Fred Meyer, Inc. v. FTC

Decision Date08 June 1966
Docket NumberNo. 18903.,18903.
Citation359 F.2d 351
PartiesFRED MEYER, INC., et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
CourtU.S. Court of Appeals — Ninth Circuit

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George W. Mead, Portland, Or., Edward F. Howrey, Harold F. Baker, Terrence C. Sheehy, Howrey, Simon, Baker & Murchison, Washington, D. C., for petitioners.

James McI. Henderson, Gen. Counsel, J. B. Truly, Asst. Gen. Counsel, E. K. Elkins, Harold D. Rhynedance, Jr., Attys., Federal Trade Comm., Washington, D. C., for respondent.

Before JERTBERG and DUNIWAY, Circuit Judges, and FOLEY, Jr., District Judge.

DUNIWAY, Circuit Judge.

This is a petition to review and set aside an order of the Federal Trade Commission which directs that petitioners, Fred Meyer, Inc. and two of its officers, all of whom we refer to as Meyer, cease and desist from conduct in alleged violation of section 2(f) of the Clayton Act, 15 U.S.C. § 13(f), and section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.

These, as found by the Commission, are the facts. Fred Meyer, Inc., an Oregon corporation, operates a chain of thirteen retail supermarkets in Portland, Oregon, and the immediate vicinity, in which it sells grocery products, drugs, variety items, and a limited line of clothing. Its sales in 1957 exceeded $40 million, making it, during the relevant period, the second largest seller of all goods in the area. In 1960 it made one-fourth of all retail food sales in the Portland area, by its own claim selling to "75% of Oregon's population" through its supermarkets located "in every neighborhood."

In about 1936 petitioner commenced an annual promotion, called the "coupon book promotion," beginning in September and ending four weeks later. The mechanics of the coupon book are simple. Meyer prints a book, usually containing 72 pages, each page of which features a single product. These pages are the "coupons" and each entitles the customer to the specially reduced price there stated. The customer buys the book for the nominal sum of ten cents and must surrender the appropriate coupon when making his purchase of goods. It is a successful promotion: Meyer sold 138,700 books in 1957 and 121,270 in 1958.

The cost of the books and related advertising expenditures1 was met only in part by revenue from their sale; the rest was supplied, in amounts approximating total costs, by participating suppliers who usually paid, at the very least, a flat rate of $350 per coupon page. These payments were made sometimes in cash, sometimes in price discounts on goods purchased for resale during the promotion, and sometimes by replacement of a predetermined portion of the goods so sold. Some of the suppliers further underwrote the promotion by granting volume-based reductions, replacing goods sold, or redeeming coupons in cash at an agreed rate. Certain of these, as well as other unrelated promotional payments which constitute part of the subject matter of the complaint, are detailed in Part I of this opinion.

As a consequence of the solicitation and receipt of these payments, the Commission issued a two-count complaint against petitioners. Count I, based on the coupon book promotion, charged a violation of section 2(f) of the Clayton Act by inducing and receiving "discriminatory prices, discounts, allowances, rebates and terms and conditions of sale" which they knew or should have known were granted in violation of section 2(a) of that Act. Count II charged a violation of section 5 of the Federal Trade Commission Act by the inducement of promotional aid, of the type forbidden by section 2(d) of the Clayton Act, with reference to both the coupon book promotion and other, unrelated promotions. These statutes are set out in pertinent part in the margin.2

The Hearing Examiner's decision found the violations as charged. The Commission affirmed and issued the cease and desist order which, exceptions to it having been rejected, is now here for review.

Meyer raises six basic questions here, and levels a broadside attack on the sufficiency of the evidence to sustain the Commission's findings. Those questions are (1) whether the supplier payments here are cognizable at all under section 2(a), (2) whether section 2(d) requires suppliers to refrain from discriminating among customers who occupy different functional levels or varying combinations of functional levels, (3) whether Meyer knew or had reason to know of the unlawfulness of the payments it induced, (4) whether inducement of disproportionate promotional payments is cognizable under section 5 of the Federal Trade Commission Act, and (5) whether the Commission's cease and desist order was improperly directed to the corporation's officers as individuals, or (6) was improper for failure to reasonably relate to the practices found to be unlawful.

I. THE EVIDENCE.

Complaint counsel chose transactions with five suppliers — Burlington Industries, Inc., Cannon Mills Company, Tri-Valley Packing Association, Idaho Canning Company, and Phillip Morris, Inc. — during 1956, 1957, and 1958, to ground the complaint. Meyer asserts, with respect to each supplier, that the proof is vitally insufficient to support the findings. We examine the transactions seriatim, stating the facts as the Commission found them.

A. Burlington Industries, Inc.

Burlington participated in the 1957 and 1958 coupon book promotions, agreeing in the spring of each year to reduce its prices to Meyer by, respectively, 50-94 cents and 75 cents per dozen pairs of nylon hose. The disfavored customer, Lipman, Wolfe & Co., a Portland retail department store, received no discount on its contemporaneous purchases.

Meyer argues first that since these purchases were arranged at times separated by substantial intervals, though completed by contemporaneous purchase orders and deliveries, there cannot be that comparability which the statute demands as a basis for a finding of discrimination and injury to competition. The Commission responds that the Act contemplates competition in distribution, which it found to exist, and that the time of purchase by different customers is only evidence bearing on the existence of that competition. Its contention finds support in Hartley & Parker, Inc. v. Florida Beverage Corp., 5 Cir., 1962, 307 F.2d 916, 921. A substantial time interval indicates only that different prices might have been caused by different market conditions, rather than by an accomplished intent to discriminate. Here the record indicates that market conditions had not changed materially.3 Such a determination is more properly for the Commission than for the courts. See Universal Camera Corp. v. NLRB, 1951, 340 U.S. 474, 488, 71 S.Ct. 456, 95 L.Ed. 456; Carter Prods., Inc. v. FTC, 9 Cir., 1959, 268 F.2d 461, 492, cert. denied, 1959, 361 U.S. 884, 80 S.Ct. 155, 4 L.Ed. 2d 120. We cannot say that the determination here is not supported by substantial evidence; it is, therefore, conclusive, 15 U.S.C. §§ 21(c), 45(c); see Universal Camera, supra; cf. 5 U.S.C. § 1009(e) Administrative Procedure Act § 10(e) (B) (5). Atalanta Trading Corp. v. FTC, 2 Cir., 1958, 258 F.2d 365, cited by Meyer, is not contrary. There isolated and non-recurring sales of particular products had been made, without allowances, to competitors of the allegedly favored customer several months before and after the sales to the favored customer. The court, contrary to the Commission's construction of the law, held that these facts standing alone could not establish a prima facie case of discrimination because such a rule would force a supplier to elect to give promotional allowances at the time of the first sale of a product or not at all, a result which would "stifle rather than encourage competition and have the practical effect of outlawing all promotional allowances." Id. at 371. But here the sales are of a single, fairly standardized item, widely sold in the area, and recur frequently during the years involved. Hence Atalanta is not controlling.

Meyer next contends that the evidence fails to show that the hosiery purchased by it and by Lipman, Wolfe was of "like grade and quality," (15 U.S.C. § 13(a), Atalanta Trading Corp. v. FTC, 2 Cir., 1958, 258 F.2d 365, 369-370) asserting that the fact that it had entered additional specifications on its purchase orders compels the conclusion that a different grade and quality resulted. However, the record fails to show that these changes, if in fact made, produced any difference in the marketability, appearance, durability, cost or manner of manufacture, or other indicia of "grade and quality" of the goods. Moreover, in Burlington's invoices to both customers the hose are identified by identical style numbers. This, we think, is sufficient to permit the inference that the goods themselves were identical. Cf. Central Paper Co. v. Southwick, 6 Cir., 1932, 56 F.2d 593, 597-598; Straus v. Victor Talking Machine Co., 2 Cir., 1924, 297 F. 791, 804-805; see also United States v. Bryan, 1950, 339 U.S. 323, 332, 70 S.Ct. 724, 94 L.Ed. 884. That each customer specified and received private label packaging does not, without more — and "more" is lacking here — change that conclusion. See Hartley & Parker, Inc. v. Florida Beverage Corp., 5 Cir., 1962, 307 F.2d 916, 923.4

Finally, Meyer makes much of the disparity in quantities purchased by it and by Lipman, Wolfe & Co., asserting that by reason of such disparity a presumption of cost justification arises which complaint counsel should but failed to rebut. Such arguments are properly addressed to the proposition that Meyer had no knowledge or reason to know that the allowances it received were discriminatory, and so we relegate consideration of them to that portion of this opinion.

B. Cannon Mills Company.

Cannon Mills is said to have violated sections 2(a)5 and 2(d) of the Act by granting, at Meyer's instance, a...

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