Armour and Company v. United States
| Decision Date | 17 October 1968 |
| Docket Number | No. 16285.,16285. |
| Citation | 402 F.2d 712 |
| Parties | ARMOUR AND COMPANY, Petitioner, v. UNITED STATES of America and Orville L. Freeman, Secretary of Agriculture, Respondents. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Thomas F. Daly, Herbert Brownell, Thomas R. McMullin, New York City, Donald R. Kanzler, Chicago, Ill., for petitioner.
Robert E. Duncan, Office of Gen. Counsel, U. S. Dept. of Agriculture, Edwin L. Weisl, Jr., Asst. Atty. Gen., Morton Hollander, Chief, Appellate Section, Civil Div., Dept. of Justice, Neil Brooks, Asst. Gen. Counsel, Harold M. Carter, Atty., Dept. of Agriculture, Washington, D. C., for respondents.
Before MAJOR, Senior Circuit Judge, HASTINGS and CUMMINGS, Circuit Judges.
At the instance of the Western States Meat Packers Association, the United States Department of Agriculture filed a complaint in 1962 against Armour and Company alleging violations of Section 202(a), (b) and (e)1 of the Packers and Stockyards Act (7 U.S.C. § 192(a), (b) and (e)).
Armour is the second largest meat packer in the United States. In January and February of 1959, pursuant to recommendations contained in a survey conducted by N. W. Ayer & Co., Armour's Western Area advertising agency, the management of the Western Area of its Foods Division embarked upon a 5-week promotion of thick-sliced bacon by offering consumers a 50¢ coupon refund on the purchase of each 2-lb. package of such bacon in Alaska, Hawaii, Oregon, Washington and most of California. The Ayer survey disclosed that except for Spokane, Armour had less than 5 per cent of the meat market in the Western Area, but in Spokane it had approximately 25 per cent of the market. The bacon promotion coupon plan was designed to increase the sale of all Armour Star meats, as well as to increase the sale of Armour Star thick-sliced bacon and establish a brand preference for such bacon in its new packaging and new rindless cut. This was a substantially new product, and Armour hoped that the purchasers would consume twice as much bacon by using the same number of slices of thick-sliced bacon as regular bacon. Ads were run featuring the bacon coupon promotion singly and in conjunction with other Armour Star products.
The Judicial Officer of the Department of Agriculture concluded that Armour's practice violated Section 202(a) and (b) of the Act, which makes it unlawful for a packer to:
The refund offer was limited to one 50¢ payment per family and required the consumer to mail a coupon from the thick-sliced bacon package to Armour's advertising agency in San Francisco. The 50¢ figure was chosen for the coupon refund after considering the number of redemptions expected and the range of refunds, from 10¢ to full purchase price, offered in other companies' food promotions. For example, Oscar Mayer & Co., a competitor of Armour in the San Francisco portion of the Western Area, had previously offered 50¢ refunds on various meat products.
The financing of this coupon plan was from funds solely in Armour's Western Area, including trade territories not covered by the coupon-refund offer. In 1959, Armour spent ¾ of a cent per pound for promotion for all processed meats produced in the Western Area. Each plant in the Western Area was to receive advertising and promotional value proportionate to the assessments against the projected production from that unit. Otherwise, the unit received a refund for monies not used in its territory, so that no unit of the Western Area contributed more than it received in advertising and promotion. About 286,000 persons accepted the five-week offer, costing Armour $143,000 instead of the $25,000 intended to cover this and two other scheduled promotions, one for this same product and one for frankfurters. As a consequence of the unexpected cost of the coupon-refund program, Armour's Western Area management canceled the two later coupon promotions and curtailed other advertising of individual Armour Star products that had been scheduled for other parts of 1959. Because of this cut-back in its advertising program, $107,000 contributed by the various Western Area units was returned to them (Petitioner's Exhibit 22).
During the period in question, Armour's wholesale prices for 2-lb. packages of this bacon ranged from 85.6¢ to $1.20 in this area. According to the Department, disregarding the coupon plan, Armour's profit margin was 2 to 4 cents per package. While the refund was in effect, the net price to an accepting consumer was 50 to 60 per cent of the retail price. During the coupon period, Armour's average weekly sales of this product increased from 121,000 lbs. to an average of 360,000 lbs., but its sales of regular bacon decreased sharply. Its total sales during the redemption period consisted of approximately 900,000 2-lb. packages, and there was a 31.8 per cent response by consumers to the coupon plan, indicating that the cost of the refund plan was 16¢ per 2-lb. package.
The Judicial Officer concluded that Armour's coupon plan increased its sales of thick-sliced bacon while its competitors lost sales and accounts during the promotion period. He determined that the practice was unfair or, alternatively, unjustly discriminatory under Section 202(a) of the Act and that the practice also constituted an undue or unreasonable preference or advantage under Section 202(b). Accordingly, the following cease and desist order was entered in 1967:
(26 Agr. Dec. 484, 515.)
In asking us to set aside the Judicial Officer's decision and order, Armour asserts that its bacon sales were not below cost and that no predatory intent was shown. Armour also claims that there is no substantial evidence that the business of competing packers was injured. Finally, the scope of the order is assailed, but as will appear, there is no need to consider that point.
This is admittedly a test case to determine the validity of coupon promotion plans under the Packers and Stockyards Act. Armour sold the thick-sliced bacon in question to retail stores at its regular wholesale prices, and those stores in turn sold to consumers at regular retail prices. To support the Department's assertion that Armour's sales to the retail stores were below cost, we are told that the amount of the coupon refund must be added to Armour's unit costs of bacon during this five-week period. On the other hand, Armour argues quite persuasively that the coupon plan was meant to improve the sale of all Armour Star products throughout the year and therefore cannot be charged to the five-week production cost of thick-sliced bacon. In conformity with the practice of other packers, all Armour Western Area meat products were assessed for the cost of the program even though the coupon refunds concerned only 2-lb. packages of thick-sliced bacon. Considering that the coupon promotion plan was designed to stimulate bacon and other sales beyond its duration, it is questionable whether the $143,000 should be charged to thick-sliced bacon costs during the five weeks the plan was in existence, as the Department urges.2
Even accepting arguendo the Department's novel premise that the entire $143,000 cost of the coupon promotion should be charged to the cost of producing the thick-sliced bacon and reflected in the sales to the retail stores during the five weeks of the promotion, there is no warrant for adding, as the Department does in its brief, 50¢ to the cost of every package of bacon sold during the period in question in determining the extent of any Armour loss on the bacon. In fact, the Judicial Officer's opinion concedes that only 31.8 per cent of the purchasers of these packages (286,000 out of some 900,000) actually accepted the redemption offer (26 Agr. Dec. at p. 496). Thus the cost to Armour amounted to 16¢ per package when the total sales during the period of the promotion are taken into consideration. After the Department's tabulation of Armour's unit cost per package is adjusted to reflect this 16¢ (or $8 per cwt.) additional cost rather than 50¢ (or $25 per cwt.), it appears that Armour at all times made a profit on the bacon during the promotional period, as shown in the following adjusted Departmental tabulation3:
Armour and Company's Production or Unit Cost Per Hundredweight and Profit on
Armour Star 2-Pound, Thick-Sliced Bacon Based on the Market Value of Green or
Fresh Bellies and Expenses in Its Sliced Bacon Departments for the First Full Week
of the Promotion, Viz., January 24, 1959
Partial Production
Market or
Value of Unit Costs
Green or Average Per Cwt
Fresh Processing (Including Range of
Bellies Expenses — 16¢ Per 2 Invoice Prices
Weighing Sliced Lbs. or $8 Charged Retail Range of
14-16 Lbs. Bacon Per Cwt. Stores
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