Simplicity Pattern Co. v. Federal Trade Commission

• Citation: 258 F.2d 673
• Decision Date: 29 May 1958
• Docket Number: No. 13884.,13884.
• Parties: SIMPLICITY PATTERN CO., Inc., a corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

258 F.2d 673 (1958)

SIMPLICITY PATTERN CO., Inc., a corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 13884.

United States Court of Appeals District of Columbia Circuit.

Argued January 17, 1958.

Decided May 29, 1958.

Certiorari Granted November 24, 1958.

COPYRIGHT MATERIAL OMITTED

Mr. William Simon, Washington, D. C., for petitioner. Mr. Harold F. Baker, Washington, D. C., also entered an appearance for petitioner.

Mr. Alvin L. Berman, Atty., Federal Trade Commission, with whom Mr. James E. Corkey, Asst. Gen. Counsel, Federal Trade Commission, was on the brief, for respondent.

Before WASHINGTON, DANAHER and BURGER, Circuit Judges.

Certiorari Granted November 24, 1958. See 79 S.Ct. 223.

DANAHER, Circuit Judge.

Simplicity Pattern Co., Inc., petitioner herein, is engaged in the manufacture and sale of patterns widely purchased by women customers intent upon making their own garments. The case does not involve Simplicity's competitors in the pattern field, but discrimination favoring one group of customers by the furnishing of facilities not made available to other customers on proportionally equal terms. Simplicity asks us to review and set aside the Commission's order of March 13, 1957, that petitioner cease and desist from:

"Contracting to furnish or furnishing to any of respondent\'s customers counter catalogs, cabinets or other equipment or facilities connected with the handling, sale or offering for sale of respondent\'s patterns, unless such catalogs, cabinets or other equipment or facilities are available on proportionally equal terms to all customers competing with such favored customers in the sale of respondent\'s patterns."

The Commission's complaint had contained two counts, Count I brought under § 5 of the Federal Trade Commission Act¹ charging that petitioner had extended to larger customers, certain chain stores (hereinafter sometimes referred to as "Red Fronts"), a "standing debit" under which such customers did not pay for their initial inventory of stock, a short term contract, and prepaid transportation. Such bases for doing business had not been extended to smaller customers, particularly certain retailers (hereinafter sometimes referred to as "fabric stores"). Concluding that the record lacked substantial evidence to warrant a finding of injury to competition, the examiner dismissed Count I. Counsel supporting the complaint appealed, but the Commission affirmed, concluding that adverse competitive effect upon Simplicity's competitors or among its customers had not been established. Count I, thus, is not before us.

Count II alleged violation of subsection 2(e) of the Clayton Act, as amended,² in that the petitioner had supplied to its larger customers, the Red Fronts, free monthly counter catalogues and certain storage cabinets, while the small customers such as the fabric shops had been required to pay for the same or similar items. The examiner concluded that the practices denounced in Count II violate § 2(e). Simplicity appealed, but the Commission affirmed, adopting the findings, conclusions and the order contained in the initial decision.

The Commission's opinion recited Simplicity's contention that there is no meaningful competition between the larger stores, the "Red Fronts," and the smaller independents, the "fabric shops," since the Red Fronts sell patterns for a profit while the fabric shops do not intend to make a profit. Rather they sell Simplicity's patterns as a necessary incident to their sale of fabrics. The opinion then runs on:

"* * * Considering the circumstances appearing in the record, this argument is not wholly without merit, but we agree with the examiner\'s conclusion that the two kinds of stores are in competition in the sale of respondent\'s patterns. An element of rivalry exists in spite of the fact that the fabric shops sell the product primarily as an accommodation. It appears that they may not profit dollarwise in the sale of patterns alone, but they recognize the value of such business for attracting customers who may purchase other goods. The two kinds of stores are vying for the same particular markets whatever their motives may be. In our opinion this sufficiently discloses the presence of competition between them.

"Simplicity * * * asserts, in addition, that the cabinets have no real relationship, as the statute provides, to the `handling, sale, or offering for sale of such\' patterns, and that dress patterns are not a commodity within the meaning of Section 2(e). There appears to be no merit in either of these contentions or various other arguments made by Simplicity, and each is rejected."

The Commission confirmed the examiner's conclusions. His findings, so far as pertinent to our review, we now paraphrase.

Simplicity, a New York corporation, is one of the largest manufacturers and distributors of dress patterns, with sales extending throughout the United States. Its patterns are sold to all customers, Red Fronts and fabric stores alike, at 60% or the labeled retail prices of 25¢, 35¢ and 50¢, and both groups of stores retail at those labeled prices.

Simplicity supplied to the Red Fronts, free of charge, monthly counter catalogues which depict Simplicity's patterns and are essential to the retail sale of patterns. Fabric stores were required to pay for such catalogues a price of $1.65 to $2 each, depending upon the binding.

Simplicity furnished to the Red Fronts, free of charge, cabinets and other equipment while fabric stores were required to purchase or rent such equipment.

Red Fronts merchandised the patterns as they do any other item, and unless the patterns can show a profit, the Red Fronts will not handle them. A prospective retail purchaser may examine a catalogue in a small space on the counter beneath which, in a cabinet, the patterns are stored. On the other hand, the fabric stores usually made no profit on the sale of patterns and did not expect to do so. The fabric stores handled the patterns to promote the sale of fabrics and because the customers expected this service. "The patterns, catalog, fashion previews and other advertising material are prominently displayed and the customer is invited to sit and browse through the material, all in order to promote fabric sales," the examiner found.

He concluded, despite the differences in sales methods, that the two groups of stores compete in the sale of patterns. "It is difficult to say that two stores in the same shopping area, possibly side by side, are not in competition when they are selling the same article at the same price to essentially the same segment of the public * * *."

"* * * The catalogs supplied the two groups of stores are identical. While the cabinets differ materially in design and appearance, the fact remains that they serve essentially the same purpose — as a storage place for the patterns pending their sale to the public.

"True, there is no showing of competitive injury. But this, as the examiner, understands, is not required in a proceeding under Section 2(e). Given the element of jurisdiction, it appears that a prima facie case is established when it is shown that a seller is supplying to one customer facilities for use in the resale of the seller\'s products, and not supplying such facilities to the competitor of the favored customer on proportionally equal terms. In short, Section 2(e) appears to be a per se statute, requiring no proof of competitive injury."³ (Emphasis supplied.)

Part I

We agree that, for the purpose of establishing a prima facie case, there was discrimination favoring the Red Fronts, since there is substantial support in the record as a whole that Simplicity furnished to them catalogues and cabinets free of charge while the fabric shops were required to buy or rent the identical or similar facilities.

"Petitioners thus furnished a service connected with the sale or offering for sale of a commodity upon terms not accorded to other purchasers. * * * It is enough if the discrimination be made in favor of one who is a purchaser and denied to another purchaser or other purchasers of the commodity."⁴ (Emphasis supplied.)

We agree that the Red Fronts and the fabric stores, operating in the same cities and in the same shopping area, often side by side, were competitors, purchasing from Simplicity at the same price and then at like prices retailing the identical product to substantially the same segment of the public.⁵ Simplicity would have us say, despite such facts, there was no competition here. It points to the Commission's observation, supra, that its argument "was not wholly without merit." Simplicity contends the Red Fronts must sell patterns at a profit while the fabric stores seek none from their sale of patterns. Their profit comes from the sale of fabrics, and they merchandise the patterns simply as a matter of service and for customer convenience. We have no doubt a pattern purchaser in a Red Front may there purchase needles, thread, thimbles, shears, tape measures and what not, each item yielding its mark-up to supplement the profit derived from the pattern sale. But both groups of stores were selling patterns. Simplicity chose to pioneer sales through Red Fronts. It decided it was good business to provide, free of charge, catalogues and cabinets which facilitate pattern sales in Red Front pattern stores. Fabric stores, however, not only are not shown to have been accorded like facilities on proportionately equal terms but to be required to bear a very considerable expense, either to buy or rent comparable facilities. We may assume that had the facilities been available to the fabric stores on "proportionally" equal terms, there could be no discrimination within the meaning of the section. Section 2 (e), as invoked here, subject to § 2(b) to which we will soon refer, simply proscribes as unlawful the discrimination here complained of. It says nothing about the methods to be employed in the resale of the...