Alterman Foods, Inc. v. FTC

• Decision Date: 22 July 1974
• Docket Number: No. 73-1960.,73-1960.
• Citation: 497 F.2d 993
• Parties: ALTERMAN FOODS, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

497 F.2d 993 (1974)

ALTERMAN FOODS, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 73-1960.

United States Court of Appeals, Fifth Circuit.

July 22, 1974.

COPYRIGHT MATERIAL OMITTED

Allen I. Hirsch, Cleburne E. Gregory, Jr., Atlanta, Ga., for petitioner.

Robert E. Duncan, Atty., Office of General Counsel, Calvin J. Collier, General Counsel, Harold D. Rhynedance, Jr., Asst. General Counsel, and Gerald Harwood, Asst. General Counsel, Federal Trade Commission, Washington, D. C., for respondent.

Before DYER, MORGAN and RONEY, Circuit Judges.

RONEY, Circuit Judge:

The general question in this case is whether a wholesaler and retailer of groceries and household products violates the Federal Trade Commission Act by inducing its suppliers, at their own expense, to participate in a food show for its buyers and customers, knowing that the suppliers did not so cooperate with its competitors. The Federal Trade Commission found a violation, and we agree.

The case comes to us on a petition of Alterman Foods, Inc. to set aside a Federal Trade Commission cease and desist order. ___ F.T.C. ___, Trade Reg.Rep. ¶ 20,248 (Dkt. 8844, Feb. 12, 1973). Alterman is a combination wholesaler and retailer of groceries and household products serving primarily Georgia and Alabama with annual sales exceeding $130 million. It sells to the public at retail from approximately 70 food stores, Big Apple, Food Giant, and K-Mart, which it operates directly or through wholly-owned subsidiaries. Its wholesale division sells exclusively to the "A.B.C. Food Stores," approximately 375 independent grocery stores organized as a voluntary cooperative and under contract to purchase most of their stock from Alterman. The institutional division sells in bulk to restaurants, hotels, hospitals, and other institutions.

Since 1956 Alterman has held an annual "food show" conducted under the jurisdiction of its wholesale division, for the institutional, independent, and supermarket buyers. At the show, suppliers demonstrate their wares to an audience of up to 15,000 managers, co-managers, and employees of the Alterman owned retail outlets, together with their families and friends ; independent A.B.C. Store owners, their employees, families, and friends ; and customers of the institutional division. The general consuming public is not invited to attend.

The Commission found that the suppliers' involvement in the food show constituted, in connection with the resale of the suppliers' products, promotional allowances and services to Alterman which were not accorded on proportionally equal terms to the suppliers' other customers. The suppliers thus violated sections 2(d) and 2(e) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C.A. 13(d) and (e). The Commission concluded that Alterman, by knowingly inducing and receiving these discriminatory allowances and services, engaged in unfair competition at both wholesale and retail levels in violation of section 5 of the Federal Trade Commission Act, 15 U.S.C.A. § 45. It issued a cease and desist order.

Seeking to set aside or modify the order, Alterman asserts (1) no retail level violation was proved because the promotional allowances and services were not provided in connection with the retail sale of the suppliers' products ; (2) there was no violation of the Act at the wholesale level because no other customers of the participating suppliers competed with Alterman at the wholesale level except one wholesaler as to which any violation was de minimis; (3) in any event, the allowances and services satisfied the tests for proportional equality among the suppliers' customers; and (4) the Commission's order was overbroad.

Applicable Legal Principles

The Commission determined that Alterman, in inducing suppliers to violate their obligations under the amended Clayton Act, had committed an unfair method of competition proscribed by section 5(a) (1) of the Federal Trade Commission Act, 15 U.S.C.A. § 45(a) (1).¹ The courts have uniformly accepted this use of section 5 to reach buyer conductnot directly proscribed by the prohibitions on sellers established by sections 2(d) and 2(e) of the amended Clayton Act. Colonial Stores, Inc. v. FTC, 450 F.2d 733 (5th Cir. 1971) ; FTC v. J. Weingarten, Inc., 336 F.2d 687 (5th Cir. 1964), cert. denied, 380 U.S. 908, 85 S. Ct. 890, 13 L.Ed.2d 796 (1965) ; R. H. Macy & Co. v. FTC, 326 F.2d 445 (2d Cir. 1964) ; Giant Food Inc. v. FTC, 113 U.S.App.D.C. 227, 307 F.2d 184 (1962), cert. denied, 372 U.S. 910, 83 S.Ct. 723, 9 L.Ed.2d 718 (1963) ; see FTC v. Fred Meyer, Inc., 390 U.S. 341, 88 S.Ct. 904, 19 L.Ed.2d 1222 (1968).

Section 2(d) makes it unlawful for a supplier to pay allowances for advertising or other sales promotion services or facilities provided by one customer who resells the supplier's products unless the allowances are "available on proportionally equal terms to all other customers competing in the distribution of such products."²

Section 2(e) prohibits a seller from favoring any purchaser with promotional services and facilities "not accorded to all purchasers on proportionally equal terms."³

The basic factual elements of the unfair method of competition of inducing discriminatory payments or services violative of the Clayton Act are:

1. that a respondent in commerce knowingly solicited or induced and received from a supplier promotional allowances, services, or facilities;

2. that the solicited promotional considerations were received in connection with the resale of the supplier\'s product;

3. that the respondent had competitors at the same functional level ; and

4. that the respondent knew or should have known that its competitors were not offered the promotional considerations in question on proportionally equal terms.

FTC v. J. Weingarten, Inc., 336 F.2d 687, 693 n. 16 (5th Cir. 1964), cert. denied, 380 U.S. 908, 85 S.Ct. 890, 13 L. Ed.2d 796 (1965) ; see FTC v. Fred Meyer, Inc., 390 U.S. 341, 88 S.Ct. 904, 19 L.Ed.2d 1222 (1968) ; Commission Guide 14, 16 C.F.R. § 240.14 (1974) (FTC Guides for Advertising Allowances and Other Merchandising Payments and Services).

The Commission's findings are, of course, conclusive if supported by substantial evidence. Colonial Stores, Inc. v. FTC, 450 F.2d 733 (5th Cir. 1971) ; Foremost Dairies, Inc. v. FTC, 348 F.2d 674 (5th Cir.), cert. denied, 382 U.S. 959, 86 S.Ct. 435, 15 L.Ed.2d 362 (1965) ; see 15 U.S.C.A. § 45(c). The Commission has wide discretion in its choice of remedies for unlawful practices, and its determination is not to be disturbed unless the remedy selected "has no reasonable relation to the unlawful practices found to exist." Jacob Siegel Co. v. FTC, 327 U.S. 608, 613, 66 S.Ct. 758, 760, 90 L.Ed. 888 (1946) ; accord, FTC v. Colgate-Palmolive Co., 380 U.S. 374, 85 S.Ct. 1035, 13 L.Ed.2d 904 (1965). The Commission is not limited to prohibiting only the precise form of illegal practices found by it. FTC v. Colgate-Palmolive Co., supra; FTC v. Mandel Brothers, 359 U.S. 385, 79 S.Ct. 818, 3 L.Ed.2d 893 (1959).

Commission's Findings and Order

All of Alterman's suppliers were encouraged to participate in the food show each year. In each year covered by the complaint (1966-1969), approximately 300 suppliers participated. In order to participate, a supplier was required to rent a booth in which to display his products, at a cost of $350 or $375 depending on the year, and to staff the booth in order to display its products. The section 2(d) charge is based on the profit Alterman derived from the show, approximately $100 per supplier even after an admittedly generous allowance for indirect costs. The section 2(e) allegation stems from the promotional services—supplies and labor—furnished by the participating suppliers.

The Commission found that Alterman knowingly induced suppliers to participate in its food show and thereby received favored allowances and services.⁴ The Commission determined that the food show benefited Alterman's retail and wholesale sales. Both Associated Grocers Co-op, Inc. and May & Company of Georgia were wholesale competitors discriminated against by suppliers' participation in the food show. The Promotional considerations accorded by the suppliers discriminated against Alterman's retail competitors both directly and indirectly.

Having found the elements necessary to adjudicate section 5 violations at both wholesale and retail levels, the Commission issued an order which prohibits Alterman from inducing and receiving from a supplier promotional services or facilities, or anything of value in exchange for promotional consideration provided by Alterman, when Alterman knows or should know that the promotional considerations it obtains are not made available by the supplier on proportionally equal terms to all other customers competing with Alterman in the distribution of the supplier's products. The term "customers" includes retail customers who do not purchase directly from the supplier. As to the operation of future food shows, the order requires Alterman to bear its proper share of the operating expenses and to repay any profit on a show to all participants pro rata. Alterman must deliver a copy of the Commission's order to everyone invited to participate in a food show.

Retail Sales

Alterman argues that the Commission erred in finding a violation at the retail level of distribution on the ground that the food shows are solely wholesale promotions and the promotional allowances and services provided by the suppliers were not "in connection with" resale of the suppliers' products to retail customers. The Commission reasoned that the suppliers' booths, displays, and demonstrations aided Alterman's retail operation both indirectly and directly: indirectly, by giving special information to those involved in retail sales on how to display and market their products most effectively, thus giving them an advantage over their retail competitors ; and directly, by...