LG Balfour Company v. FTC

Decision Date05 April 1971
Docket NumberNo. 17236.,17236.
Citation442 F.2d 1
PartiesL. G. BALFOUR COMPANY, a corporation, and Burr, Patterson & Auld Company, a corporation, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
CourtU.S. Court of Appeals — Seventh Circuit




Edward F. Howrey, A. Duncan Whitaker, Gerald Kadish, Howrey, Simon, Baker & Murchison, Washington, D. C., for petitioners.

Thomas M. Clarke, Chicago, Ill., amicus curiae.

John V. Buffington, Gen. Counsel, J. B. Truly, Asst. Gen. Counsel, Miles J. Brown, Atty., Federal Trade Commission, Washington, D. C., for respondent.

Before FAIRCHILD and KERNER, Circuit Judges, and STECKLER, Chief District Judge.*

KERNER, Circuit Judge.

This is a petition for review of an order and opinion issued by the respondent, Federal Trade Commission (Commission), in which it found petitioners, L. G. Balfour Company (Balfour) and Burr, Patterson & Auld Company (BPA), in violation of Section 5 of the Federal Trade Commission Act, 15 U.S. C. § 45.1 After lengthy proceedings before a hearing examiner, the Commission concluded that petitioners had used unfair methods of competition in the national college fraternity insignia market and the national high school class ring market, and entered a comprehensive order which attempts to restore competitive conditions in these markets.

The complaint, issued by the Commission on June 16, 1961, charged petitioners with Section 5 violations in connection with the manufacturing, processing, sale and distribution of insignia-bearing fraternity products and high school class rings. The complaint alleged that Balfour and BPA had unreasonably foreclosed actual and potential competitors from access to the fraternity insignia and high school class ring product markets and had monopolized and attempted to monopolize these markets. More specifically, the complaint alleged that the petitioners had entered into exclusive dealing contracts with nearly all national Greek letter social and professional fraternities; had entered into exclusive supply contracts with suppliers of fraternity insignia-bearing goods; had policed and controlled the entry of competitors into the national fraternity insignia goods market through the offices of the Interfraternity Research and Advisory Council (IRAC); had disparaged competitors; had entered into exclusive dealing contracts with representatives of high schools and colleges in the sale of class rings; had acquired three competitors between 1927 and 1952; and had enticed and attempted to entice away employees from competitors. Such practices were alleged to unlawfully restrain, lessen and eliminate competition and create a monopoly to the prejudice of the public in violation of Section 5 of the Federal Trade Commission Act.

Hearings were commenced before an examiner in October, 1961, and completed in June, 1966. In November, 1963, petitioners filed suit in the District Court for the Eastern District of Virginia seeking to limit the evidence before the Commission to the ten-year period prior to the issuance of the administrative complaint. A consent order was reached which provided that "all oral and documentary evidence relating to events, transactions and business conduct occurring before June 16, 1951, be physically excised from the administrative record," except insofar as otherwise agreed upon by counsel, and that "the allegations of the administrative complaint * * * be limited to ten years prior to June 16, 1961."

At the conclusion of the hearings in 1966, the examiner filed his findings and decision. He concluded that the petitioners had monopolized and utilized unfair methods of competition in the national college fraternity insignia goods market. He also found there was insufficient evidence on which to sustain the charge that petitioners monopolized or utilized any other unfair methods of competition in the college and high school class ring market. On appeal to the Commission, the examiner's findings with respect to the national college fraternity insignia goods market were affirmed. The Commission, however, reversed the examiner's dismissal of charges in the class ring market, and held that Balfour's use of term purchase agreements with high schools in this market were exclusive dealing contracts which violated Section 5. Based upon these findings and consequent Section 5 violations, the Commission issued its detailed order from which the petitioners appeal.

Balfour and BPA launch extensive attacks upon the Commission's findings of fact, conclusions of law, and scope and content of its order as well as claims of prejudicial procedural irregularity during the hearing. We are aided in the disposition of this appeal by amicus curiae briefs and statements filed on behalf of several national fraternal organizations. We note at the outset that the scope of this review is twofold. We must determine if the Commission applied incorrect legal standards which prejudiced its findings against petitioners. We must also determine whether the administrative decision is supported by substantial evidence in the hearing record before the examiner. Consolo v. Federal Maritime Commission, 383 U.S. 607, 620, 86 S.Ct. 1018, 16 L.Ed.2d 131 (1966); National Dairy Products Corporation v. F.T.C., 412 F.2d 605, 620 (7th Cir. 1969).


Balfour, a Massachusetts corporation, is engaged in the manufacturing, distribution and sale of organizational insignia jewelry and other products bearing organizational insignia. Its purchasers include college fraternities, professional, honorary and other social organizations, as well as high schools and colleges. Its total sales in 1960 were $22 million. Of that, approximately $7 million were attributable to the sales of its Fraternity Division. The sales to national college fraternities from that division were $5.3 million in 1960. The Class Ring Division accounted for $11 million in sales to high schools and colleges. The Commercial Division realized $2.6 million for sales of jewelry to commercial organizations and $1.5 million for sales of jewelry to non-college fraternal organizations and clubs. Balfour's subsidiary, BPA, totalled $1.3 million in 1960 for sales of fraternity insignia-bearing products.

The Fraternity Division sells both jewelry products, such as fraternity pins, and other insignia-bearing fraternity products, such as paddles, beer mugs, party favors and pennants. Each buyer fraternity has its own distinctive insignia and crest. The major buyers of Balfour's fraternity division products are national college fraternities, each of which possesses distinctive insignia composed of the two or three Greek letters which comprise its name. Approximately a third of the national college fraternities have registered their insignia under the Lanham Trade-Mark Act, 15 U. S.C. § 1114 et seq., but most have not sought statutory trademark protection.

At least 90% of the fraternity chapters on college campuses are governed by a national organization. Ultimate authority for decisions binding on all local chapters rests in the fraternity convention, held once every year or two years. Between conventions, decisions are made by the national executive committees of the fraternities. All have constitutions or by-laws which are binding on the local chapters. Most of these national college fraternities are members of one of five nationally organized interfraternity conferences.

The five interfraternity organizations are members of the Interfraternity Research and Advisory Council (IRAC). In 1960, 140 national college fraternity organizations were members of the IRAC. The IRAC was organized, financed, and for a period of years, directed by Lloyd Balfour, who has a controlling interest in both Balfour and BPA.

Balfour and BPA sell their fraternity insignia-bearing products under exclusive dealing contracts executed with the various national fraternities. These exclusive dealing contracts, referred to as official jeweler contracts, designate the petitioners as the sole official jeweler, co-official jeweler or official jeweler of the fraternity, and name them as the exclusive supplier of insignia-bearing items of the fraternity. The national fraternities' by-laws or constitutions generally provide that the local chapters buy only from the seller designated as the official jeweler. No other competing seller of insignia goods may send a salesman to the local chapters for solicitation. The contracts also set certain standards for design and quality. They are of indefinite duration, terminable upon either six months or one year's notice.

The IRAC has endorsed these exclusive official jeweler contracts and has frequently warned against unauthorized sales by fraternal insignia goods suppliers. A vast majority of the national college fraternities who are members of the IRAC have official jeweler contracts with either Balfour or BPA. Balfour and BPA had in 1960 official jeweler contracts with 279 of 288 fraternities listed in an authoritative fraternity register.

The Commission found that Balfour and BPA controlled 86.9% of the national college fraternity insignia goods market. The remaining 13.1% sales in this market was shared by approximately 36 competitors. The Commission concluded that the petitioners' monopolistic share of the market enabled them to set prices uncontrolled by the competitive conditions which would exist in a free market and enabled them to exclude actual and potential competitors from the market.

Numerous instances of monopolistic conduct were found by the Commission. The official jeweler contracts were found to be an unfair method of competition, used by the petitioners to perpetuate their enormous share and control of the market. Other activities found violative of Section 5 include the following:

(1) Petitioners falsely represented that almost all national college fraternity

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