Automatic Canteen Co. v. Federal Trade Commission

• Decision Date: 03 March 1952
• Docket Number: No. 10239.,10239.
• Citation: 194 F.2d 433
• Parties: AUTOMATIC CANTEEN CO. OF AMERICA v. FEDERAL TRADE COMMISSION.
• Court: U.S. Court of Appeals — Seventh Circuit

194 F.2d 433 (1952)

AUTOMATIC CANTEEN CO. OF AMERICA v. FEDERAL TRADE COMMISSION.

No. 10239.

United States Court of Appeals Seventh Circuit.

January 18, 1952.

Petition for Rehearing and Motion to Adduce Additional Evidence Denied March 3, 1952.

COPYRIGHT MATERIAL OMITTED

Harold F. Baker, L. A. Gravelle, Edward F. Howrey, Washington, D. C., J. Arthur Friedlund, Emil N. Levin, Elmer M. Leesman, Chicago, Ill., for petitioner.

William T. Kelley, Chief Counsel, James W. Cassedy, Asst. Gen. Counsel, James E. Corkey, Sp. Atty., Federal Trade Commission, Washington, D. C., for respondent.

John C. Butler, Chicago, Ill., H. Thomas Austern, Stanley L. Temko, William A. Quinlan, Washington, D. C., Thomas R. Mulroy, Chicago, Ill. (Richard F. Wilkins, Washington, D. C., Hopkins, Sutter, Halls, DeWolfe & Owen, Chicago, Ill., of counsel), for amici curiae.

Before KERNER, DUFFY, and LINDLEY, Circuit Judges.

KERNER, Circuit Judge.

Petitioner is engaged in the two-fold business of developing and leasing automatic vending machines and in the purchase of candy, gum, nuts and other confectionery products for resale to its distributors who in turn distribute them to the public by means of the vending machines. It seeks review of an order of the Federal Trade Commission directing it to cease and desist from certain discriminatory practices related to both aspects of its business. The Federal Trade Commission, by cross petition, seeks affirmance and enforcement of the order.

The complaint was in two counts. Count I charged violation of § 3 of the Clayton Act, 15 U.S.C.A. § 14, by the use of exclusive-dealing contracts in the leasing of the vending machines. Count II charged violation of § 2(f) of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C.A. § 13(f), by knowingly inducing and knowingly receiving price discriminations in connection with its purchases of gum, nuts and confectionery products in the course of commerce. Petitioner's only answer was a general denial of any violation of the Act as charged in either count. At the close of the Commission's case it moved to dismiss the complaint and, upon denial of its motion, it offered no evidence in response.

The Commission found that petitioner had been for nearly twenty years engaged in purchasing nationally known candy and other products of standard weight and quality from many manufacturers and producers throughout the country and in reselling them, principally as a wholesaler, to lessees of its automatic, coin-operated vending machines. It had also been engaged in the development of such machines, called canteens, although it did not manufacture them. Its system was to lease the machines to "distributors" who became its sole customers for the confectionery products in which it dealt. The machines were generally located in offices, factories, and other commercial establishments. As of January 1946, it owned 230,150 machines which were leased to 83 distributors located in 112 separate territories in 33 states and the District of Columbia. Under the terms of the lease contracts the distributors bound themselves not to use any vending machines other than those of petitioner during the term of the contract and for five years after termination, not to sell in the machines any products other than those purchased from petitioner, and not to sell any such products except in the machines.

The Commission found that the effect of petitioner's exclusive-dealing contracts had been to substantially lessen competition or tend to create a monopoly in both lines of commerce in which it was engaged, namely, the sale and purchase of packaged merchandise suitable for distribution in automatic vending machines, and the dealing in the machines. Thus competition was substantially lessened between petitioner's suppliers and their competitors who were unable to sell to petitioner, between petitioner and its competitors, and between its distributors and their competitors, and this, in turn, tended to create a monopoly in petitioner, its distributors, and certain manufacturers and processors. The contracts had a similar effect as between petitioner and vending machine manufacturers.

The Commission found that petitioner had knowingly induced and knowingly received lower prices from its suppliers than the prices paid by its competitors for similar products; that the prices paid by petitioner were from 1.2% to 33% lower than those paid by its competitors; and that it received such differentials from about 80 of its 115 suppliers. Petitioner made no attempt to show cost justification as to any of these differentials. The Commission further found that petitioner had attained a dominant position in the sale and distribution of the products it dealt in through and by means of the vending machines, with sales through the machines expanding from $1,937,117 in 1936 to $14,253,547 in 1944, which expansion the Commission attributed largely to its exclusive-dealing contracts and its enjoyment of lower prices in the purchase of its goods.

The Commission concluded that petitioner was guilty of the violation charged and accordingly entered its order that petitioner cease and desist:

1. From entering into, enforcing or continuing in operation the exclusive-dealing contracts described, "Provided, however, that nothing contained in the preceding paragraphs * * * shall be construed as prohibiting respondent from entering into any contract * * * with any lessee * * * which provides for payment to the respondent of such compensation as it may desire for the use of its automatic vending machines, * * * for protection of quality and salability of products sold through its said vending machines, or provides for protection of respondent's franchise territories and distribution, of its good will and trade name, of its rental and additional income, of the development and retention of its business in its distributors' territory, and of the public, when none of such provisions are in conflict with the prohibitions set forth herein."

2. In connection with the purchase of confectionery products, gum and nuts, "From Knowingly inducing or knowingly receiving * * * any discrimination in the price of such products, by directly or indirectly inducing or receiving * * * a net price from any seller known by respondent or its representatives to be below the net price at which said products of like grade and quality are being sold by such seller to other customers, where the seller is competing with any other seller for respondent's business, or where respondent is competing with other customers of the seller; provided, however, that the foregoing shall not be construed to preclude the respondent from defending any alleged violation of this order by showing that a lower net price received or accepted from any seller makes only due allowance for differences in the cost of manufacture, sale or delivery resulting from the differing methods or quantities in which such commodities are by such seller sold or delivered to respondent."

Petitioner challenges the order as to Count I on the grounds: That it is defective for failure to join petitioner's lessees as parties, thus destroying valuable contractual rights in their absence; and that the condition that the lessees use only petitioner's merchandise in the canteens is a lawful one.

Petitioner analyzes the offending contracts as providing for (1) nominal rental, (2) exclusive territory for distributors, (3) exclusive use of petitioner's canteens, and (4) exclusive purchases of merchandise from petitioner for use in the canteens, and it contends that destruction of (3) and (4) destroys the mutuality of the contracts, thereby destroying the contracts and thus stripping the lessees of valuable contract rights and injuriously affecting them in their absence. On this point petitioner relies on two decisions of this court, Fruit Growers' Express, Inc., v. Federal Trade Commission, 7 Cir., 274 F. 205 (certiorari granted, 257 U.S. 627, 42 S.Ct. 56, 66 L.Ed. 405, and dismissed by stipulation on motion of the Solicitor General, 261 U.S. 629, 43 S.Ct. 518, 67 L.Ed. 835) and Sinclair Refining Co. v. Federal Trade Commission, 7 Cir., 276 F. 686, affirmed, 261 U.S. 463, 43 S.Ct. 450, 67 L.Ed. 746. While the cases do appear to furnish authority for petitioner's contention on this point, we do not feel impelled to follow them in view of the difference in the factors which appear to have impressed this court in annulling the orders there involved. Moreover, we note that petitioner's analysis omits reference to other important provisions of the contract which favor the lessor, namely, the guarantee by the lessee of an average monthly sales volume comparable to the national average sales volume for the same month, and the right of the lessor to terminate the contract upon default by the lessee in any condition therein, and a covenant that, upon termination of the lease, the lessee shall not engage in the distribution of any merchandise in the territory by means of vending machines for a period of five years. Under the rule in United Shoe Machinery Corp. v. United States, 258 U.S. 451, 456, 42 S.Ct. 363, 365, 66 L.Ed. 708, the lessees were not indispensable or even necessary parties to the proceedings. "The covenants enjoined were inserted for the benefit of the lessor, and were of such restrictive character that no right of the lessee could be injuriously affected by the injunction." Petitioner seeks to distinguish this case on the basis of the total absence of any mutuality of consideration. We find no merit in this attempted distinction. And we note that this case was decided after the two decisions of this court, hence not available to it on the question of parties.

With respect to the asserted legality of the condition, petitioner again refers to the Sinclair case as affirmed, 261 U.S. 463, 43 S.Ct. 450, 67 L.Ed. 746. However, we think the distinction between the elements of the...