Atlantic Refining Company v. FTC

• Citation: 344 F.2d 599
• Decision Date: 12 April 1965
• Docket Number: No. 15745.,15745.
• Parties: The ATLANTIC REFINING COMPANY, a Corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

344 F.2d 599 (1965)

The ATLANTIC REFINING COMPANY, a Corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 15745.

United States Court of Appeals Sixth Circuit.

April 12, 1965.

Harold F. Baker, Washington, D. C. (Edward F. Howrey, Robert W. Steele, Washington, D. C., on the brief; Howrey, Simon, Baker & Murchison, Washington, D. C., Roy W. Johns, Joel L. Carr, Philadelphia, Pa., of counsel), for petitioner.

Alvin L. Berman, Federal Trade Commission, Washington, D. C. (James McI. Henderson, Gen. Counsel, J. B. Truly, Asst. General Counsel, Alvin L. Berman, Richard Campbell Foster, Federal Trade Commission, Washington, D. C., on the brief), for respondent.

Before PHILLIPS and EDWARDS, Circuit Judges, McALLISTER, Senior Circuit Judge.

EDWARDS, Circuit Judge.

Our problems with this petition would be considerable if the United States Supreme Court had not recently grappled with and decided the major questions which confront us. In Simpson v. Union Oil Co. of California, 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964) the Supreme Court held that employment by a major gasoline company of consignment agreements with gas station owners to fix retail prices of gasoline represented violations of the Sherman Anti-Trust Act, 26 Stat. 209, 15 U.S.C. §§ 1 and 2. The opinion by Mr. Justice Douglas, joined by four other members of the Court, limited the protection of such agreements (which Union Oil Co. and our present appellant had found in United States v. General Electric Co., 272 U.S. 476, 47 S.Ct. 192, 71 L.Ed. 362 (1926)) to situations where the protected consignment agreements pertained to products on which the consignor held patent rights. Petitioner here holds no such patent rights.

In the instant case a three-count complaint was filed against petitioner Atlantic Refining Company by the Secretary of the Federal Trade Commission. The first count alleged Atlantic violated the Federal Trade Commission Act, 15 U.S.C. § 45, by coercing its lessee dealers into signing a "temporary consignment contract" to sell at a single and noncompetitive price set by Atlantic. Counts 2 and 3 were conspiracy counts. Count 2 charged a conspiracy to fix prices applicable to the temporary consignment contract with lessee dealers and Count 3 charged a conspiracy between Atlantic and its independent wholesale distributors to maintain Atlantic's uniform resale price by the granting to the distributors of certain allowances or rebates which they were to pass on to their own dealer customers who had agreed to adhere to Atlantic's resale price.

The Hearing Examiner having found that the complaint was sustained only as to Count 3, and having recommended a cease and desist order as to it, appeals were taken by both parties to the full Commission. There the appeals were heard by three Commissioners. A majority of two reversed the Hearing Examiner as to Counts 1 and 2 and entered cease and desist orders as sought by the complaints in relation to all three counts.

The relevant facts as found by the Commission are as follows:

"The respondent is a Pennsylvania corporation, primarily engaged in the production, sale and distribution of gasoline and other petroleum products throughout a 17-state marketing area. Its `regular\' gasoline is sold under the brand name `Atlantic,\' and its high test fuel under the name `Imperial.\' Respondent owns and operates refineries at Philadelphia, Pennsylvania, and Atreco, Texas. In 1956 its gross domestic sales of petroleum and chemical products, including sales of its consolidated subsidiaries, amounted to approximately $379,000,000.

"The respondent markets its gasoline in two ways. It sells directly to the operators of retail gasoline service stations who either own and operate their own stations, or lease the premises from the respondent or others. The second marketing system entails sales to wholesale distributors who in turn resell to retail service station dealers. In the geographic area with which the facts of this case are concerned, respondent used both systems.

"The controversy in this case centers chiefly in an area referred to by the examiner as the `Delmava Peninsula.\' As a glance at the map will show, the Delmarva Peninsula is that body of land which separates the Chesapeake Bay from the Delaware Bay and Atlantic Ocean. It acquires its name from the fact that it lies within the boundaries of the States of Delaware, Maryland and Virginia. In 1957 a gasoline price war erupted on the Peninsula. The allegedly unlawful acts and practices of this respondent were performed in connection with this price war.

"The practices engaged in by the respondent in the Delmarva price war were not spur of the moment expedients but constituted the implementation of predetermined company policy. The respondent states `under price war conditions it is the policy and practice of respondent to assist its retail dealers to remain in business. It is likewise the policy and practice of respondent to assist its distributors in order that they may, in turn, sell to their retail dealers at a price which allows such retail dealers to be generally competitive and thus not suffer economically and competitively or be forced out of business.\'

* * * * *

"Since, as aforesaid, the respondent utilized two methods of distribution, their `assistance\' to dealers in a price-war area, was accomplished in different fashions. As alleged in Counts I and II of the complaint, on direct sales to retail service stations, the respondent utilized temporary consignment contracts. This procedure was devised and implemented by the company in early 1956. It provided: `When price war conditions prevail in a given competitive trade area so that the spread between the dealer tank wagon price of Atlantic gasoline and the prevailing service station price at comparable service stations is less than 4¢ per gallon, all Atlantic dealers * * *\' will be offered the opportunity to `execute a contract sales agreement and become our contractors for the retail sale of Atlantic-owned gasoline.\'

* * * * *

"There is no dispute concerning the basic details of the consignment program. The hearing examiner succinctly explains it * * * in the following terms:

"`1. The Company will place gasoline on consignment with the dealer subject to prior approval by the Credit Department. At the time of each replenishment delivery, the volume of gasoline on consignment is to be brought to its original level. The dealer will settle in cash at the time of replenishment for the number of gallons equal to the replenishment delivery on the basis of Atlantic\'s posted service station price at the time at which the gasoline was sold, less a commission for Atlantic gasoline, representing 23% of the service station price for the product, excluding all taxes.

"`2. Atlantic will specify the service station price of gasoline posted by the dealer during the period of the consignment plan agreement, the dealer to be trustee of proceeds of sale.

"`3. Title to gasoline constituting any replenishment delivery shall not pass to the dealer.\'

"The record reveals that respondent entered consignment agreements with 37 of its dealers in its area number 4 during 1957 and 1958. Two of these dealers were located in Maryland and the remainder in Delaware. Although the price war was over in Sussex County, Delaware, by September 13, 1957, dealers in that County remained under the consignment program until as late as September 1958. The price war continued for a longer time in New-castle and Kent Counties in Delaware, and thereto the consignment agreements remained in effect during 1958.

"There can be no doubt but that respondent, through the operation of this consignment program as above described was able to, and did, in fact, fix uniform retail prices for gasoline sold to consumers by its lessee-dealer service stations in its areas 1, 2, 3 and 4, located on the Delmarva Peninsula. But in order to maintain the prices established by the respondent through the consignment program, it was necessary to secure the compliance of these dealers who did not buy directly from respondents but through an intervening wholesale distributor. Respondent\'s announced policy on pricing is:

"`There will be only one retail price at all times in any given pricing area. This will be called Atlantic\'s posted retail price.

"`A reasonable relationship will always be maintained between posted retail price, posted dealer tank wagon price, and posted consumer tank wagon price.\'

"Since the dealers buying from a wholesale distributor were his customers and not those of the respondent, control over their prices could only be maintained and secured by enlisting the cooperation of the wholesale distributor who served them. The hearing examiner found that the respondent did secure the cooperation of its sometimes unwilling distributors, and thereby conspired with them to fix prices as charged in Count III of the complaint and in violation of Section 5 of the Federal Trade Commission Act.

"The system pursued was to grant the wholesale distributor a lower price to enable him to in turn sell at a lower price to such dealers as would maintain the consumer price set and fixed by respondent for its direct buying dealers operating under the consignment plan. The simple mechanics of the pricing procedure utilized are explained in an Atlantic bulletin to its district managers, as follows:

"`A fictitious dealer tank wagon price will be computed by using the retail price, excluding tax, that we have established on contract sales operation less 23%. For example, if we are on contract sales operation at 26.9, the fictitious dealer tank wagon price for use by the distributor would be 13.8.

This is the price which we would expect distributors to charge their dealers within the area where we are on contract sales operations. * * *\'

"If a wholesaler sold to a dealer at the `fictitious dealer tank wagon price\' under certain conditions

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