appeals and district courts, in part influenced by the Areeda-Turner formulation, have recently adopted the below average variable cost rule to test for predatory pricing See, Janich Bros., Inc. v. American Distilling Co., 570 F.2d 848 (9th Cir. 1977), cert. denied, 47 U.S.L.W. 3195 (Oct. 2, 1978); Pacific Engr. & Prod. Co. v. Kerr-McGee Corp., 551 F.2d 790 (10th Cir.), cert denied, 98 S. Ct. 234 (1977); Hanson v. Shell Oil Co., 541 F.2d 1352 (9th Cir. 1976), cert. denied, 97 S. Ct. 813 (1977); International Air Inds. v. American Excelsior Co., 517 F.2d 714 (5th Cir. 1975), cert denied, 424 U.S. 943 (1976); ILC Peripherals Leasing Corp. v. IBM, [1978-2] Trade Cas. 62,177 (N.D. Cal. 1978); Weber v. Wynne, 431 F. Supp. 1048 (D. N.J. 1977); Inter City Oil Co. v. Murphy Oil Co., [1976-1] Trade Cas. 160,948 (D. Minn. 1976). A different cost-based rule is suggested by Professor Posner, who would define predatory pricing below short-run marginal (ze., average variable) cost, or as “pricing at a level calculated to exclude from the market an equally or more efficient competitor.” R. Posner, Antitrust Law: An Economic Perspective, 188 (1976). He would adopt a rebuttable presumption that predation is selling below long-term mariginal cost with intent to exclude a competitor, with average total costs serving as a reasonable proxy for long-term marginal costs. Jd. 189-190. A defendant could rebut the prima facie case of predation by showing, because of changes in supply or demand, that its average total costs [10] were different than long-run marginal costs or that short-run marginal costs were the correct guide to efficient pricing. Jd. at 190-191. This formulation apparently is predicated on the belief that a short-run marginal cost, or average variable cost, rule would be too permissive and would allow a monopolist to eliminate a competitor whose long-run costs might be equal to or lower than the monopolist’s.¢ Short-run costs are invariably lower than long-run because the former may not include a variety of past expenses which have become fixed costs for existing competitors but are yet to be incurred by the new entrant. Several courts have recognized the problem spotlighted by Posner and attempted to deal with it by adopting a two-step test for predatory pricing. The first standard to determine predation is * Fora similar statement see A. E. Kahn, The Economics of Regulation: Principles and Institutions, 85 (1970). Concurring Opinion 92 FTC.

whether price is below marginal or average variable costs - the ‘Areeda-Turner formulation. Even if it is not, a violation can occur if price is below average total costs and barriers to entry are high. International Air Industries, Inc. v. American Excelsior Co., supra, 517 F.2d 714, 734; ILC Pheripherals Leasing Corp. v. IBM, supra, 962,177 at 75,256-57. The theory appears to be that if entry barriers are high, a monopolist can drive equally efficient or nearly as efficient rivals out of business (or cow them into a complaint posture through price wars), and then raise its price to above competitive levels and reap monopoly profits before new entry can restore a competitive market.’ [11] Before . assessing whether the average variable cost line is appropriate to determine what conduct is unreasonably exclusionary, it is essential to examine carefully and precisely the market conditions that Borden faced and the competitive tactics that it pursued.

C. Borden v. Golden Crown - Competitive Responses. As noted earlier, the record shows that Borden enjoyed a dominant market position throughout the period under review - that is, from 1969 through 1974. In late 1969, Realemon accounted for about 90 percent of national sales (ID 102),° with several smaller brands active in regional markets. Beginning about that time, however, Golden Crown began to expand from its midwest base and progressively penetrated markets in the east, northeast and southwest (ID 103). Since retailers usually carried only two brands of processed lemon juice - Realemon plus one other brand - it was predictable and not unusual that Golden Crown’s early gains resulted principally in losses to the other small regional manufacturers (ID 104). By mid-1970, however, Borden’s Realemon brand was beginning to suffer some encroachment. Borden’s 90 percent market share had fallen to 88 percent, and Borden had correctly identified Golden Crown as its major new competitive rival (ID 108). Golden Crown was enjoying some success because it was selling at retail for prices anywhere from 10 to 30 cents per bottle below Realemon (ID 115); for example, its 32 ounce size sold for 47 cents while Realemon sold for 61 cents (ID 121). Recognizing that Golden Crown’s aggressive competitive stance plus the existing price spread would lead to a 7 Several other variations have been offered. See F. M. Scherer, Predatury Pricing and the Sherman Act: A Comment, 89 Harv. L. Rev. 868 (1976); and O. E. Williamson, Predatory Pricing: A Strategic and Welfare Analysis, 87 Yale L. J. 284 (1977). Both approaches regard the average variable cost approach as rigid and simplistic and offer alternative assessments of unreasonably exclusionary pricing. * ID 102 refers to the numbered paragraph of the initial decision containing the administrative law judge's findings of fact.

WU ALL, VU. vee 669 Concurring Opinion continuation of market share loss, Borden turned to a consideration of what its competitive response should be. In 1971 and 1972, Borden supported Realemon with substantial advertising revenues and also cut its price to retailers through substantial trade promotions. Nevertheless, its market share continued to fall; it held 86.5 percent of the market by the beginning of 1973. In 1973 and 1974, Borden expanded its advertising activities and also increased its promotional allowances substantially increasing the retailer margin to all outlets, including those that did not cut price, and, in some cases, producing a lower consumer price because retailers passed along some of the promotional allowances to consumers. Moreover, by 1974, Borden had moved to an approach of giving heavy promotion support for sales of Realemon in four key markets where it faced Golden Crown competition - New York, Philadelphia, Chicago, and Detroit (ID 128). [12] By 1974 its advertising and promotional monies were double the . amount available to retailers in 1967 (ID 125). As will be discussed more fully below, in some instances these allowances were so substantia] as to bring Borden into the range of its average variable costs.

According to the trial judge, the record does not support findings that Borden at any point during these sales promotions sold Realemon at less than its average variable cost (ID 192). The lowest prices Borden offered were to the Niagara Frontier stores in Buffalo in 1973 where it sold at $4.05 a case and to Acme Supermarkets in Philadelphia in 1973 where it also sold at $4.05 a case (ID 187, 190). Average variable costs on Realemon delivered in those sales was $3.75 or $3.99 in the Buffalo transaction, and $3.83 or $3.99 on the Philadelphia transactions (depending on which of two allocation formulas for shipping costs is applied) (ID 187, 191). Although Borden may have been selling Realemon at more than its average variable cost, it does not follow that its price maneuvers were inadequate to blunt and eventually eliminate Golden Crown’s challenge. The key to Borden’s success (and the key to disposition of this case in my opinion) turns upon the fact that Realemon enjoyed a pronounced consumer preference which enabled it to hold its large ® Borden's Realemon price exceeds its average variable cost only because the trial judge treated advertising as a fixed expense (not contributing any cost whatsoever to Borden's variable costs) and because substantial elements of salesmen's salaries and administrative sales costs other than direct commissions on sales of Realemon were also treated as fixed rather than variable. | am doubtful that these represent defensible allocation decisions. For example, with respect to advertising, Borden itself treated advertising as a variable expense in its own bookkeeping system (ID 175) and, as discussed above, advertising was very much a strategic weapon used by Borden during the price war in the pursuit of its competitive goals. Despite these doubts, I will accept the trial judge's interpretation on these points and hence assume that Borden did not sell at less than average variable cost. Concurring Opinion, 92 F.T.C.

market share virtually intact even though it was selling in the marketplace at a substantially higher price than its [13] small regional competitive rivals. This differential represented a “premium” that consumers were willing to pay in order to get the “big name” brand; and unless a challenger to Realemon made certain that its “new brand” sold at a price sufficiently below Realemon to make up for this consumer preference, the new brand could not compete with Realemon at all. Assuming that consumer preference at least to some extent persisted during the period of the price war, and Borden sold at a price close to its average variable costs, a challenger like Golden Crown which was approximately as efficient as Borden’ would have to sell far below its own costs in order to maintain all or a substantial part of that price differential. Thus, the record shows that if Golden Crown were only to maintain a 10 cent price differential below Realemon on the 32 oz. bottle (about 5 cents less than the differential that existed at the beginning of the price war), Golden Crown would have to make its product available to retailers at $2.90 a case, fully a $1 per case below Borden’s average variable cost (ID 198). To maintain a 5 cent differential in the marketplace, Golden Crown would have to make its product available to retailers at $3.40, about 50 cents below Borden’s average variable cost. Clearly, this is a formidable obstacle for a new rival to surmount in order to withstand Borden’s pricing response. D. Borden’s Unlawful Pricing Policies. The majority finds that Borden monopolized in violation of Section 2 because it answered Golden Crown’s challenge with specific competitive responses intentionally designed to curtail the ability of that company to compete effectively in the market, and because it resorted to geographic price discriminations, selling at prices close to cost in markets where Golden Crown was active but maintaining much higher prices in less competitive markets. (Majority opinion at 22- 32.) There is persuasive evidence in the record that supports both these findings, and substantial legal precedent for a conclusion that such behavior constitutes illegal monopolization. I am hesitant, however, to rely on principles of intent for a finding of monopolization since intent in these cases is almost always multifaceted and uncertain, and should properly be relied upon only in the most unusual and rare circumstances. A finding of monopolization based on geographic price discrimination can be criticized as an unreasonable hampering of the monopolist’s ability to compete and an economically unrealistic solution. [14] ‘© Actually, Golden Crown's costs were very close to, if not below, Borden's (ID 195). See majority opinion, p. 30. BORDEN, INC. 827 669 Concurring Opinion Even if neither of those grounds were regarded as adequate to sustain a finding of a violation, there is another aspect of Borden’s market behavior which demonstrates clearly that its conduct was “unreasonably exclusionary” in light of its monopoly market position. A realistic appreciation of the nature of competition in this market begins with the recognition that Borden, prior to Golden Crown’s challenge, was able to sell at a price that was 30 percent and more higher than prices charged by regional competitors (ID 82). This pronounced consumer preference was largely a result of the fact that Borden had been in the market for many years before Golden Crown appeared," possessed overwhelming brand recognition and consumer loyalty simply by virtue of having been in the market for so long, enjoyed the continuing benefits of its prior advertising, and had established itself over the years through sales promotions and - otherwise cordial relations with retailers.2 Many of these advantages, particularly brand recognition and brand loyalty induced by advertising, were achieved through the expenditure of monies which did not constitute a current cost to Borden in the years in which it was engaging in price competition with Golden Crown. As a consequence, even though Golden Crown was equally as efficient or more efficient than Borden, Borden could drop its Realemon prices to a point at or slightly above its average variable cost, maintain those prices over an extended period of time as a result of its enormous sales and asset position in other product lines, and be assured that it would eventually drive Golden Crown or any other similar challenger to the wall. Thus, where a monopolist enjoys a pronounced consumer preference due to advertising and promotion, a rule which permits [15] the monopolist to drop its price to average variable cost in response to competitive challenge in effect means the monopolist will surmount almost any competitive challenge from smaller entrants. A definition of exclusionary pricing which results in preferring a monopolist for no reason other than it is a monopolist, and disadvantaging a small company. not because it is less efficient but because it is a new entrant and because it is smaller, stands antitrust policy on its head. 5 1 2 4 1 2 649 2235 67 19 95.978691 There5 1 2 4 1 3 731 2235 17 19 96.818344 is5 1 2 4 1 4 762 2242 11 12 96.818344 a5 1 2 4 1 5 787 2235 91 24 96.576744 striking5 1 2 4 1 6 890 2238 94 17 96.576744 contrasts 1 2 4 1 7 998 2236 92 20 96.769493 between5 1 2 4 1 8 1105 2237 36 18 96.716637 thes 1 2 4 1 9 1155 2243 55 18 96.492546 ways5 1 2 4 1 10 1224 2237 81 20 96.575050 Borden5 1 2 4 1 11 1319 2238 41 19 96.635109 ands 1 2 4 1 12 1375 2238 78 20 96.428947 Golden5 1 2 4 1 13 1468 2239 73 20 96.090324 Crowns 1 2 4 1 14 1556 2241 84 19 96.090324 entered5 1 2 4 1 15 1656 2241 36 19 69.373985 ‘thes 1 2 4 1 16 1707 2242 86 19 96.297531 market.5 1 2 4 1 17 1809 2243 80 19 96.946770 Borden4 1 2 4 2 0 579 2268 1310 28 -1 5 1 2 4 2 1 579 2268 97 23 96.731529 acquired5 1 2 4 2 2 687 2274 11 13 96.926498 a5 1 2 4 2 3 709 2268 110 24 96.565872 monopoly5 1 2 4 2 4 831 2268 20 19 96.505669 in5 1 2 4 2 5 863 2268 54 19 95.617744 1962.5 1 2 4 2 6 928 2269 43 19 96.962921 Thes 1 2 4 2 7 981 2269 131 24 96.821442 predecessors 1 2 4 2 8 1122 2276 101 18 96.729988 company5 1 2 4 2 9 1235 2271 39 19 96.729988 had5 1 2 4 2 10 1286 2271 36 19 97.009567 thes 1 2 4 2 11 1331 2271 43 20 96.258247 soles 1 2 4 2 12 1385 2272 114 24 96.258247 nationally5 1 2 4 2 13 1510 2273 117 20 96.359657 advertised5 1 2 4 2 14 1637 2274 42 19 96.945930 ands 1 2 4 2 15 1689 2274 123 21 97.004456 distributed5 1 2 4 2 16 1823 2276 66 19 96.534889 brand4 1 2 4 3 0 580 2301 1308 28 -1 5 1 2 4 3 1 580 2301 31 19 96.720245 for5 1 2 4 3 2 621 2301 25 19 96.720245 305 1 2 4 3 3 657 2307 60 18 96.882950 years5 1 2 4 3 4 729 2302 56 23 96.696075 prior5 1 2 4 3 5 795 2304 22 25 96.809357 to5 1 2 4 3 6 828 2301 98 20 12.077408 Borden's5 1 2 4 3 7 936 2302 130 24 96.825409 acquisition,5 1 2 4 3 8 1077 2303 41 19 96.522079 ands 1 2 4 3 9 1130 2303 80 20 96.940346 Borden5 1 2 4 3 10 1223 2304 129 20 96.332840 maintained5 1 2 4 3 11 1364 2305 42 19 96.797997 this5 1 2 4 3 12 1417 2308 67 16 96.923538 status5 1 2 4 3 13 1495 2306 32 19 96.868362 for5 1 2 4 3 14 1541 2307 21 18 96.868362 105 1 2 4 3 15 1573 2313 60 16 97.006569 years5 1 2 4 3 16 1644 2307 70 20 96.923203 before5 1 2 4 3 17 1725 2307 78 21 95.967216 Golden5 1 2 4 3 18 1816 2308 72 21 95.967216 Crown4 1 2 4 4 0 578 2334 894 28 -1 5 1 2 4 4 1 578 2334 91 20 96.508232 entered.5 1 2 4 4 2 677 2334 44 20 92.933266 Thes 1 2 4 4 3 729 2334 146 20 13.721024 “Realemon™5 1 2 4 4 4 884 2335 120 24 96.534355 trademarks 1 2 4 4 5 1014 2336 39 19 96.949760 had5 1 2 4 4 6 1062 2336 50 19 96.167191 been5 1 2 4 4 7 1122 2336 20 19 96.979927 in5 1 2 4 4 8 1152 2343 35 13 96.950203 uses 1 2 4 4 9 1196 2337 30 19 96.948441 for5 1 2 4 4 10 1234 2337 24 19 96.655197 305 1 2 4 4 11 1265 2343 62 18 95.599113 years5 1 2 4 4 12 1335 2338 24 24 95.599113 by5 1 2 4 4 13 1368 2338 42 20 96.771255 this5 1 2 4 4 14 1418 2339 54 19 96.768875 time.3 1 2 5 0 0 579 2367 1310 62 -1 4 1 2 5 1 0 620 2367 1269 31 -1 5 1 2 5 1 1 620 2370 14 10 67.820137 125 1 2 5 1 2 649 2367 98 20 39.685020 Borden's5 1 2 5 1 3 757 2368 66 19 97.001862 brands 1 2 5 1 4 834 2368 119 24 96.678955 preferences 1 2 5 1 5 963 2375 41 13 96.658035 was5 1 2 5 1 6 1015 2371 34 18 96.913673 not5 1 2 5 1 7 1060 2370 35 19 96.966278 thes 1 2 5 1 8 1106 2370 65 19 96.786621 results 1 2 5 1 9 1180 2370 42 19 96.768333 of5 1 2 5 1 10 1213 2363 12 36 96.508629 a5 1 2 5 1 11 1232 2371 96 23 96.508629 superiors 1 2 5 1 12 1337 2371 91 24 96.497391 product.5 1 2 5 1 13 1440 2372 98 20 89.809341 Borden's5 1 2 5 1 14 1548 2373 122 20 95.892532 documents5 1 2 5 1 15 1678 2374 82 20 96.454247 showed5 1 2 5 1 16 1770 2375 41 19 96.640602 ands 1 2 5 1 17 1821 2375 68 23 88.423988 Judge4 1 2 5 2 0 579 2401 1010 28 -1 5 1 2 5 2 1 579 2401 103 19 96.826561 Hanscom5 1 2 5 2 2 691 2401 63 19 96.627426 found5 1 2 5 2 3 763 2401 46 19 96.666573 that5 1 2 5 2 4 818 2402 36 19 96.736588 thes 1 2 5 2 5 862 2402 55 23 96.992897 prices 1 2 5 2 6 925 2403 102 23 96.255699 premiums 1 2 5 2 7 1036 2409 41 13 96.936081 was5 1 2 5 2 8 1084 2403 40 19 96.697304 dues 1 2 5 2 9 1132 2405 21 17 96.933617 to5 1 2 5 2 10 1162 2404 67 23 96.933617 images 1 2 5 2 11 1237 2406 35 17 96.521538 not5 1 2 5 2 12 1281 2405 86 23 96.911636 products 1 2 5 2 13 1375 2405 124 24 96.449791 superiority5 1 2 5 2 14 1507 2406 37 21 77.392494 (ID5 1 2 5 2 15 1551 2406 38 22 96.202148 83).3 1 2 6 0 0 578 2434 1310 97 -1 4 1 2 6 1 0 620 2434 1266 31 -1 5 1 2 6 1 1 649 2434 105 20 96.651299 Professors 1 2 6 1 2 763 2434 88 20 96.960098 Scherer5 1 2 6 1 3 859 2436 82 19 96.476753 arrived5 1 2 6 1 4 950 2437 22 17 96.959877 at5 1 2 6 1 5 981 2436 35 19 96.941811 thes 1 2 6 1 6 1025 2442 58 13 96.922211 same5 1 2 6 1 7 1090 2437 119 19 93.262634 conclusions 1 2 6 1 8 1219 2448 10 3 84.121269 -5 1 2 6 1 9 1240 2438 34 20 69.536964 ie.,5 1 2 6 1 10 1285 2438 46 19 96.940834 that5 1 2 6 1 11 1340 2438 36 20 96.194214 thes 1 2 6 1 12 1384 2444 88 18 96.194214 averages 1 2 6 1 13 1480 2439 94 19 96.789200 variables 1 2 6 1 14 1582 2443 42 16 96.884804 costs 1 2 6 1 15 1633 2440 135 21 96.521866 formulations 1 2 6 1 16 1778 2442 31 19 96.945694 for5 1 2 6 1 17 1819 2442 67 23 94.875336 illegal4 1 2 6 2 0 578 2468 1308 36 -1 5 1 2 6 2 1 578 2468 151 23 91.870224 monopolizing5 1 2 6 2 2 738 2468 17 19 96.971550 is5 1 2 6 2 3 766 2468 124 23 96.394638 inadequate5 1 2 6 2 4 899 2469 59 19 96.874252 when5 1 2 6 2 5 969 2470 36 18 96.993797 thes 1 2 6 2 6 1015 2470 123 23 96.918755 monopolist5 1 2 6 2 7 1147 2470 71 24 96.758102 enjoys5 1 2 6 2 8 1227 2477 11 13 96.957092 a5 1 2 6 2 9 1248 2471 121 23 94.301926 significant5 1 2 6 2 10 1378 2478 109 13 94.301926 consumers 1 2 6 2 11 1496 2473 126 23 96.701942 preference:5 1 2 6 2 12 1632 2474 45 19 95.393013 “An5 1 2 6 2 13 1688 2474 66 23 96.684708 images 1 2 6 2 14 1763 2471 123 33 93.649895 advantage,4 1 2 6 3 0 578 2502 1310 29 -1 5 1 2 6 3 1 578 2502 121 23 96.513939 permitting5 1 2 6 3 2 713 2502 36 19 96.428932 thes 1 2 6 3 3 765 2503 146 18 95.892151 maintenance5 1 2 6 3 4 925 2503 23 18 96.463837 of5 1 2 6 3 5 959 2509 11 12 96.947067 a5 1 2 6 3 6 986 2503 55 23 96.695534 prices 1 2 6 3 7 1056 2503 109 24 96.695534 premium,5 1 2 6 3 8 1180 2504 17 19 96.123505 is5 1 2 6 3 9 1210 2505 146 23 96.436005 conceptually5 1 2 6 3 10 1369 2506 114 22 96.499832 analogous5 1 2 6 3 11 1498 2509 20 15 96.685341 to5 1 2 6 3 12 1533 2513 11 12 94.983543 a5 1 2 6 3 13 1561 2507 44 18 94.983543 units 1 2 6 3 14 1619 2509 43 17 96.189796 costs 1 2 6 3 15 1677 2507 122 24 94.775818 advantage.5 1 2 6 3 16 1815 2509 73 18 96.530205 Either2 1 3 0 0 0 577 2534 1309 62 -1 3 1 3 1 0 0 577 2534 1309 62 -1 4 1 3 1 1 0 577 2534 1309 31 -1 5 1 3 1 1 1 577 2535 104 19 96.476601 enhances5 1 3 1 1 2 695 2534 36 20 96.598991 thes 1 3 1 1 3 743 2535 110 19 96.795227 dominant5 1 3 1 1 4 867 2535 65 19 71.471603 firm's5 1 3 1 1 5 946 2536 103 19 96.464142 incentives 1 3 1 1 6 1063 2539 20 16 96.990547 to5 1 3 1 1 7 1096 2539 35 17 94.262093 cuts 1 3 1 1 8 1144 2537 66 23 94.262093 prices5 1 3 1 1 9 1223 2538 136 23 96.732300 temporarily5 1 3 1 1 10 1372 2540 22 17 96.961243 to5 1 3 1 1 11 1406 2538 85 19 93.112434 excludes 1 3 1 1 12 1505 2539 132 20 91.411354 less-favored5 1 3 1 1 13 1652 2540 68 20 96.338844 rivals.5 1 3 1 1 14 1735 2541 61 19 96.624847 What5 1 3 1 1 15 1810 2542 76 23 96.253426 society4 1 3 1 2 0 577 2568 1309 28 -1 5 1 3 1 2 1 577 2568 81 19 96.862350 obtains5 1 3 1 2 2 674 2568 105 24 96.711739 following5 1 3 1 2 3 793 2569 112 19 93.227303 successful5 1 3 1 2 4 922 2569 163 24 92.602295 image-induced5 1 3 1 2 5 1102 2570 144 24 96.942940 exclusionary5 1 3 1 2 6 1263 2572 79 23 96.671303 pricing5 1 3 1 2 7 1358 2572 17 18 96.972656 is5 1 3 1 2 8 1392 2574 34 16 96.953918 not5 1 3 1 2 9 1442 2572 35 18 96.813011 thes 1 3 1 2 10 1494 2572 79 24 96.933830 freeing5 1 3 1 2 11 1588 2573 22 19 96.933830 of5 1 3 1 2 12 1624 2579 106 14 96.764816 resources5 1 3 1 2 13 1746 2575 46 18 96.295860 that5 1 3 1 2 14 1807 2581 38 13 95.823654 cans 1 3 1 2 15 1862 2575 24 20 95.823654 be2 1 4 0 0 0 1753 2625 133 21 -1 3 1 4 1 0 0 1753 2625 133 21 -1 4 1 4 1 1 0 1753 2625 133 21 -1 5 1 4 1 1 1 1753 2625 133 21 96.562897 (Continued) Concurring Opinion 92 FE.T.C.

Assuming that a simple formula that defines predatory pricing as sales below average variable costs results in an anticompetitive result where a monopolist enjoys pronounced brand allegiance, what alternative rule should be imposed. Specifically, what should Borden have done once its market position was challenged to avoid an unreasonably exclusionary response? The statement of the problem provides a strong indication of the solution. Since Borden’s entrenched advantage derived from brand loyalty that permitted the charging of a substantial premium price, it was unreasonably exclusionary to have narrowed the gap between itself and a new challenger [16] so as to eliminate wholly or substantially the previous premium margin - at least while it continued to enjoy a monopoly market share. A correct rule must take into account the past expenditures which enabled Borden to achieve its current monopoly position — that is, advertising, promotion and distributional expenses, and perhaps the premium it paid in the first place to acquire a monopolist (which itself may reflect prior variable cost expenditures which have a current marketplace impact). These past expenses to some extent permit Borden to charge a premium price, and yet would not be included in its average variable costs.

This is not to say that no price response by a monopolist is permissible. For example, a price cut to average full cost would be a restrained and moderate competitive response - particularly if introduced slowly and progressively over a period of time.’* Under this standard, the monopolist [17]. would be able to respond selectively to competitive challenges down to its level of average full cost, but ordinarily would not be able to drive an equally efficient challenger out of the market.'* If the challenger is highly inefficient in comparison to the. monopolist even this moderate response should employed more effectively elsewhere, but rather, higher prices and profits accompanied by increased consumption of the ‘premium’ product. Assessing the social efficacy of such cases calls for strong non-economic value judgments. . .. . 1 believe that the image advantage - exclusionary pricing is empirically important, and I find it hard to avoid a value judgment that temporary price cutting to eliminate producers handicapped only by. an inferior brand image is socially undesirable.” Scherer, Predatory Pricing and the Sherman Act: A Comment, 89 Harv. L. Rev. 869, 889 (1976). ;

“4 Another element of “restraint” by monopolists enjoying a consumer preference position might be not to cut price drastically (ie., below average total cost) in the first year or eighteen months in which a challenger is present in the market. That too could be unreasonably exclusionary in that it may have the effect of eliminating or crippling the competitive potential of the challenger before it has an opportunity to seek consumer acceptance, differentiate its product, or achieve for itself efficiencies of scale that it could ultimately attain. Cf O. Williamson, supra, 87 Yale L. J. 285, 296.

Borden's progressively more vigorous price and advertising responses to Golden Crown, running over a period of four years, do not indicate a lack of restraint with respect to this timing dimension. But as the case demonstrates, restraint in timing of the monopolist’s response to competition, standing alone. is not sufficient to make the response reasonable.

's The full cost rule may find support in the Posner approach (Posner, supra, pages 185-86), since it would prevent pricing at less than full cost to exclude an equally efficient rival. The limitation on monopolist’s discretion would continue only so long as there is a pronounced consumer preference. If it disappeared in the course of (Continued) BURVIGIN, LINU. vuw 669 Concurring Opinion allow the monopolist to protect its legally acquired market position. If the monopolist’s product is superior, or its brand image impervious to price competition, it may hold its market share at the higher price. Finally, if the challenger is an equally or more efficient competitor than the monopolist, the monopolist’s market share should soon decline to the point where it may respond competitively under more lenient rules that apply to non-monopolists. The time lag before that occurs should allow the challenger sufficient opportunity to become established in the market, and then to meet the former monopolist’s response on its merits.'* [18] The approach adopted here, by departing from a standard of ‘predation depending on average variable cost in all instances, introduces some uncertainty into the law. That is unavoidable, however, if we-are to apply to a monopolist’s business behavior those judgmental factors inherent in a rule of reason. As noted, the problem here is that the way in which costs are computed failed to account for a major advantage of a monopolist which does not relate to its superior skill, foresight, or industry nor to quality differences between its product and the product of rivals, and yet serves mightily to preserve its monopoly position. The proposed rule is not inconsistent with recent cases which have reacted approvingly to the notion of defining predatory prices in most situations as those that are below average variable cost. Thus, in Hanson v. Shell Oil Co., 541 F.2d., 1852 (9th Cir., 1976), the owner of a group of small gasoline stations charged Shell with predatory pricing designed to drive competitors out of the market. The 9th Circuit adopted the average variable cost formula for predatory pricing, explaining its decision in the following language: If its prices were above its costs, and nevertheless Shell’s did drive Hanson out of business this can only be because Hanson was so inefficient that at prices which Shell could make a reasonable profit, he could not. The antitrust laws were not intended, and may not be used, to require businesses to price their products at unreasonably high prices (which penalize the consumer) so that less efficient competitors can stay in business. 541, F.2d at 1358-59.

It is precisely because Borden’s price above average variable cost could drive an equally efficient rival out of business that an average renewed competition (which is another way of saying challengers had overcome barriers to entry depending on the monopolists successful product differentiation), then there would be no need for special rules limiting the monopolist’s price response beyond those that would apply in any monopoly situation. 16 While it is not necessary to address the question here, the same general approach should apply where a company takes advantage of pronounced consumer preferences, generated by previous expenses not included in current average variable costs, to achieve monopoly power at the expense of equally efficient competitors. There too, a sensible rule must find a way to take into account those prior expenditures which made it possible for the company to master its rivals and gain or regain a monopoly position. Concurring Opinion . 92 F.T.C.

variable cost formula is inappropriate where there is pronounced consumer brand loyalty. [19] Several other cases adopting an average variable cost formulation to define predation, have considered whether high entry barriers were present and thus warranted an exception to the average variable cost rule. International Air Industries, Inc. v. American Excelsior Co., supra, 517 F.2d 714, involved the air conditioning cooler pad industry. The court found no reason to depart from an average variable cost rule unless “barriers to entry are great enough to enable the discriminator to reap the benefits of predation before new entry is possible.” Jd. at 724. It was concluded that entry barriers were non-existent and that defendant had not sold below its average cost in any event. Id. at 725. In ILC Peripherals Leasing Corp. v. IBM (“Memorex”), supra, [1978-2] Trade Cas. 62,177, the court determined that entry barriers were not overly high and that there was no evidence that IBM had sold below a short-run, profitmaximizing price. Id. at 75,257. In Pacific Engineering & Production Co. v. Kerr-McGee Corp., supra, 551 F.2d 790, 797, the Tenth Circuit adopted an average variable cost rule rejecting a below total cost rule under the circumstances of the case. The case involved sale of a chemical used in solid rocket fuel for which there was dramatically decreased demands. The industry had gone from four to two suppliers, each of which had a capacity. exceeding total demand. The court concluded that it was inevitable that only one company would survive.

In Janich Bros. Inc. v. American Distilling Co., supra, 510 F.2d, 848, 856-58, the Ninth Circuit adopted an average variable cost rule and discussed the shortcomings of using a total cost rule. The court stated that “As implied in Hanson, an across-the-board price set at or above marginal cost should not ordinarily form the basis of an antitrust violation.” Id. at 557 (emphasis added). The Memorex court properly construes the statement as indicating that the exception for a market with high entry barriers is still the rule of the Ninth Circuit. [1978-2] Trade Cas. 162,177 at 75,757. Since pronounced consumer brand loyalty is a barrier to entry, the line of cases described above would also counsel a departure from the average variable cost rule here. [20] There remains only the question whether Borden sold below average total cost during the period under review, and there appears to be no doubt that it did. According to Borden’s own internal documents, Borden’s total cost for cases of 32 oz. Realemon lemon juice during 1973 was $6.09 or $5.93 (depending upon direct or nondirect shipment) (CX 293; ID 172). As previously discussed (page 12), DVYWWYLN, LIVU, vave 669 Concurring Opinion Borden’s price for sales promotions in Philadelphia and Buffalo at this time was $4.05 per case. These sales were well below total cost, and, in fact, were only 6 to 30 cents above average variable cost. Moreover, these sales were not isolated instances. There was evidence that during 1973, 84 percent of Borden’s 32 oz. Realemon lemon juice was sold “on deal”; that is, with promotional allowances (ID 183). Allowances in Borden’s competitive markets in 1973 commonly ranged from $1.50 to $2.25 per case (ID 139, 141, 142, 148). Deducting these allowances from the average net selling price per case in 1973 of $6.59 (CX 293), leaves selling prices of $4.34 to $5.09. Thus, it is clear that there were many sales below total cost. I]. REMEDY FOR BORDEN’S PREDATORY CONDUCT I agree with the conclusion in Chairman Pertschuk’s separate opinion that the Commission has the authority under Section 5 to enjoin continued use of a trademark where that injunction is necessary to dissipate monopoly power that has been illegally acquired or used. In light of the reasoning of this concurring opinion, however, I would conclude that such extraordinary relief is unnecessary.

An order preventing Borden from pricing Realemon at levels which would be “unreasonably exclusionary” - as that term is described in this opinion - would allow new entrants, regardless of their size and access to financial subsidies, to compete effectively with Borden if their level of efficiency so permitted. I am in general agreement with the majority’s order. In light of the reasoning of this opinion, I would, however, modify the order by deleting subparagraph (1) in its entirety. As noted previously, I do not subscribe to a geographic market or product market, price discrimination theory of monopolization. [21] I believe the monopolist should be accorded some leeway to respond to aggressive competition by a new entrant or an existing competitor. The response must be tempered, however, so as not to eliminate the equally or more efficient competitor. Subparagraph (2) of the order will accomplish this end in this market (and will accomplish that end in most competitive situations). I would define “unreasonably low prices” as sales below average total cost. This limit would apply — i.e, would be necessary to avoid a restraint or elimination of competition — only so long as Borden continued to exercise monopoly power.

Lastly, subparagraph (8) directs that Borden cease and desist from promotional allowances which eliminate competition between Borden and its competitors. This provision recognizes that promotional Final Order 92 F.T.C.

allowances, along with advertising, functioned as the primary means through which Borden maintained its monopoly position. Some provision addressing promotional practices, beyond subparagraph 2, is warranted as a “fencing-in” provision. FTC v. National Lead Co., 352 U.S. 419, 431 (1957). In light of Borden’s violation of Section 5, that provision should impose greater restriction than is required by subparagraph (2) but nonetheless, permit Borden to respond moderately to a new challenger. Therefore, I agree with subparagraph (8) of the order.

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 sustain the initial decision with certain modifications:

Tt is ordered, That the initial decision of the administrative law judge, pages 1-162, be adopted as the findings of fact and conclusions of law of the Commission, except to the extent indicated in the accompanying opinion.

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 It is ordered, That Borden, Inc., and its successors and assigns, officers, agents, representatives and employees, directly or indirectly, or through any corporation, subsidiary, affiliate, division or other device, in connection with the production, marketing and sale of processed lemon juice in or affecting commerce, as “commerce” is defined in the Federal Trade Commission Act, shall forthwith cease and desist from:

(1) Granting price reductions, directly or indirectly, which result in different net prices among Borden’s Realemon customers, whether or not such customers compete in the same geographic area, which differences in price are not attributable to differing costs of manufacture, sale or delivery, and the effect of which is to hinder, restrain or eliminate competition between respondent Borden and its competitors in the production, marketing and sale of processed lemon juice;

BORDEN, INC. _ 833 669 Final Order (2) Selling Realemon lemon juice below its cost or at unreasonably low prices, the effect of which is to hinder, restrain or eliminate competition between respondent Borden and its competitors in the production, marketing and sale of processed lemon juice; (3) Granting promotional allowances or payments of any kind for customers’ promotional services, the effect of which is to hinder, restrain or eliminate competition between respondent Borden and its competitors in the production, marketing and sale of processed lemon juice. [3] It is further ordered, That Borden, Inc., shall, within sixty (60) days from the date this order becomes final, and every year thereafter for a period of ten (10) years, submit a detailed written report of its actions, plans and progress in complying with the provisions of this order, and fulfilling its objectives.

Interlocutory Order 92 F.T.C.