Federal Trade Commission v. National Lead Company

• Citation: 352 U.S. 419,1 L.Ed.2d 438,77 S.Ct. 502
• Decision Date: 25 February 1957
• Docket Number: No. 63,63
• Parties: FEDERAL TRADE COMMISSION, Petitioner, v. NATIONAL LEAD COMPANY et al
• Court: United States Supreme Court

352 U.S. 419

77 S.Ct. 502

1 L.Ed.2d 438

FEDERAL TRADE COMMISSION, Petitioner,

v NATIONAL LEAD COMPANY et al.

No. 63.

Argued Dec. 12, 1956.

Decided Feb. 25, 1957.

Mr. Earl W. Kintner, Washington, D.C., for the petitioner.

Mr. Eugene Z. Du Bose, New York City, for the respondent.

Mr. Justice CLARK delivered the opinion of the Court.

The sole question involved in this proceeding under § 5 of the Federal Trade Commission Act¹ concerns the power of the Commission in framing an order pursuant to its finding that respondents had conspired to adopt and use a zone delivered pricing system in their sale of lead pigments.² In its general cease and desist order prohibiting concert of action among respondents in the further use of such system, the Commission inserted a provision directing each respondent individually to cease and desist from adopting the same or a similar system of pricing for the purpose or with the effect of 'matching' the prices of competitors. The respondents assert that this is beyond the power of the Commission, and the Court of Appeals agreed, 7 Cir., 227 F.2d 825, striking that provision from the Commission's order. We granted certiorari, 351 U.S. 961, 76 S.Ct. 1026, 100 L.Ed. 1482, because of the importance of the question in the administration of the Act. We restore the stricken provision of the Commission order, permitting it to stand with the interpretations placed upon it in this opinion.

I.

The original proceeding under § 5 of the Act was commenced in 1944. The order was entered on a second amended complaint filed in 1946. After protracted hearings, the Commission entered its findings which the Court of Appeals has held to be supported by substantial evidence. The findings material here are as follows:

The pricing practice of the industry as to the sale of white lead in oil prior to 1933 is not shown in the record. However, National Lead had as early as 1910 sold this pigment on the basis of territorial differentials involving free freight to specified towns. The differentials added to the base price were generally uniform for some 589 cities listed in National Lead's pricing system in 1933. The charge to purchasers outside the listed cities was the base price plus actual freight to the nearest listed city. In the sales of dry white lead and lead oxides it appears that by the sales practice prior to 1933 there was a uniform delivered price in the case of the white lead, while the purchasers of lead oxides paid the freight charge in addition to the base price.

Beginning in July 1933, the industry held a series of meetings in Chicago for the ostensible purpose of draft- ing a code of fair competition to govern it under the National Industrial Recovery Act, 48 Stat. 195. These meetings resulted in an understanding and agreement among those attending, including respondents, to sell lead pigments 'on the basis of flat delivered prices to customers within designated zones, with uniform differentials applicable as between such zones . . ..' 49 F.T.C. 840. Four zoning systems were established covering the various lead pigments. As an example, the system for white lead in oil and 'keg' products consisted of 12 geographical zones, one known as a par zone. The remaining zones in this system were known as premium zones, the price in each being determined by adding a set premium to the par zone price. These premiums varied from $.125 per cwt. in two of the zones to a high of $1 per cwt. in the premium zone covering the State of New Mexico.³ The zones were highly artificial and zone boundaries led to bizarre results at times, with purchasers located near the plants of respondents being charged higher prices than those located at a distance from the plants. The industry, including respondents, not only agreed to sell at the same zone delivered prices in identical geographical zones but also adopted uniform discounts, terms of sale, and differentials with respect to certain of their products. A further agreement was to sell white lead in oil on the basis of consignment contracts.

The Commission stated that 'nowhere in the code, nor in any preliminary draft of a code produced at the meetings of any of the committees, is there any reference to the use of zones or to territorial differences in the prices of lead pigments, or to the use of agency or consignment contracts or arrangements in the sale of white lead-in-oil.' Id., at 839. The Commission added that 'with certain exceptions, the respondents have followed the pricing practices and have adhered to the terms and conditions for the sale of lead pigments agreed upon in 1933 and 1934 as herein found from 1934 to the present time.' Id., at 849. The respondents admit that they are bound by these findings and we see no reason to disturb them.

II.

The Commission entered an order prohibiting respondents from entering into or carrying out any 'planned common course of action,' agreement, or conspiracy to sell at prices determined pursuant to a 'zone delivered price system,' or any other system resulting in identical prices at the points of sale. The order also included a provision, to which respondents strenuously object, directing each of them to cease and desist from

'quoting or selling lead pigments at prices calculated or determined in whole or in part pursuant to or in accordance with a zone delivered price system for the purpose or with the effect of systematically matching the delivered price quotations or the delivered prices of other sellers of lead pigments and thereby preventing purchasers from finding any advantage in price in dealing with one or more sellers as against another.' Id., at 873—874.

The Commission, in an accompanying opinion, stated that in all cases where it found violations of the law, 'it is the Commission's duty to determine to the best of its ability the remedy necessary to suppress such activity and to take every precaution to preclude its revival.' Id., at 884. In this case, the opinion pointed out, the respondents cooperatively revised the pricing practices in the industry by establishing a 'uniform zone pricing system.' Detailed discussions were carried on which resulted not only in an agreement, but 'maps showing the boundaries of the zones to be observed * * * were distributed' by the individual respondents. Id., at 884, Each respondent has 'since that time * * * followed the pricing system and adhered to the zone boundaries so discussed and shown on these maps.' Ibid. Discussing the complaint, the Commission in its opinion further noted that charges were included against each respondent as to its individual use of and adherence to the zone system of selling 'for the purpose and with the effect of enabling the respondents to match exactly their offers to sell lead pigments to any prospective purchaser at any destination, thereby eliminating competition between and among themselves.' * * * It was the adherence by each of them to this system of pricing that made the combination work. * * * Unless and until each of the respondents is prohibited from so adhering to the system and from so using the zones, the evils springing from the combination, one of which is to eliminate price competition, may well continue indefinitely. Unless the respondents, representing practically the entire economic power in the industry, are deprived of the device which made their combination effective, an order merely prohibiting the combination may well be a useless gesture.' Id., at 884—885. In its view, the Commission added, the 'prohibition is necessary, not because it is unlawful in all circumstances for an individual seller, acting independently, to sell its products on a delivered price basis in specified territories, but to make the order fully effective against the trade restraining conspiracy in which each of the respondents (defendants) participated.' Id., at 884. When and if competition is restored and the indi- vidual prohibition is no longer necessary, the Commission expressed its intention, upon application, to vacate the latter provision of its order.

III.

At the beginning we must understand the limits of the contested portion of the order. First, it is temporary. Though its life expectancy is not definite, it is clear that the Commission was creating a breathing spell during which independent pricing might be established without the hang-over of the long-existing pattern of collusion. Second, the order is directed solely at the use of a zone delivered pricing system⁴ and no other. This system is a pricing method based on geographic devisions or zones, the boundaries of which are entirely drawn by the seller. His delivered price is the same throughout a particular geographic zone so drawn up by him. Customarily the delivered price is different between zones, though as here, widely separated zones, geographically, might have the same delivered price. It is well to mention here that while this Court has passed upon the validity of basing point systems of sales, Corn Products Refining Co. v. Federal Trade Commission, 1945, 324 U.S. 726, 65 S.Ct. 961, 89 L.Ed. 1320, it has not decided the validity of the zone pricing plan used here. Third, zone delivered pricing per se is not banned by the order. The Commission might have made the order more specific by entering a flat prohibition of the use for a definite period of the device found to be 'the very cornerstone of the * * * conspiracy,' i.e., zone pricing. See Hartford-Empire Co. v. United States, 1945, 323 U.S. 386, 428, 65 S.Ct. 373, 394, 89 L.Ed. 322, where the corporate defendants were enjoined from 'forming or joining any such trade association' for a period of five years. But the Commission chose the more flexible sanction, i.e., the limited use of zone delivered pricing. However, it concluded that the future use should be temporarily restricted for the protection of the public. And so, delivered zone pricing violates the order only when two conditions are present: (1...