Kellogg Company

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IN THE MATTER OF KELLOGG COMPANY, ET AL.

Docket 88. Interlocutory Order, June 8, 1981 Denial of respondents' motions to reconsider order of May 15 , 1981. ORDER Kellogg and General Mils have fied objections to our Order of May 15, 1981. We have reviewed these objections and we find them be without merit.

Kellogg argues that the statutory requirement for the Office of Personnel Management ("OPM") to appoint an Administrative Law Judge ("ALJ" that is, that the Commission be " occasionally or temporarily * * * insuffciently staffed with adminstrative law judges, " see 5 U. C. 3344- has not been met. Kellogg does not specify the relief it seeks based upon this objection. After ALJ Berman withdrew from the supplementary proceedings on November 21, 1979, then-Chief Judge Hanscom, in lieu of appointing another AL, under Rules of Practice Section 3.42(b), fied a "Certification to Commission of Matter of Appointment of Official to Conduct Proceeding to Supplement Record" on November 27 , 1979. Chief Judge Hanscom recited that Judge Berman withdrew because he "concluded that his impartiality might reasonably be questioned and that rulings, findings or conclusions he might make could be subject to the contention that they were influenced by the relative degree of his friendship with (Judge HanscomJ, Judge Barnes and Judge Hinkes. Judge Hanscom further reported that, although ordinarily he would appoint a substitute ALJ, " in this instance the factors cited by Judge Berman motivating his withdrawal apply to all the remaining law judges in this office. " Kellogg would apparently have us go behind this assertion of the Chief Law Judge and canvass each ALJ individually. We believe, however, that Judge Hanscom s certification is an entirely suffcient record basis for the Commission s conclusion that it is "occasionally or temporarily * * * insuffciently staffed" with Moreover, Kellogg itself urged the course of action it now ALJ's.challenges. It contended Additionally, for the reasons stated in Chief Judge Hanscom s memorandum of November 26. 1979. Kellogg contends that no ALJ currently employed by the Commission can properly preside over any further proceedings to supplement the record. 930 Interlocutory Order Accordingly, Kellogg recommends that the Commission appoint an ALJ from outside the agency li '" '" . (Memorandum of Respondent Kellogg Company in Response t Commission s Order of March 4. 1980, fied Apr. 3, 1980 at 70. In addition, our February 13 Order gave notice of our intention to seek the appointment of an outside ALJ. Not only did Kellogg not object, but it fied detailed recommendations on the procedures to be followed. It has given no explanation either for its sudden reversal of position or for its untimely objection, and we perceive none. Kellogg also objects that under the Commission s Order of May 15 1981, the new ALJ wil fie a recommended rather than an initial decision. It misapprehends the nature of the supplementary proceedings we have ordered in this matter. Those proceedings are intended to assure the integrity of the Commission s procedures in this case. The Commission has been, and continues to be, therefore, itself the factfinder, as is evidenced by the prior orders entered in this collateral inquiry (see Orders of November 30. 1979, July 31 1980, October , 1980). Moreover, the factual issues have now been narrowed to one remaining question: " (WJhat actions did any employee of the Bureau of Competition take in the process leading to the contract with former ALJ Hinkes?" (Order of May 15, 1981, at 7.) The recommended decision procedure, expressly authorized by 5 U. C. 557, is ideally suited to the role that the Commission has reserved for itself, and we therefore adhere to our earlier determination to utilze that procedure.

Third, Kellogg asks that it be afforded a ten-day period to comment upon and challenge any OPM selection. Insofar as this request asks us to make such a recommendation to OPM as the appointing authority, we decline to do so. The notification and objection procedure that Kellogg now urges is similar, although not identical, to the procedure it proposed for the appointment of an ALJ in its submission in response to our February 13 Order. Under that proposal we would have requested OPM to prepare a list of up to ten eligible ALJ' , and the parties would have had ten days to object to up to four of the ten ALJ's listed by OPM. We rejected that proposal because it appeared "cumbersome and burdensome for OPM, the Commission and the parties, and could well lead to a substantial delay in the appointment of an ALJ." Order of May 15, 1981, at 3. Procedures already in place assure that proper grounds for disqualification of an ALJ can be heard.

I Kellogg also urges that OPM should not appoint an ALJ because of this determination. Our exercise of pro. cedura! discretion wil ultimately be subject to review in 11 court of appeals if an order adverse to Kellogg i99uca in this proceeding. In our view . this determintion is not II relevant factor in QPM'9 appointment of an ALJ pursuant tor. C. 3344.

I Se Rules of Practice Section 3.42Ig (2). Commission determinations of such disqualiication motions are of coure!! aubject to judicial review, as described in footnote 1 supra 932 KELLOGG CO.. ET AL.

Inter ocutory 9r.g 97 F.T.C. General Mils objects to the appointment process because we did not follow its suggestion that the Commission request OPM to appoint an ALJ of at least five years' experience in presiding over proceedings under rules similar to those of the Commission. Our letter to OPM of May 15, 1981, expressly advised that agency of the nature of the proceeding and the position of respondents in this respect. We see no reason to alter our May 15 determination. Accordingly, treating the filngs of Kellogg and General Mils as motions to reconsider our Order of May 15, 1981, we find them without merit and deny them. It is so ordered. The Secretary shall transmit a copy of this order to the Director of OPM. Commissioner Pertschuk did not participate. .MUYh:lui\t Urll'llU!'I 933 ADVISORY OPINION Whether any of the laws enforced by the Commission would be violated if a member of UA W served as a director of American Motors Corporation at the same time that another UA member was a director of Chrysler Corporation. (United Auto Workers, May, 1981) Advisory Opinion Letter May 1, 1981 Dear Mr. Filion:

On October 9, 1980, on behalf of the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America I"UAW"I, and pursuant to Sections 1.1-1.4 of the Commission s Rules of Practice, you requested advice with respect to whether any of the laws enforced by the Commission would be violated if a member of the UA W served as a director of American Motors Corporation ("AMC"I at the same time that another UAW member was a director of Chrysler Corporation ("Chrysler ') In considering this request for an advisory opinion, the Commission has reviewed the memoranda submitted by the UAW and AMC. Factual Background' The UA W is a labor union that represents employees of automobile manufacturers, including Chrysler and AMC. Pursuant to an agreement between the UAW and Chrysler, Douglas A. Fraser, President of the UA W, was nominated to serve on Chrysler s board of directors and has been a director of Chrysler since May 1980. During 1980 con. tract negotiations between the UAW and AMC, the UAW presented a demand for participation on AMC's board of diectors through a member other than Mr. Fraser. AMC agreed to nominate a UAW member other than Mr. Fraser as a director at its next regular stockholders' meeting. This agreement, however, is contingent upon determinations of "legal acceptabilty" by the Federal Trade Commission, the Department of Justice, and the Department of Labor. The facts discussed in this opinion are based upon the materials supplied by the UAW and AMC. 97 F.

Section 8 of the Clayton Act Section 8 of the Clayton Act prohibits interlocking directorates between competing corporations. In pertinent part, the statute provides that no person at the same time shall be a director in any two or more corporations, any one of which has capital, surplus and undivided profis aggregating more than 000,000, engaged in whole or in part in commerce, other than baits, banking associations, trust companies, and common carriers. if such corporations are or shall have been theretofore, by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the provisions of any of the antitrust laws. The Congressional intent underlying Section 8 was clearly summarized in one of the first cases to be brought under the statute: fA) fair reading of the legislative debates leaves little room for doubt that. in its efforts to strengthen the antitrust laws, what Congress intended by was to nip in the bud incipient violations of the antitrust laws by removing the opportunity or temptation to such violations through interlocking directorates. United States u. Sears, Roebuck Co. 111 F.Supp. 614, 616 IS. Y. 1953).' It has been recognzed that "there is no need to assess the nature of the industry or to look at mitigating circumstances. It (Section 8) is a per se statute. Perpetual Fed. Sou. Loan Ass n, 90 F. C. 608, 619 11977) IInitial Decisionl, order withdrawn on other grounds 94 F. 40111979).

It appears that Chrysler and AMC are competitors, that they satisfy the size requirement contained in Section 8, and that they engage in interstate commerce. Thus, some elements of a violation are present, and the law would be violated if the same person were a director of both companies and if no exemption from the antitrust laws were applicable. This letter, therefore, focuses on the issue of whether the U A W is a "person" within the meaning of Section 8 and, if so, whether it would be a "director" of AMC and Chrysler in the circumstances described in the materials submitted to us and the related issue of whether the labor feature of the arrangement renders Section 8 inapplicable.

Section 1 of the Clayton Act, 15 U. C. 12 (1976), defines the term person" to include corporations and associations. This language is identical to the definition found in the Sherman Act, under which unions have been held to be persons. United Mine Workers u. Coronado Coal Co. 259 U. S. 344, 390-92 (19221. There is no case prece- (l/.V !I, R, Rep. No. 527, 63d Cung. . 2d Sl!. . 20 (1914) 'UJ' .L""'-.L .L '-.L .LH.L,-,. v,);) dent holding that the same construction is or is not appropriate under the Clayton Act, but it is conceivable that the UAW could bea person within the meaning of Section 8.

The next question is whether the U A W would, for purposes of Section 8, be a director of both Chrysler and AMC in the factual situa tion presented to us. Specifically, the question is whether Section 8 would be violated since, technically, different individuals would be elected as directors of the two companies and since, in the labormanagement context, the concerns to which Section 8 is addressed might not arise.

The basic purposes of Section 8 are to avoid the opportunity for coordination of business decisions by competitors and to prevent the exchange of commercially sensitive information among competitors. The potential harm prohibited by Section 8 has been said to be likely if two individual directors serving on the boards of competing companies are both representatives of a third party. See P. Areeda & D. Turner, Antitrust Law 374- 75 (1980); see also United States v. Cleveland Trust Co. 392 F. Supp. 699 (W.D. Ohio 1974), in which the government took the position that a corporation sat on the boards of competing corporations through representatives or deputies. Although the Department of Justice advanced the deputization theory nearly eight years ago, the Cleveland Trust case was settled and there are no decided cases adopting or endorsing that theory. Because of the absence of decided cases, our views concerning the deputization theory" must be somewhat tentative. Nevertheless, we believe that a corporation or association may violate Section 8 of the Clayton Act if it has representatives or deputies serving simultaneously on the boards of two competing corporations. However, we do not believe Section 8 was intended to reach interlocking directorates formed through "representatives " of a common labor union. Such a construction of Section 8 would extend its reach beyond the situations which Congress intended to be per se unlawful and might preclude particular labor-management relationships which may not present the risk of competitive harm at which Section 8 was aimed. Consequently, we do not believe that Section 8 should be construed to make unlawful the type of labor-management experiment at issue here.

Further, the UA W has made clear in its submission that it intends that the director on the AMC board wil function independently and wil refrain from sharing confidential commercial information with other union offcials, including the U A W director on the Chrysler board. The proposed arrangement arises in the novel context of worker involvement in the affairs of corporate management with expressed aims that do not raise Section 8 concerns. On those facts (and 97 F.

we believe we are bound to accept the UA W's assertions as factually correct) we do not believe a "representative " relationship for purposes of Section 8 is present.

By direction of the Commission, Commissioner Bailey dissenting. Is/ Carol M. Thomas Secretary Letter of Request October 9, 1980 The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UA WI hereby requests the Commission for advice or interpretation pursuant to Title 16 R. Part 1 , Sub-part A, Section 1.1 through Section 1.4. Question Presented 1. Whether a U A W member on the board of directors of American Motors Corporation (AMC) violates applicable United States Antitrust Laws under the jurisdiction of the Federal Trade Commission when a separate UA W member is on the board of directors of the Chrysler Corporation, a competitor of American Motors. Statutes under Which the Question Arises The question arises under the following statutes of the United States:

1. Section 8 of the Clayton Act, 15 U. C. 19 (1976): 2. Section 5 of the Federal Trade Commission Act, 15 C. 45(dI(1);

3. Section 1 of the Sherman Antitrust Act, 15 U. C. 1. Statement of Material Facts The U A W is a labor union that represents auto workers employed, among others, by Chrysler Corporation and by the American Motors Corporation. Since May of 1980, Douglas A. Fraser, a member of the UA W, has been a director of Chrsler. During the 1980 contract negotiations with AMC, AMC agreed to nominate a UAW member as a director at its next regular stockholders' meeting IFebruary, ... ._ _.

A""""'' 1981) upon determinations of "legal acceptabilty" by the Department of Labor, the Department of Justice and the Federal Trade Commission, as set forth in a letter from American Motors Corpora: tion to the UA W attached hereto and made a part hereof as Exhibit As a consequence, and because of the agreement with the American Motors Corporation, the UA W is requesting appropriate advisory opinions of the agencies set forth in the letter of agreement. The antitrust aspects of the matter for which the UA W seeks advice or interpretation involve substantial and novel questions of fact and law, and there is no clear Commission or court precedent. In addition, the subject matter of the request and subsequent publication of Commission advice on this matter is of significant public interest. In order to assist the Commission in its consideration of this request, the U A W submits the attached Memorandum of Fact and Law in Support of the Nomination of a UAW Member To Serve on the Board of Directors of the American Motors Corporation. * Copies of this letter, Exhibit A, Exhibit B * the request to the Justice Department, * and the UA W's Memorandum of Fact and Law are being sent to Richard MacCracken, Vice President, Industrial Relations, American Motors Corporation, 14250 Plymouth Road Detroit, Michigan 48232.

Respectfully Submitted INTERNATIONAL UNION. UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA IUAWI Isl John A. Fillion General Counsel Philip W. Moore Law Offices of Philip W. Moore . Kotreproduced herein for reasons of economy.

..... .. ................................ ... ... ... ... ... ... .. .. .. .. .. .. .. .. .. . . . .... ... TABLE OF COMMODITIES.

DECISIONS AND ORDERS Page Advertising 333 Advertising services and .contraceptives 167 178, 205 Citrus fruit 444 Consumer products 363 Contests 163, 927 Cosmetics and ethical drugs 166 Credit cards 190 Electrical contracting services 119 Electric space heaters 265 , 291 Electronic products 259 Glass fiber-based asphalt roofing products 249 Groceries 343 Grocery products 338 Health care products 920 Home insulation 249 Insurance 339 Land sales 465 Loudspeaker equipment, high fidelity 914 Margarine. 220 , 233 Marketing practices 916 Microwave ovens Motor oil 129 Motor vehicles 107, 139 Oral health products 320 Refrigerated bakery dough products 354 Retail groceries 457 Training courses Wool products 351 .Commodities involved in dismissing or vllcating orders are indicatedby italici ed page reference.

. . . .. . .. .... .... .. . . . . . .. .. .. .. . . . .. .. . .. ...... INUJ-)\ . "41 DECISIONS AND ORDERS Page Acquiring Corporate Stock or Assets:

Acquiring corporate stock or assets- Federal Trade Commission Act. . 249, 343, 443, 456, 920 Arrangements, connections, dealings, etc. 443 Advertising Falsely or Misleadingly:

Advertising falsely or misleadingly- Availabilty of merchandise and/or facilties 464 Knowingly by advertising agent. .. ... 167, 178, 205 Business status, advantages or connections: Business methods and policies. .. .... 84. 464 Connections or arrangements with others 464 464 Contracts and obligations 464 Properties and rights 464 Prospects .... ........ Qualifications and abilties Stock, 464 178 205. 265 291 Comparativeproduct, dataororservicemerits 167, 220 233 Competitors' products 1 464 Condition of goods. . . . . Dealer or seller assistance. . ..

464 Demand, business or other opportunities Earnings and profits ..... ........ 464 Endorsements, approval Rnd testimonials . . . . . .. 220, 233 265, 291 320, 333 Government approval. action, connection or standards- Government endorsement 464 States. . 464 History of product or offering. . . . 464 Individual's special selection or situation, 464 Jobs and employment service Limited offers or supply. . 464 Nature of product or service 167, 178 205 Opportunities 464 Prices- Additional charges unmentioned 84, 464 Promotional sales plans 84, 167, 178, 205, 265, 291 , 464 464 Qualities or properties of product or service . . 1 Contraceptive. . . . 167, 178, 205 Durabilty or permanence 265, 291 Economiing or saving 265, 291 Heating . 265, 291 Preventive or protective 167, 178, 205, 320 333 Quality of product or service. . .

Refunds, repairs, and replacements . 84, 464 Results, 167, 178, 205, 265, 291, 320, 333 "'Covering practices and matters involved in Commission orders. References to matters involved in vacating or dismissing orders are indicated by italics. ................... .... .. .... ........... ..... .................... ,.. .... .... ......... . ................,........................ ................. . .. .... .. .......... .. ..... ............ ,.................................. .... .... .................... .. ................. ............. .............................,.............. ........................ ................................... ., . . . . . . . ... Page Safety.. 167. 178, 205 Investment 464 Scientific or other relevant facts . . . . . . . .. 1. , 167, 178, 205, 220, 233, 265. 291 , 320, 333, 464 Scientific tests. 167, 178. 205, 220, 233 320 333 Special or limited offers 464 Success, use or standing 464 Surveys. , 220, 233, 320, 333 Tests and investigations 220 233 320 Undertakings, in general 464 Value 464 Claiming or Using Endorsements or Testimonials Falsely or Misleadingly: Claiming or using endorsements or testimonials falsely or misleadingly- Dentists 320 Doctors and medical profession 220, 233 Coercing and Intimidating:

Members 119 Combining or Conspiring:

To boycott seller-suppliers. 119 To control marketing practices and conditions 119 To enhance. maintain or unify prices 119 To exchange future price information. 119 To liit distribution or dealing to regular, established or acceptable channels or classes 119 Torestrainormonopolizetrade 119 To terminate or threaten to terminate contracts, dealings, franchises, etc. 119 Controllng, Unfairly, Seller-Suppliers:

Controllg, unfairly, seller-suppliers 119 Corrective Actions and/or Requirements:

Corrective actions andlor requirements- Arbitration.

Corrective advertising. 167, 178, 205 Destruction of records and/or data 464 Disclosures 107 129, 139, 167, 178 190, 205. 220, 233, 265, 291, 320, 333, 363, 464 Displays, in-house. 363 Employment of independent agencies. 464 139, 363 Formal regulatory andlor statutory requirements Furnishing information to media. 129 Maintain records. 139, 167, 178, 190 205 220, 233, 265 291 363, 464 Advertising substantiation. 320. 333 Making supply of product(s) available to competitors 443 Recall of merchandise, advertising material, etc. 265 291 Refunds, rebates and/or credits 84 107 139 464 Restitution. 464 Release of general, specific, or contractual constrictions, requirements or restraints. 119, 354. 464 Renegotiation andlor amendment of contracts 139. 354 Warranties. 265, 291, 363 ealig on Exclusive and Tying Basis:

Dealing on exclusive and tying basis- ... . . ......... .. .. ....... . . .. .. .. . . . .. . . .. . .................... ..................... ........... ..... . . . .. .. .... .. . .. ... .................... ........ ........... ..... . . . IND",X Page Federal Trade Commission Act 354 Delaying or Withholding Corrections, Adjustments or Action Owed: Delaying or withholding corrections, adjustments or action owed. 107, 139, 464 Delaying or failng to deliver goods or provide services or facilties 464 Dismissal Orders: 339 Disseminating Advertisements, Etc.

Disseminating advertisements, etc. 167, 178, 205. 220, 233 Failing To Comply with Affirmative Statutory Requirements: Failng to comply with affirmative statutory requirements- Magnuson-Moss Warranty Act. 363 Failng to Maintain Records:

Failng to maintain records..

Failng to Provide Foreign Language Translations: Failing to provide foreign language translations 167, 178, 205 Interlocking Directorates Unlawfully:

Interlocking directorates unlawfully 259 Interlocutory Orders: 113 116, 159, 194 199 201 202, 245, 246, 257, 258, 349, 930 Misrepresenting Oneself and Goods:

Business status, advantages or connections- Business methods, policies, and practices, 464 Government endorsement, sanction or sponsorship 464 History 464 Personnel or staff Qualifications Reputation, success or standing 464 Services Stock, product or service 464 Goods- Comparative data or merits 167, 178, 205. 220, 233, 265 , 291 , 464 Condjtion of goods. 464 Dealer or seller assistance.

Demand for or business opportunities 464 Earnings and profits 464 Endorsements 220, 233, 320, 333 Government endorsement or recommendation 464 Guarantees. 265 291 Individual' s special selection or situation, 464 Jobs and employment Nature ..... 167 178 205 Qualities or properties 167 178, 205, 265 291 320, 333 Refunds, 464 Results. , 167, 178, 205, 265, 291. 320, 333 Scientific or other relevant facts ... 1, , 167, 178, 205 220, 233, 265, 291 , 320, 333, 464 Special or limited offers 464 Surveys 220 233 320, 333 Terms and conditions- Sales contract .. 464 Tests, purported 220 233 265, 291 320 .... . .... . . . . . .. .. .. .. .... .... .... ... ..... ..... .... . . .. .. ................... ..............., .. ..................... .. . ...............,............ .. . ... ..... Page Undertakings, in general 464 Value 464 Prices:

Additional prices unmentioned 84, 464 Prices 464 Promotional Sales Plans:

Promotional sales plans 167, 178 205, 265 291 464 Modified Orders: 135. 163. 166. 338. 351 , 914. 916. 927 Neglecting, Unfairly or Deceptively, To Make Material Disclosure: Formal regulatory and statutory requirements 139 Magnuson-Moss Warranty Act 363 Truth in Lending Act ...... .. 100 Limitations of product, 167, 178, 205, 220 233 265 291 464 Prices- Additional prices unmentioned, 464 Qualities or properties 167, 178 205, 265, 291 464 Risk of loss . 464 Safety. 167 178 205 Sales contract, right-ta-cancel provision ... 464 Scientific or other relevant facts . . . 1 139 167, 178 205, 220, 233, 265, 291 , 464 Terms and conditions 139 Sales contract. 464 Offering Unfair, Improper and Deceptive Inducements to Purchase or Deal: Earnings and profits 464 Freeservice Individual' s special selection or situation 464 Job guarantee and employment Limited offers or supply. 464 Opportunities in product or service 464 Returns and reimbursements. 464 Scientific or other relevant facts 84, 265, 291 464 Undertakings, in general 464 Opinions, Statements By Commissioners 339 363, 464 Using Misleading Name:

Goods- Qualities or properties 265, 291 s. GOVERNMENT PRINTING OFFICE, 191320 - 345-554