381 U.S. 357 (1965), 292, Atlantic Refining v. Federal Trade Commission

Docket Nº:No. 292
Citation:381 U.S. 357, 85 S.Ct. 1498, 14 L.Ed.2d 443
Party Name:Atlantic Refining v. Federal Trade Commission
Case Date:June 01, 1965
Court:United States Supreme Court
 
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381 U.S. 357 (1965)

85 S.Ct. 1498, 14 L.Ed.2d 443

Atlantic Refining

v.

Federal Trade Commission

No. 292

United States Supreme Court

June 1, 1965

Argued March 30, 1965

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Syllabus

The Atlantic Refining Co., a major producer and distributor of gasoline and oil products on the eastern seaboard, agreed with the Goodyear Tire & Rubber Co., the country's largest manufacturer of rubber products, to sponsor the sale of the latter's tires, batteries and accessories (TBA) to its many retail service station dealers and wholesale outlets. Atlantic was primarily responsible for promoting the sale of Goodyear products to its dealers and assisting in their resale, for which it received a commission on all sales made to the wholesalers and dealers. The Federal Trade Commission (FTC) enjoined the use of direct methods of coercion by Atlantic on its dealers in the inauguration and promotion of the plan, and Atlantic does not seek review of this aspect of the case. The FTC also found the sales commission plan illegal as a classic example of the use of economic power in one market to destroy competition in another, and prohibited both Atlantic and Goodyear from participating in such arrangements. The Court of Appeals affirmed.

Held:

1. Where Congress has empowered the FTC to determine whether the methods, acts or practices of competition are unfair, the function of the courts is to determine whether the FTC's decision is warranted by the record and has a reasonable basis in law. Pp. 367-368.

2. The record contains substantial evidence to support the FTC's findings. Pp. 368-369.

(a) Atlantic and its dealers did not bargain as equals, in the light of Atlantic's leverage of short-term leases, equipment loans to dealers, control of gasoline and oil supplies, and control of dealer advertising. P. 368.

(b) Atlantic not only exercised the persuasion that resulted from its economic power, but coupled it with threats of reprisal which the FTC enjoined. P. 368.

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(c) The effectiveness of Atlantic's sponsorship of Goodyear's products is measured by the increase in sales soon after the plan was put in operation. Pp. 368-369.

3. A violation of § 5 of the Federal Trade Commission Act consists of conduct contrary to the public policy declared in the Act, and the FTC may use as a guideline recognized violations of the antitrust laws. Pp. 369-371.

(a) The FTC found that the sales commission plan impaired competition at all three levels of the TBA industry: manufacturing, wholesaling and retailing. P. 370.

(b) The FTC was warranted in finding that the plan, which had a substantial effect on commerce, had the same effect as though Atlantic had agreed to, and did, require its dealers to buy Goodyear products. P. 370.

(c) Since the effect of the plan is similar to that of a tie-in, it is not necessary to embark on a full-scale economic analysis of competitive effect. P. 371.

(d) In view of the destructive effect on commerce of the widespread use of the sales commission plan, the FTC was justified in refusing to consider evidence of business justification for the program. P. 371.

4. The FTC's order prohibiting each petitioner from entering into or performing any similar agreement is not unreasonable. Pp. 372-377.

(a) It is within the FTC's authority to determine that the long existence of the plan, coupled with Atlantic's coercion of its dealers, warranted a complete prohibition of the practice by Atlantic. Pp. 372-373.

(b) Goodyear was an active participant in carrying out the sales commission plan, and the prohibition directed against it is within the FTC's power. Pp. 373-375.

(c) There was ample evidence, including 9 sales commission agreements with other oil companies which the FTC found to be substantially identical with the Atlantic-Goodyear contract, of Goodyear's conduct for more than 14 years aimed at using oil company power structures to curtail competition in TBA. The FTC could conclude therefrom that such conduct required proscribing the use of the sales commission plan by Goodyear. Pp. 375-376.

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(d) If Goodyear has an agreement with another company which differs from that involved herein, it may seek a reopening of the FTC's order. P. 377.

331 F.2d 394, judgments affirmed.

CLARK, J., lead opinion

MR. JUSTICE CLARK delivered the opinion of the Court.

The Federal Trade Commission has found that an agreement between the Atlantic Refining Company (Atlantic) and the Goodyear Tire & Rubber Company (Goodyear), under which the former "sponsors" the sale of the tires, batteries and accessory TBA products of the latter to its wholesale outlets and its retail service station dealers, is an unfair method of competition in violation of

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§ 5 of the Federal Trade Commission Act, 38 Stat. 719, as amended, 15 U.S.C. § 45 (1964 ed.).1 Under the plan, Atlantic sponsors the sale of Goodyear products [85 S.Ct. 1502] to its wholesale and retail outlets on an overall commission basis. Goodyear is responsible for its sales, and sells at its own price to Atlantic wholesalers and dealers for resale; it bears all of the cost of distribution through its warehouses, stores and other supply points, and carries on a joint sales promotion program with Atlantic. The latter,

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however, is primarily responsible for promoting the sale of Goodyear products to its dealers and assisting them in their resale; for this, it receives a commission on all sales made to its wholesalers and dealers. The hearing examiner, with the approval of the Commission and the Court of Appeals, enjoined the use of direct methods of coercion on the part of Atlantic upon its dealers in the inauguration and promotion of the plan. Atlantic does not seek review of this phase of the case. However, the Commission considered the coercive practices to be symptomatic of a more fundamental restraint of trade, and found the sales commission plan illegal in itself as "a classic example of the use of economic power in one market . . . to destroy competition in another market. . . ." 58 F.T.C. 309, 367. It prohibited Atlantic from participating in any such commission arrangement.2 Similarly, it forbade

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Goodyear from continuing the arrangement with Atlantic or any other oil company.3 Goodyear and Atlantic filed separate appeals. The Court of Appeals [85 S.Ct. 1503] approved the findings of the Commission and affirmed its order. "Appraising

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the broader aspects of the system [used by Atlantic and Goodyear] as a tying arrangement," it agreed with the Commission that it injured "competition in the distribution of TBA at the manufacturing, wholesale, and retail levels." 331 F.2d 394, 402. We granted certiorari, 379 U.S. 943, because of the importance of the questions raised and especially in light of the holding of the Court of Appeals for the District of Columbia Circuit in Texaco, Inc. v. Federal Trade Comm'n, 118 U.S.App.D.C. 366, 336 F.2d 754, which is in apparent conflict with these cases. We affirm the judgments of the Court of Appeals.

I

Since Atlantic has not sought review of paragraphs 5 and 6 of the Commission's order as to its use of overt acts of coercion on its wholesalers and retailers, those portions of the order are final. We therefore do not set out in detail all of the facts which are so carefully examined in the opinion of the Court of Appeals.

Atlantic is a major producer, refiner and distributor of oil and its byproducts. Its market is confined to portions of 17 States along the eastern seaboard.4 Its distribution system consists of wholesale distributors who purchase gasoline and lubricants in large quantities and retail service station operators who do business either as lessees of Atlantic or as contract dealers selling its products. In 1955, Atlantic had 2,493 lessee dealers, who purchased 39.1% of its gasoline sales, and 3,044 contract dealers, who bought 18.1%.5 About half of the contract

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dealers were service station operators; the remainder were operators of garages, grocery stores and other outlets which sell gasoline but do not handle tires, batteries and accessories.

Goodyear is the largest manufacturer of rubber products in the United States, with sales of over $1,000,000,000 in 1954. It distributes tires, tubes and accessories through 57 warehouses located throughout the country. It does not warehouse batteries; "Goodyear" batteries are tradenamed by it, but manufactured and directly distributed to Goodyear outlets by the Electric Auto-Lite Company and Gould-National Batteries, Inc. Goodyear also sells its products at wholesale and retail through about 500 company-owned stores and through numerous independent dealers. These independent franchised dealers number more than 12,000, there being among them a number of Atlantic wholesale petroleum distributors and retail petroleum jobbers. Goodyear has also had a substantial number of nonfranchised dealers which includes most service station customers, including the Atlantic [85 S.Ct. 1504] stations involved here.

Gasoline service stations are particularly well suited to sell tires, batteries and accessories. They constitute a large and important market for those products. Since at least 1932, Atlantic has been distributing such products to its dealers. In 1951, it inaugurated the sales commission plan.6 Its contract with Goodyear covered three

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regions: Philadelphia-New Jersey, New York State, and New England.

The Goodyear-Atlantic agreement required Atlantic to assist Goodyear "to the fullest practicable extent in perfecting sales, credit, and merchandising arrangements" with all of Atlantic's outlets. This included announcement to its dealers of its sponsorship of Goodyear products, followed by a field representative's call to "suggest . . . the maintenance of adequate stocks of merchandise" and...

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