Hills Bros. v. Federal Trade Commission

• Decision Date: 04 January 1926
• Docket Number: No. 4493.,4493.
• Citation: 9 F.2d 481
• Parties: HILLS BROS. v. FEDERAL TRADE COMMISSION.
• Court: U.S. Court of Appeals — Ninth Circuit

9 F.2d 481 (1926)

HILLS BROS. v. FEDERAL TRADE COMMISSION.

No. 4493.

Circuit Court of Appeals, Ninth Circuit.

January 4, 1926.

Myrick & Deering and Scott, of San Francisco, Cal. (Frank P. Deering, of San Francisco, Cal., of counsel), for petitioner.

Adrien F. Busick, Asst. Chief Counsel, Federal Trade Commission, G. Edwin Rowland, and James W. Nichol, all of Washington, D. C., for respondent.

Before HUNT, RUDKIN, and McCAMANT, Circuit Judges.

RUDKIN, Circuit Judge.

This is a proceeding to review an order of the Federal Trade Commission. The facts as found by the commission are substantially as follows:

The petitioner is a corporation organized and existing under the laws of the state of California, with its principal office or place of business at San Francisco. Its capital stock is $2,000,000. It is extensively engaged in the business of importing coffee from Brazil and other foreign countries and selling the same in the United States, after roasting, grading, blending, and packing. Generally speaking, its sales are made to retail dealers only, but in some of the Western states it sells to jobbers, on the same terms and conditions, and in some of the Eastern states exclusive territory is allotted to wholesale dealers. The petitioner has about 25,000 customers in all. About 54 per cent. of these are located in the state of California, and the remaining 46 per cent. in various other states of the Union, principally in the states of Washington, Oregon, Idaho, Utah, Colorado, Arizona, New Mexico, Nevada, Wyoming, and Missouri. It employs 61 salesmen, who visit retail grocers and other retail dealers from time to time and solicit orders for coffee. These salesmen are under the general direction of a sales manager located at the principal office in San Francisco. Branches are maintained at different places in charge of branch office supervisors. The coffee is marketed under different brands and trade-names, but the Red Can brand and the Blue Can brand are the only two with which we are concerned at this time. By advertising and otherwise the petitioner has created a demand for its products, and in the year 1923 sales of the two brands in question approximated 25,000,000 pounds. About 44 per cent. of the sales were outside of the state of California.

In November, 1920, the petitioner adopted a policy or plan of fixing a minimum price at which retail dealers should sell its coffee to the consuming public. This plan provided that the retail price should be 5 cents per pound above store cost; that is, above the list price with transportation added. Its purpose in adopting this policy was to make the price of the Red and Blue Can brands uniform in the various localities in which it is sold, and to prevent price cutting by dealers. The plan, as adopted, does not prevent retail dealers from selling for more than 5 cents per pound above store cost, but in some instances salesmen in the employ of the petitioner have questioned the wisdom or policy of selling above the minimum price. The fixing of a minimum price by the petitioner has a tendency to cause retail dealers to regard the minimum price as a maximum one, and a great majority of dealers sell at the minimum price and no other. The petitioner made this minimum retail price plan known to the retail trade by issuing a bulletin to all salesmen, and they in turn informed the retail dealers. The petitioner also caused advertisements of its plan to be published in trade journals having a wide circulation in the states in which it transacted business. It also mailed to each of its customers a copy of the advertisement appearing in these trade journals, and salesmen from time to time called the attention of retail dealers to the minimum resale plan.

When the petitioner makes any change in the price of the Red and Blue Can brands it notifies the branch offices and salesmen, and they in turn notify the retail dealers by telephone or mail. The petitioner enforces the minimum retail plan by refusing to sell to a retail dealer who sells the Red or Blue Can brands for less than the minimum resale price, and when the petitioner is informed that a retail dealer is selling below the minimum resale price, and the retail dealer refuses to restore the minimum price, further orders from the dealer will not be filled. Since adopting the minimum price plan, the petitioner has refused to sell to approximately 100 dealers in the various states for failure on their part to maintain the minimum resale price. The petitioner learns of instances where its minimum resale price is cut, through its salesmen and from competing retail dealers located near the dealer who may be cutting the price, and salesmen report instances of price cutting in their respective territories, and invite and procure from retail dealers upon whom they call reports of the failure of other competing retail dealers to maintain the minimum price, which reports are transmitted to the petitioner. Retail dealers continually advise salesmen whenever a competitor cuts the minimum price established by the petitioner, and often telephone to one of the branch offices and report instances of price cutting by competitors. These reports by retail dealers are solicited and requested by the salesmen, and they assure the retail dealers that, if the offending dealer refuses to stop selling below the minimum resale price, the petitioner will refuse to make further sales to the offending party.

When a retail dealer is reported, a salesman in the employ of the petitioner calls upon such dealer and endeavors to obtain a promise from him that he will restore the minimum resale price. In such case the salesman threatens the retail dealer that, if he does not restore such resale price and promise to observe it in the future, his name will be stricken from the list of customers, and he will be unable to obtain any further supplies; but upon the promise of the retail dealer to restore and maintain the minimum resale price he is given assurance by the salesman that the petitioner will continue to fill his orders. Retail dealers often voluntarily report instances of failure to observe the minimum price by competitors to the main office direct, and upon receiving such reports the petitioner writes a letter to the dealer who is not maintaining the price, calling attention to the resale plan and requesting his approval of the plan and his co-operation in maintaining it. The petitioner also writes to the dealer making the report, thanking him for the information and inclosing a copy of the letter sent to the dealer who has failed to maintain the minimum resale price. Whenever a dealer refuses to maintain the resale price, he is refused a further supply of coffee, and his name is removed from the list of customers. This is accomplished by placing a sticker on the ledger folio, or ledger card, of the petitioner, upon which sticker the words "Do Not Sell" are written. The same stickers are also used when the name of a customer is removed from the list for other reasons than the failure to maintain the resale price. When a dealer has been refused a further supply of coffee for failure to observe the minimum resale price, and his name is removed from the list of customers, his name will not be restored to the list until he gives satisfactory assurance that he will maintain the minimum resale price in the future.

The cans containing the coffee are marked with the date of packing, in code; but the marking is not such as to enable the petitioner or any other person to identify any can as a part of any particular shipment, and no record is kept of the packages, cans, or cases, so as to enable any person to identify any particular can or package of coffee as being a part of any particular shipment. The minimum resale price policy and...