National Dairy Products Corporation v. FTC

• Decision Date: 26 June 1969
• Docket Number: No. 16455.,16455.
• Parties: NATIONAL DAIRY PRODUCTS CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

412 F.2d 605 (1969)

NATIONAL DAIRY PRODUCTS CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 16455.

United States Court of Appeals Seventh Circuit.

June 20, 1969.

As Corrected June 26, 1969.

John T. Chadwell, Thomas W. Johnston, Richard W. McLaren, Chicago, Ill., William E. Nuessle, Paul Kerins, New York City, for petitioner; Chadwell, Keck, Kayser, Ruggles & McLaren, Chicago, Ill., of counsel.

James McI. Henderson, Gen. Counsel, J. B. Truly, Asst. Gen. Counsel, Daniel H. Hanscom, Atty., F. T. C., Washington, D. C., for respondent.

Before KILEY, and SWYGERT, Circuit Judges, and HOLDER,^* District Judge.

HOLDER, District Judge.

National Dairy Products Corporation filed its petition to review and set aside an order of the Federal Trade Commission. The petitioner was found guilty by the Commission of charges of territorial price discrimination as to its sale by Kraft Foods Division of jelly, jam and preserve (fruit spreads) products in violation of Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. Section 13(a).¹

Petitioner submits two basic claims of error. It is convinced there was an insufficiency of evidence to support a violation of Section 2(a) of the Act found by the Commission and that there was an unlawful exercise of discretion by respondent as to practices prohibited and the products covered in its final order. The dissenting statement of one of the Commission members agrees with these claims of petitioner.

We affirm the findings and final order of the Commission in all things except as to its inclusion of products, other than fruit spreads, in the prohibitions of the final order which will be so modified.

The petitioner is one of the nation's leading corporate enterprises. It is organized and operates under a division structure consisting of seven operating divisions, each with its own president and staff personnel. Its Kraft Foods Division for many years has extensively engaged in the business of manufacturing, processing, distributing, and selling many varieties of food products, including cheese and cheese products, margarine, mayonnaise, salad oil, salad dressing, other salad products, caramels, marshmallows, other confections, Kraft Dinners, cooking oils, shortenings, fruit salads, sauces, dessert toppings, condiments, and a complete line of fruit jams, fruit jellies and fruit preserves. It markets such products throughout the United States and in Canada and many foreign countries. It maintains and operates branch sales offices in most of the principal cities of the United States from which its products are sold.

It entered the fruit spread business by acquiring a manufacturer known as Bedford Products, Inc. Bedford was mainly engaged in production of fruit spreads for sale under private labels which were distributed on the eastern seaboard and as far west as Chicago, Illinois. The fruit spreads of like grade and quality were thereafter also manufactured in plants located at Buena Park, California; Garland, Texas; and Dunkirk, New York. In the year 1961, fruit spreads were sold through seventy-one sales offices of the petitioner in the United States. The fruit spreads when sold, except for a short period of time after 1955 were labeled under the name of Kraft and were for the most part distributed directly from such plants to distribution centers of retail outlets. In some instances, smaller shipments were assembled in district branches and then delivered to customer warehouses. Very few sales of fruit spreads were done by store-door delivery sales. By the year 1961, the petitioner had become the largest producer of fruit spreads in the United States, furthermore it is the only nationwide seller of a full line of different flavored spreads. The petitioner heavily advertised its fruit spread products during the 1959-1961 period through the medium of network television, in popular leading consumer magazines, local newspapers, and in wholesale and retail industry publications. During the four year period of 1959 through 1962, its fruit spread volume of sales increased almost sixty per cent, roughly fifteen per cent a year to an annual dollar volume of $16,663,982.00.

After the petitioner entered the Baltimore, Maryland, Washington, D. C., Richmond and Norfolk, Virginia, market areas in 1956, its fruit spreads along with its other products were promoted by salesmen. In the year 1961, it had fifty-seven salesmen, twenty-seven of whom were based in Baltimore, twenty-five in Washington who also serviced Richmond, and twelve in Norfolk. In the year 1960, its sales of fruit spreads were $40,047.00 in Washington, $317,793.00 in Baltimore, $31,156.00 in Richmond, and $86,133.00 in Norfolk. Its sales volume so achieved in only four years was comparable to the sales volume of its leading independent regional competitors in such areas even though its prices were higher than its leading independent competitor.

Toward the end of the year 1960, the general office of Kraft Foods Division did not regard its sales volume of fruit spreads as adequate. In particular, it was not satisfied with sales to the leading supermarket chains in the Washington, D.C., area (which, because of their size and competitive positions or situations, overlapped to Baltimore, Norfolk and Richmond). The general office of Kraft Foods Division decided upon an "all out" program to improve sales. It embarked upon a sales promotion which, in substance, provided for the unlimited giving of one case of fruit spread with every case purchased at regular list price by any chain, distributor, retailer, or buying organization in the four areas, commencing January 16, 1961 and ending February 10, 1961. The free goods were to be delivered after February 10, 1961. The net price per unit for goods sold on the basis of one unit given free of charge for each unit purchased at regular price is concluded upon by dividing the regular or list price per unit by two. The net price so resulting (half of the regular or list price) is substantially below manufacturing cost per case and, if the cost of delivery is taken into consideration, the actual cost to Kraft Foods Division is even greater. All of its customers were notified of the planned major publicity to the retail consumer by means of television and Life magazine advertisements to back up the promotion. It further assured the trade that this promotion would be followed by a continuing program of relatively long duration. The subsequent program called for follow up coupon offers in all of the leading newspapers of the areas, one each in the week of February 13th and March 13th. The first newspaper coupon was to be worth ten cents to a retail customer on a jar of its fruit spread, and the second was to entitle the purchaser to a free jar (10 oz.) with the purchase of a jar of any other variety of Kraft fruit spread. The grocer was to be reimbursed plus two cents for each coupon handled. It further promised the grocery trade a cooperative merchandising agreement would be in effect for two months from February 27th through April 28th. To obtain the allowance under the program, the grocer was required to feature "Kraft" spreads in the store by means of floor or table displays for a period of at least one week during this time. The trade was also advised that four months later (from May 29th through July 28th — some nine weeks), there would be a repeat of the display agreement. The trade was further advised that other promotions will occur to assure rapid turnover of the fruit spread with the reminder that Kraft is the largest producer of fruit spreads in the United States. Point of sale material and instore merchandising assistance by its representatives were also promised the trade.

The response of the trade to the program was massive. The petitioner states it was surprised. The Hearing Examiner and Commission found from the evidence that the response was as should have been expected by petitioner. They found as did the trade that no one engaged in such business could rationally refuse to take full advantage of the opportunity to make money. Thus, the trade took full advantage of an unlimited opportunity to buy a good, well advertised brand name product at half price to the fullest extent of their financial ability and available warehouse capacity. The trade bought uncommonly large quantities.² One or two days before the offer period commenced, the petitioner was actually aware of the intent of certain retailers to sell its fruit spreads of half price. Three days after the program was in effect certain retailers began offering the product to the public at half price and others followed with like offers. This quick conversion of the product to cash was one of the means used by the trade to finance their large purchases during the first 26 days of the program after which they would receive an equal quantity of free fruit spreads. Two weeks later petitioner cancelled the planned additional promotional activities of the program but continued the one-free-with-one basis of the program to the end of the 26 day period. Petitioner did some screening of orders in the 26 day period as evidenced by the rejection of one 24,000 case order and an order of unknown quantity late in the period. The Hearing Examiner and the Commission found that such alleged screening was ineffective and inadequate.

The result of the 26 day sale period from January 16, to February 10, 1961 was that petitioner sold and delivered 400,803 cases of fruit spread for $1,519,137.00. The further result of the program occurring after February 10, 1961 was that petitioner delivered 153,909 cases of fruit spreads worth $516,577.00 at no charge to certain purchasers in the 26 day period which preceded February 10, 1961. The total result as to the quantity of fruit spreads reaching the trade was 554,712 cases or 6,656,544 individual jars of fruit spreads. The petitioner did not deliver...