Pillsbury Company

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IN THE MATTER Of' THE PILLSBURY COMPANY, ET AL CONSENT ORDER , ETC. , IN REGARD TO ALLEGED VIOLATION Of' SEe. 5 OF THE FEDERAL TRADE COMMISION ACT Dodet C-306' 5. Complaint, April 981-Decision, April 28, 1981 This consent order requires, among other things, that a Minneapolis, Minnesota manufacturer of refrigerated bakery dough ('"RED") products and its major distributor, Kraft, Inc., cease from entering into or enforcing any agreement which bars either party from freely dealing with competitive firms. The order further requires that a prescribed amendment eliminating exclusive dealing requirements be incorporated into the companies' current distribution contract relating to RBD products.

Appearances For the Commission: James C. Egan, Jr.. and Debra Simmons. For the respondent: Edward Stringer General Counsel, The Pillsbury Company, John D French, Faegre Benson Minneapolis Minn- , 0- E Swain Kraft, Inc_ , C Lee Cook, Jr_, Chadwell, Kayser Ruggles, McGee Hastings, Ltd Chicago, Ill COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and in the exercise of authority vested in it by the Act, the Federal Trade Commission, having reason to believe that the above-named respondents have violated Section 5 of the Federal Trade Commission Act (15 UB_C- 45), and that a proceeding in respect thereof would be in the public interest, hereby issues this complaint charging as follows:

I. DEFINITION PARAGRAPH 1- For the purpose of this complaint the following definition shall apply:

Refrigerated dough bakery products (RDB) means dough-based unbaked, packaged food products that are chemically leavened- Such products require refrigeration during distribution and storage, and must be heated before consumption to fully activate the chemical leavening, J.'- 354 Complaint II. THE PILLSBURY COMPANY PAR- 2- The Pillsbury Company ("Pillsbury ) is a Delaware corporation with its general office located at 608 Second Ave- South Minneapolis, Minnesota, P AR- 3- Pillsbury is an international food company operating in three major segments of the food industry- The Restaurant Group prepares and sells food through Burger King, and limited menu and specialty restaurants- The Consumer Products Group manufactures and sells, among other things, a broad range of dry, refrigerated and frozen grocery products- The Agri-Products Group processes grain by milling it into flour for sale to commerical users or to the Consumer Products Group- PAR- 4- In its fiscal year ending May 31, 1979, Pillsbury had total sales and revenues of $2_ 166 billion, net earnings after taxes of $83_ million, and total assets of $L805 billion- According to Fortune magazine, in 1978 Pillsbury was the 176th largest in sales and 172nd largest in assets among the nation s industrial corporations, P AR- 5- The Refrigerated Foods Division of Pillsbury s Consumer Products Group, an unincorporated division of Pillsbury, manufactures and sells refrigerated dough bakery products under various brand names, including Pillsbury, Hungry Jack, 1869 Brand, and Big Country- Pillsbury entered the refrigerated dough bakery products business in 1951, when it acquired Ballard and Ballard Company of Louisville, Kentucky- P AR- 6- Pillsbury is the nation s largest manufacturer of refrigerated dough bakery products, with over S5% of total industry sales in its fiscal year ended May 31 , 1978- P A 1'- 7- At all times relevant herein, Pillsbury sold and shipped refrigerated dough bakery products throughout the United States and was, and is now, engaged in commerce or affects commerce as commerce" is defined in the amended Federal Trade Commission Act III. KRAFT, INC, P AR- 8- Kraft, Inc- (hereinafter "Kraft") is a Delaware corporation with its principal office located at Kraft Court, Glenview, Ilinois- PAR. 9, Kraft is an international manufacturer and marketer food products, and is one of the nation s largest manufacturers and distributors of refrigerated dairy products- Its Retail Foods G-roup manufactures and sells cheese and related products; vegetable oilbased products such as salad dressings, margarine, cooking oils and shortening; jellies and preserves; and other products- The Dairy 356 DERAL TRADE COMMISSION DECISIONS Complaint 97 F-TC- Group manufactures and sells fluid milk, cream and manufactured dairy products, including cottage cheese, yogurt and sour cream- Kraft manufactures and sells under various brand names, including Kraft cheese, Miracle Whip salad dressing, Seal test milk and ice cream, Philadelphia brand cream cheese, and Breakstone yogurt Kraft also manufactures and sells non-food items, including chemicals, paper containers, aluminum cookware and toys. PAR- 10- In the year ended December 31, 1979, Kraft had total sales to unaffiliated customers of $6-433 billon; net income after taxes of $188_1 milion, and total assets of $2_ 523 billon- According to Fortune magazine, in 1978 Kraft was the 39th largest in sales and 91st largest in assets among the nation s industrial corporations- PAR- 11- In addition to products manufactured by it, Kraft also distributes Pilsbury s refrigerated dough bakery products- In 1979 Kraft' s sales of Pilsbury s refrigerated dough bakery products totaled more than $200 millon- P AR- 12- At all times relevant herein, Kraft distributed and sold refrigerated dough bakery products throughout the United States and was, and is now, engaged in commerce as "commerce" is defined in the amended Federal Trade Commission Act IV, VIOLATION PAR- 13- Since July 2, 1951, Pilsbury and Kraft have entered into a series of written agreements and amendments thereto by which Pillsbury has appointed Kraft its principal distributor, with certain limited exceptions, of refrigerated dough bakery products- The agreements between Kraft and Pilsbury allow Pillsbury to sell refrigerated dough bakery products to additional other distributors should Kraft manufacture or sell competitive refrigerated dough bakery products.

P AR- 14. Pursuant to these agreements, Kraft has purchased substantially all of Pilsbury s refrigerated dough bakery products since July 2, 1951- In Pillsbury s fiscal year ended May 31, 1978, more than 99% of Pillsbury s sales of refrigerated dough bakery products s totalwere to Kraft, representing approximately 10% of Pilsbury consolidated net sales to unaffiliated customers- P AR- 15- Since 1953, when Kraft closed its own refrigerated dough bakery products manufacturing plant in California, Kraft has not sold or distributed in the United States refrigerated dough bakery products manufactured by any company other than Pilsbury. P AR- 16- The purpose or effect of these agreements has been to create an exclusive agreement between Pilsbury and Kraft, whereby 354 Decision and Order Pilsbury, the largest manufacturer of refrigerated dough bakery products in the nation, sells substantially all of these products To Kraft; and Kraft, one of the nation s largest manufacturers and distributors of refrigerated dairy products, purchases these products only from, and distributes these products only for, Pillsbury- P AR- 17 - The purpose or effect of the aforesaid acts and practices restrain orhas been, or may be, to substantially lessen, hinder, suppress competition in the sale, distribution and purchase of refrigerated dough bakery products in interstate commerce. P AR- IS- The acts, practices and methods of competition alleged in Paragraphs Thirteen, Fourteen, Fifteen and Sixteen are unfair and constitute a violation of Section 5 of the Federal Trade Commission Act Acting Chairman Clanton voted in the negative- DECISION AND ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondents named in the caption hereof, and the respondents having been furnished thereafter with a Bureau of Competition copy of a draft of complaint which the proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge respondents with violation of the Federal Trade Commission Act; and The respondents, their attorneys, and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondents of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondents that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission s Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondents have violated the said Act, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty days, now in further conformity with the procedure prescribed in Section 2_ 34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following order: Respondent The Pilsbury Company is a corporation organized, existing and doing business under and by virtue of the laws of the Decision and Order 97 F-TC- State of Delaware, with its office and principal place of business located at 608 Second Ave- South, in the City of Minneapolis, State of Minnesota.

Respondent Kraft, Inc- is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its offce and principal place of business located at Kraft Court, in the City of Glenview, State of Ilinois- 2- The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest ORDER For the purpose of this Order, the following definition shall apply: Refrigerated dough bakery products (RDB products) means doughbased, unbaked, packaged food products that are chemically leavened. Such products require refrigeration during distribution and storage, and must be heated before consumption to activate fully the chemical leavening.

It is ordered, 'That respondents Kraft, Inc- ("Kraft"), a corporation and The Pilsbury Company ("Pilsbury ), a corporation, their successors and assigns, and their officers, agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the sale, purchase or distribution of RDB products in or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act, as amended do forthwith cease and desist from hereafter entering into or enforcing any written or oral contract with one another for the sale or distribution of RDB products to the retail trade by which: (a) Pillsbury shall appoint Kraft its sole and exclusive distributor of RDB products; or (b) Kraft shall be restricted in any manner from distributing the RDB products of a manufacturer other than Pillsbury- It is further ordered, That concurrent with the issuance of this Order, Kraft and Pilsbury shall make effective the attached '-'-J. ~ ..~..-'U.lU~''- U"LT~~ .u.~ , .L'" Cu... 354 Decision and Order amendment to their current distribLltion contract dated July 1, 1976 relating to RDB products- This amendment is to be considered part of the Order- The purpose of this amendment is to allow, (a) Pillsbury, in its sole discretion, to sell or distribute RDB Products to the retail trade through any means in addition to Kraft Pillsbury will give Kraft at least sixty days' prior written notice of its intention to begin selling or distributing its RDB Products to the retail trade through any means in addition to Kraft; (b) Kraft, in its sole discretion, to sell or distribute to the retail trade RDB Products manufactured by a person or persons in addition to Pillsbury- Kraft will give Pillsbury at least sixty days prior written notice of its intention to sell or distribute competitive products;

(c) Pilsbury, in its sole discretion and upon prior written notice of at least one year, to terminate Kraft as a distributor to the retail trade of RDB Products in any area of the United States or in the entire United States; and (d) Kraft, in its sole discretion and upon prior written notice of at least one year, to cease selling to the retail trade RDB Products manufactured by Pilsbury in any area of the United States or in the entire United States- Provided, however that nothing in this Order shall be construed as requiring Pilsbury to sed or distribute its RDB products to or through any company or person other than Kraft; and Pjlsbury shall be free, if it decms it advisable in its sole discretion, to continue selling its RDB products only to Kraft and its other existing distributors; and Provided /urther, that nothing in this Order shall be construed as requiring Kraft to sell, distribute, or otherwise deal in the HDB products manufactured by someone other than Pilsbury; and Provided further. that Kraft shall be free, if it deems it advisable in its sole discretion, to continue selling only the RDB products of Pillsbury- IV- It is further ordered, That thirty days after date of issuance of this Order, Kraft and Pillsbury shall each file with the Commission a written report setting forth in detail the manner and form in which it has complied with the Order- During the term of this Order, Kraft and Pillsbury shall each file with the Commission a written report setting forth in detail any change in their contract, or in any Decision and Order 97 F_TCamendments thereof relating to the provisions of this Order sixty days prior to the effective date of such change- It is further ordered That Kraft and Pilsbury shall notify the Commission at least thirty days prior to any fundamental change in either respondent corporation which may affect complfance obligations arising out of this Order- It is further ordered, That this Order shall expire ten years from the date of issuance of this Order- Acting Chairman Clanton voted in the negative- AMENDMEN.

THIS AMENDMENT, entered into this 21st day of May, 19tH by and between The Pillsbury Company, a Delaware corporation (hereinafter referred to as "PiIJshury and Kraft, Inc" a Delaware corporation (hereinafter referred to as .' Kraft"), shall become effective upon issuance of the Final Order arising from the Federal Trade Commission s investigation, File No. 741-0024. WITNESSETH WHEREAS, Pilsbury and Kraft are parties to an Agreement dated July 1 , 1976 (hereinafter referred to as "the Agreement"), whereunder Pillsbury has appointed Kraft its exclusive distributor (except for five other specified distributors) of certain Pillsbury refrigerated dough bakery products (all of which products are hereinafter collectively called "RDB Products ) to the retaij trade; and WHEREAS, Pillsbury and Kraft have entered into a consent agreement with the Federal Trade Commission requiring that the above-cited Agrcement be amended; Accordingly, Pillsbury and Kraft do hereby amend the Agreement as follows: 1. (a) Notwithstanding any other provisions of the Agreement illsbury, in its sole discretion, may in any geographic area (or in the entire United States) begin selling its RDB Products to the retail trade through any means in addition to Kraft, Pillsbury wil give Kraft at least sixty (60) days' prior written notice of its intention to begin selling its RDB Products to the retail trade through any means in addition to Kraft, (b) Notwithstanding any other provision of the Agreement, Kraft, in its sole discretion, may sell to the retail trade products competitive with the Pillsbury RDB Products in any geographic area (or in the entire United States). Kraft wid give THE PILLSBURY COMPANY, ET AL 361 354 Dccision and Order Pilsbury at least sixty (60) days' prior written notice of its intention to sell competitive products, (c) Notwithstanding any other provisions of the Agreement, upon at least one (1) year s prior written notice, Pillsbury, in its sale discretion, may in any geographic area (or in the entire United States) terminate Kraft as a distributor; and upon at least one (1) year s prior written notice, Kraft, in its sole discretion, may in any geographic area (or in the entire United States) cease selling the RDB Products of Pillsbury to the retail trade.

(d) In the event any notice referred to in subparagraph (a), (b), or (c) aoove refers to an area less than the entire United States, a separate notice shall be given with respect to each geographic area and shall identify the area to the degree practicable. 2. As used herein, the phrase "through any means in addition to Kraft" , shall mean the use of one or more distributors or brokers, Pilsbury s own sales force, or any other means chosen by Pilsbury, in addition to Kraft. The term "competitive products" as used herein shall include products made by any existing or future manufacturer, including but not limited to Kraft. The term "geographic area" shall mean any definable part of the United States and may include parts not contiguous to one another.

3. In the event that any time after Pilsbury has commenced selling its RDB Products through means other than Kraft, Kraft remains a distributor of RDB Products in some geographic areas and the supply or availability of Pillsbury s RDB Products is insufficient to fill the orders of Kraft and the other means chosen by Pillsbury, Pillsbury shall reasonably and fairly allocate the supply of RDB Products among Kraft and such other means, taking into account all relevant circumstances including historical purchases by the retailers being served by each of them. 4. In any geographic area in which RDB Products of Pillsbury are being sold by Kraft as well as through some other means (other than the distributors through which Pilsbury presently seJIs its RDB Products), Kraft shah not have the obligation set forth in paragraph 11 of the Agreement to assume all loss resulting from spoilage of products in that geographic area, and instead Pilsbury shall reimburse Kraft for all credits or discounis which Kraft must give its customers by reason of spoils or distress product in such area, 5. Paragraphs 6, 17, 18, 19, 20, and 25 of the Agreement dated July 1, 1976 (and the phrase "sole and exclusive" in paragraph 4 thereof) are hereby canceled and rescinded.

6. Paragraph 21 of the Agreement dated July 1 , 1976, is hereby canceled and rescinded, excepting only that the definition of "best efforts" contained therein shall remain in full force and effect and be applicable only during such times as Kraft is the sole distributor of RDB Products.

7. All references in paragraphs 6, 17 and 25 ofthe Agreement to a consent order then contemplated to be entered into between Pilsbury, Kraft, and the FTC, and all provisions of the Agreement which are in any way dependent upon or arise from the operation of that consent order which was contemplated but never became effective are hereby nullified and rescinded in their entirety. 8. All other provisions of the Agreement which are not modified hereby shall remain in full force and effect.

9. This Amendment shall become effective when the FTC has formally concluded the aforementioned investigation by issuing a Final Order. 345-')54 O- Decision and Order B7 F.T. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed by their respective offcers thereunto duly authorized on the date first above written.

THE PILLSBURY COMPANY KRAFT, ING . . . . .

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:J63 Complaint