Minneapolis-Honeywell Reg. Co. v. Federal Trade Com'n

Decision Date05 July 1951
Docket NumberNo. 9584.,9584.
Citation191 F.2d 786
PartiesMINNEAPOLIS-HONEYWELL REGULATOR CO. v. FEDERAL TRADE COMMISSION.
CourtU.S. Court of Appeals — Seventh Circuit

R. L. Gilpatric, New York City, Will Freeman, Chicago, Ill., Donald C. Swatland, Murray W. McEniry, New York City, of counsel, for petitioner.

William T. Kelley, Chief Counsel, James W. Cassedy, John W. Carter, Jr., Associate General Counsel and assistants, Federal Trade Commission, all of Washington, D. C., for respondent.

Before KERNER, FINNEGAN, and LINDLEY, Circuit Judges.

KERNER, Circuit Judge.

This is a proceeding to review Part III of an order of the Federal Trade Commission entered on Count III of a complaint filed by the Commission on February 23, 1943, charging in three counts violation by petitioner of § 5 of the Federal Trade Commission Act, 15 U.S.C.A. § 45, § 3 of the Clayton Act, and § 2 of the Clayton Act as amended by the Robinson-Patman Price Discrimination Act, 15 U.S.C.A. §§ 14 and 13. We shall refer to petitioner as M-H. Since M-H does not challenge Parts I and II of the order based on the first two counts of the complaint we shall make no further reference to them.

Following hearings before a trial examiner extending from August 12, 1943 to February 14, 1946, that officer rendered his report recommending dismissal of the charges contained in Count III on the ground that it did not appear that M-H had violated § 2 of the Clayton Act, as amended. The Commission rendered findings of fact and conclusions of law contrary to the report of the examiner and based its cease and desist order thereon. One member dissented.

The alleged violations of § 2(a) of the Clayton Act, as amended by the Robinson-Patman Price Discrimination Act, 15 U.S. C.A. § 13(a) and (b), relate to M-H's practices in connection with the sale of automatic temperature controls to oil burner manufacturers for use in oil burners of the gun or pressure type and the rotary type, both for domestic heating plants. With respect to this the complaint charged price discriminations arising out of M-H's quantity discount pricing system, the effect of which "has been or may be substantially to lessen competition in the line of commerce in which respondent M-H is engaged and to injure, destroy and prevent competition between the respondent and its competitors, and to injure, destroy and prevent competition between the customers of said respondent * * *."

Part III of the order hereunder review provides:

"It Is Further Ordered that respondent * * * directly or through any corporate or other device in the sale of automatic temperature controls or other furnace controls in commerce * * * cease and desist from discriminating, directly or indirectly, in the price of such products of like grade and quality as among oil-burner manufacturers purchasing said automatic temperature controls and other furnace controls —

"1. By selling such controls to some oil-burner manufacturers at prices materially different from the prices charged other oil-burner manufacturers who in fact compete in the sale and distribution of such furnace controls, when the differences in price are not justified by differences in the cost of manufacture, sale, or delivery resulting from differing methods or quantities in which such products are sold or delivered."

For a proper understanding of the case it is necessary to look to the history of M-H as related to the industry in which it became a dominant factor in its early days. M-H is the successor of two corporations, the Minneapolis Heat Regulator Company which began making heat regulating devices in 1885, and the Honeywell Heating Specialties Company, established in 1906. The two were consolidated in 1927. About 80% of its business is devoted to the manufacture of automatic temperature controls. Its principal competitors during the period here involved were the Mercoid Corporation which had made automatic controls for domestic oil burners since 1922, the Penn Electric Switch Company which started to manufacture and sell such controls in 1932, and the Perfex Corporation which began to sell one of the controls in 1936 and a complete line in 1937.

The process of manufacturing oil burners is one of fabrication in the sense that the manufacturer assembles and puts together the various parts including controls, motors, pumps, fans and transformers, which parts are generally purchased from different sources. Three controls are usually used in each burner, and these three are customarily dealt in as sets, with prices quoted for the sets rather than the individual units.

The examiner found that M-H "has always * * * been a leader in the field * * * and in the development * * * of new and better controls, and * * * throughout the years has spent extensive sums of money in engineering and development work, not only creative engineering of new devices, but in the constant redesigning and improving of its products, and in the lowering of costs." It has also advertised its products very extensively and has maintained 39 branch and district offices equipped with a complete line of its products as well as service personnel trained by M-H to service those products. The examiner also found that as a result of its advertising and the reputation of its controls for performance and efficiency in operation, there had been developed a large customer demand for and public acceptance of its controls which had for a number of years sold at higher prices than controls of other makes. This public demand enabled dealers to obtain higher prices for burners equipped with M-H controls than with those of its competitors, and there was evidence that there were some dealers who would not purchase burners without M-H controls.

The pricing system which the Commission found was a violation of the Act was a standard quantity discount system. M-H published list prices with discounts or net prices regularly allowed to its various customers according to the trade channels in which they were engaged. These were classified as oil-burner manufacturers who ordinarily use them in the fabrication of their burners, and wholesalers or jobbers and dealers who ordinarily handle them for repair, replacement or auxiliary equipment. Most of its business was with manufacturers who had to purchase at least 50 sets annually in order to qualify as such. M-H usually made contracts with such manufacturers at the beginning of the year, providing for quantity or bracket prices based upon either the number of controls purchased the previous year or, in some cases, the average for two years, or the estimated quantity the manufacturer expected to use during the contract year. If the manufacturer failed to purchase sufficient sets to entitle him to the bracket price allowed, M-H did not require additional payment. However, if he purchased a greater number he was allowed the larger quantity bracket price for the entire year with a credit or refund for the difference in price already paid. The brackets varied somewhat from year to year as to number of sets and prices. The bracket setup for 1941 is shown in Table I.1

The Commission found that this system had the capacity and tendency to induce the purchase of M-H controls by various manufacturers and tended to and did divert trade to M-H from its competitors and had had a substantial injurious effect on competition in the sale and distribution of controls. With respect to the effect on customer competition it found that by this system M-H discriminated in price in favor of customers buying in larger quantities as against those buying in smaller quantities; that changes in the price of controls to oil burner manufacturers resulted in many instances in corresponding changes in the price of completed oil burners and necessarily affected sales and profits; and that in some instances customers of M-H lost business to certain of their competitors who enjoyed lower control prices from M-H. Since it further found that the discriminatory differentials were justified by cost differentials only as to the prices in the first four brackets which were applicable to less than 45% of its manufacturer business, leaving over 55% of the business in the three lowest cost price brackets not subject to that defense, and that M-H had not established that any customer in those three brackets had received a lower price to meet an equally low price of a competitor, it concluded that the discriminations constituted violations of the Act. In reaching this conclusion it stated that the examiner was in error in his conclusion that the price discriminations given by M-H had not tended to substantially lessen, injure, prevent or destroy competition.

Under the rule of Universal Camera Corp. v. National Labor Relations Board, 340 U.S. 474, 496, 71...

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    ...see Annotations 85 L.Ed. 506 et seq. 5 The Trial Examiner's report is a part of the record on appeal. See Minneapolis-Honeywell Regulators Co. v. F. T. C., 7 Cir., 1951, 191 F.2d 786, and the rules of Universal Camera Corp. v. N. L. R. B., 1951, 340 U.S. 474, 476, 71 S.Ct. 456, 95 L.Ed. 6 T......
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    • ABA Antitrust Library Antitrust Law Developments (Ninth Edition) - Volume I
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