RH Macy & Co. v. FTC

• Decision Date: 16 January 1964
• Docket Number: No. 3,Docket 27687.,3
• Citation: 326 F.2d 445
• Parties: R. H. MACY & CO., Inc., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Second Circuit

326 F.2d 445 (1964)

R. H. MACY & CO., Inc., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 3, Docket 27687.

United States Court of Appeals Second Circuit.

Argued September 30, 1963.

Decided January 16, 1964.

William Simon, Washington, D. C. (John S. Voorhees and A. Duncan Whitaker, Washington, D. C., Marvin Fenster, New York City, and Howrey, Simon, Baker & Murchison, Washington, D. C., on the brief), for petitioner.

E. K. Elkins, Atty. Federal Trade Commission, Washington, D. C. (James McI. Henderson, Gen. Counsel and J. B. Truly, Asst. Gen. Counsel, Federal Trade Commission, Washington, D. C., on the brief), for respondent.

Before LUMBARD, Chief Judge, and FRIENDLY and SMITH, Circuit Judges.

SMITH, Circuit Judge:

This is a petition by R. H. Macy & Co., Inc. asking us to review and set aside an order of the Federal Trade Commission directing that Macy's cease and desist from engaging in a business practice which the Commission deemed violative of Section 5 of the Federal Trade Commission Act, 38 Stat. 719 (1914), 15 U.S. C. § 45.¹ The proceeding arose from Macy's solicitation of approximately 750 of its some 20,000 vendors to contribute $1000 apiece to help defray the advertising and promotional costs of its 100th Anniversary Celebration, which took place in 1958. About 582 vendors agreed to contribute, and by March 21, 1960, Macy's had received approximately $540,000 from its vendors. The advertising and promotions which Macy's created with the funds it solicited were institutional in character, designed to enhance Macy's reputation in the community; vendors were not offered any particular display or advertising which promoted their products in exchange for their contributions. Vendors were selected for solicitation on the basis of past performance and potential for growth in sales to Macy's, and $1000 was asked from each.

The solicitations were made by Macy's buyers, reinforced when thought desirable by their supervisors. In an initial decision, the Hearing Examiner found that there was neither evidence of "a reasonable likelihood of substantial lessening of competition between vendors or between Macy's and its competitors," nor evidence of favoring contributors or discriminating against non-contributors. He dismissed the complaint on the ground that this was not the kind of unfair trade practice that Section 5 of the Federal Trade Commission Act condemned. Although accepting the findings of fact of the Hearing Examiner, the Commission reversed his decision on the theory that the solicitation of contributions from vendors by the buyers of a store as large as Macy's is inherently oppressive and coercive, and that it contravenes the spirit of the Robinson-Patman Act, therefore violating Section 5 of the Federal Trade Commission Act.

A strong attack is made on the Commission's finding that the solicitation of $1000 from vendors in Macy's manner was inherently oppressive and coercive. The Commission concedes that the "record does not show overt pressure upon vendors to give, such as threats of discontinuance of purchases or offers of more business." It predicates its finding of oppression on a set of assumptions about the psychological state of vendors when confronted with a request to contribute to Macy's. As the Commission stated, "The vendor could not know what the result might be if he refused, and this in itself was great pressure on him to give." Yet, so far as appears, none of those solicited were "captive suppliers"; none of the vendors called as witnesses sold more than 6.99% of their total sales to Macy's, and many sold less than 1%. Although the Commission's finding that "vendors, as a practical matter, could not well afford to refuse Macy's request" derives some support from the testimony of one vendor and from the testimony of some of Macy's executives, and might seem reasonable as a matter of common sense, it is undisputed that 168 vendors out of the 750 solicited did refuse, and suffered no consequences.

We consider it unnecessary to determine whether Macy's conduct was opressive and coercive. Nor do we find it necessary to determine whether Section 5 of the Federal Trade Commission Act authorizes the Commission to prohibit any trade practice which it deems to contravene the spirit of the Robinson-Patman Act, for Macy's induced its vendors to make payments forbidden by Section 2(d) of the Clayton Act as amended by the Robinson-Patman Act, 49 Stat. 1527 (1936), 15 U.S.C. § 13(d).² And where activity "runs counter to the public policy declared in the Sherman and Clayton Acts, the Federal Trade Commission has the power to suppress it as an unfair method of competition." Fashion Originators' Guild of America v. F. T. C., 312 U.S. 457, 463, 61 S.Ct. 703, 706, 85 L.Ed. 949 (1941) (emphasis added).

In Grand Union v. F. T. C., 300 F.2d 92 (2 Cir. 1962) and American News Co. v. F. T. C., 300 F.2d 104 (2 Cir. 1962), cert. denied 371 U.S. 824, 83 S.Ct. 44, 9 L.Ed.2d 64 (1962), this court sanctioned a determination by the Federal Trade Commission that a buyer's inducement of a seller to violate Section 2(d) of the Robinson-Patman Act was an unfair method of competition interdicted by Section 5. It was necessary for the Commission to resort to Section 5 because of the peculiar drafting of Section 2(d). Though the announced purpose of Section 2(d) was to prevent large buyers from using their economic leverage to secure special promotional and advertising allowances, the language actually employed in Section 2(d) paradoxically makes no mention of a restraint on buyers. Instead, it prohibits vendors from making disproportionate payments to customers in connection with advertising or promotional programs. In Grand Union and American News, supra, this court held that a buyer who knowingly induced a seller to violate Section 2(d) of the Robinson-Patman Act through solicitation of special promotional and advertising payments had committed a per se violation of Section 5 of the Federal Trade Commission Act.³ Speaking for this court in Grand Union, Judge Clark observed that "there seems to be no specific reason why Congress omitted buyers from the coverage of § 2(d), while including them under § 2(c) and (f); the omission was more `inadvertent' than `studious.' Certainly buyers were not left out because Congress favored them or wished to permit them to engage in activity proscribed to sellers." 300 F.2d at 96.

Macy's seeks to distinguish these cases on the ground that they expressly predicated a violation of Section 5 of the Federal Trade Commission Act on a finding that the seller had violated Section 2(d) of the Robinson-Patman Act in making the induced special payments to the buyer. In the instant case, Macy's contends there has been no violation of Section 2(d), for by its terms, Section 2(d) applies only to payments which are made "as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such person." Macy's position is that it has rendered no services or facilities directly related to the sale of goods of any particular vendor; therefore, there has been no violation of Section 2(d). Support for this narrow interpretation is derived from the Commission's own decision in Yakima Fruit & Cold Storage Co., F. T. C. Dkt. No. 7718 (1960), which vacated an initial decision on the ground that a "donation" made in response to a solicitation to participate in a customer's anniversary sale was not a payment in consideration of services and facilities furnished by the customer.⁴

We think this too narrow a reading of Section 2(d). In enacting the Robinson-Patman Act in 1936 "to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power," F. T. C. v. Henry Broch & Co., 363 U.S. 166, 168, 80 S.Ct. 1158, 1160, 4 L.Ed.2d 1124 (1960), Congress could perhaps have worded the legislation more clearly. But one of the evils that Congress made clear that it was condemning under Section 2(d) was an advertising or promotional allowance exacted by a large buyer to achieve indirect price discriminations, either through shifting the buyer's advertising costs to his vendors, or through simply pocketing the difference between an inflated allowance and that amount actually spent to advertise or promote the vendor's product. Both the reports of the House and Senate Judiciary Committees contain the following explanation of the practices Section 2(d) was aimed at:

Still another favored medium for the granting of oppressive discriminations is found in the practice of large buyer customers to demand, and of their sellers to grant, special allowances in purported payment of advertising and other sales-promotional services, which the customer agrees to render with reference to the seller\'s products or sometimes with reference to his business generally. Such an allowance becomes unjust when the service is not rendered as agreed and paid for, or when, if rendered, the payment is grossly in excess of its value, or when in any case the customer is deriving from it equal benefit to his own business and is thus enabled to shift to his vendor substantial portions of his own advertising cost, while his smaller competitor, unable to command such allowances, cannot do so. (Emphasis added.) H.R. Rep. 2287, 74th Cong., 2d Sess. 15-16 (1936); S.Rep.No.1502, 74th Cong., 2d Sess. 7 (1936).

Senator Logan, the manager of the Robinson bill in the Senate, explained that it prohibited a buyer from using an advertising allowance to promote products other than those of the seller from whom the allowance was secured.⁵ Representative Utterback, Chairman of the Senate-House Conferees, explained the purpose of Section 2(d) in these terms:

The existing evil at which

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