Standard Oil Co. v. Federal Trade Commission

• Decision Date: 14 July 1922
• Docket Number: 2599,2609,2632.
• Citation: 282 F. 81
• Parties: STANDARD OIL CO. v. FEDERAL TRADE COMMISSION. GULF REFINING CO. v. SAME. MALONEY OIL & MFG. CO. v. SAME.
• Court: U.S. Court of Appeals — Third Circuit

282 F. 81

STANDARD OIL CO. v. FEDERAL TRADE COMMISSION. GULF REFINING CO. v. SAME. MALONEY OIL & MFG. CO. v. SAME. ^[1]

Nos. 2599, 2609, 2632.

United States Court of Appeals, Third Circuit.

July 14, 1922

Petitions for Review from Federal Trade Commission.

James H. Hayes and Chester O. Swain, both of New York City, for Standard Oil Co.

W. J Guthrie, of Pittsburgh, Pa., for Gulf Refining Co.

Herbert B. Fuller, of Cleveland, Ohio, for Maloney Oil & Mfg. Co.

E. W Burr and Adrien F. Busick, both of Washington, D.C., for Federal Trade Commission.

Before WOOLLEY and DAVIS, Circuit Judges, and MORRIS, District Judge.

WOOLLEY Circuit Judge.

In these proceedings we are asked to review and set aside three orders of the Federal Trade Commission commanding the petitioning corporations forever to cease and desist from a practice found by the Commission to violate section 5 of the Act creating the Federal Trade Commission (38 Stat. 717, 719 (Comp. St. Sec. 8836e)) and section 3 of the Clayton Act (38 Stat. 730, 731 (Comp. St. Sec. 8835c)). The applicable provisions of these statutes are:

In the first, 'That unfair methods of competition in commerce are * * * unlawful,"" and, in the second, 'That it shall be unlawful for any person engaged in commerce * * * to lease * * * or make a sale * * * of goods, * * * machinery, * * * or other commodities * * * on the condition agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, * * * machinery, * * * or other commodities of * * * competitors of the lessor or seller, where the effect of such lease (or) sale, * * * or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce.'

These are three of a large number of cases involving the same practice. They were tried in three groups. The testimony in one group bore most directly on gasoline marketing in states along the Atlantic seaboard. In another it related particularly to business done by companies within the State of Ohio. In the third it concerned business farther west. As the testimony in all cases was in the main identical, the twelve comprising the eastern group (which includes the cases at bar) were combined and heard together.

The testimony discloses a practice which has been widely pursued in the eastern part of the United States by corporations refining and marketing gasoline. It consists of what is practically a loan, or technically a lease without rental, by a wholesaler to a retailer, of equipment for the temporary storage, measurement and delivery of gasoline to the consuming public. The practice extends mainly to the retailer whose place of business is referred to as a 'curb filling station.' The leased equipment is known as a 'curb pump outfit' and comprises a sunken tank for the storage of gasoline and a pump of familiar design by which gasoline is drawn from the tank and delivered to motor vehicles. The retailer is the proprietor of the station and is generally engaged in some other business. Typical of his class are keepers of country stores, residents in hamlets and at cross-roads, and farmers. The practice does not relate to retail stations owned and managed by the refining and marketing companies themselves. These are the more elaborate affairs also familiar to garages public and generally known as 'service stations.' Proprietors of garages comprise an intermediate class of retailers to whom the practice in some measure extends.

The practice held by the Commission to offend against the statutes is found wholly within the terms of the leasing contracts. The form of the contract is important in two respects: First, in what the wholesaler requires the retailer to do; and, second, in what it does not require him to do. The form of contract used by the Standard Oil Company is identical in substance with contracts used by the other petitioners. Paraphrased, it is as follows:

Reciting by preamble that the retailer is now purchasing gasoline from the wholesaler for sale to its customers and has requested it to install on his premises equipment for the better storage and handling of the gasoline so purchased, and that in compliance with his request the wholesaler is about to make the installation, it is agreed between them that the 'equipment shall be used solely for the storage and handling of motor gasoline purchased by the ' retailer from the wholesaler. Then follow undertakings by the retailer that he will maintain the equipment in good condition at his own cost; that he will not encumber or remove it or permit it to be seized or taken in execution; and that he will indemnify the wholesaler from liability for injuries occasioned by leakage, fire, or explosion of gasoline. The contract concludes with four provisions for its termination: First, upon the use of the equipment by the retailer for any other purpose than the storage and handling of gasoline purchased from the wholesaler; second, upon the retailer's failure for thirty days to purchase gasoline from the wholesaler; third, upon the sale of the premises by the retailer; and, fourth, by either party upon five days' notice in writing to the other party, with the right of the wholesaler in any event to enter upon the premises and remove the equipment.

Having stated what the contract requires the retailer to do, the things which it does not require of him are equally important. The first is he is not required to pay any license fee, rental or other thing for the use of the equipment; nor is he restricted in his business to the equipment covered by the contract. On the contrary, he may use other equipment leased by competing wholesalers, or purchased by himself. Nor does the contract expressly tie him to the wholesaler's products. He may freely deal in gasoline or other petroleum products purchased from competing wholesalers. He may not, however, use the equipment of the contract for storing and handling a competitor's gasoline.

In justification of their practice the petitioners maintain that the curb pump outfit is a natural development of the oil industry. In this industry the distribution and marketing of petroleum products more or less volatile and therefore more or less dangerous has always been a serious problem. The petitioners point out that for many years kerosene and other less volatile oils have been sold to retailers in barrels or direct to householders in cans. The barrels and cans being the property of the wholesaler are returned when the contents are removed. When the market for gasoline and more volatile oils developed, the wholesaler for safety shipped them to the retailer in steel barrels or drums. These also remained the property of the wholesaler and were returned when empty. With the marvelous increase of motor vehicles in all sections, urban and rural, there came a corresponding necessity for wider distribution of gasoline. Distribution from large central reservoirs to distant places by barrels and drums was no longer practicable. Then curb filling stations were established and curb pump outfits were installed whereby gasoline is delivered by tank trucks to many smaller centers and there stored and sold. These centers grew in number as the demand spread. At first this demand was met by one station and one outfit. As the demand increased stations and outfits were multiplied, the purpose of the practice, the petitioners claim, being to increase business by making easy and convenient the sale of gasoline to the public everywhere. But outfits cost money and the little storekeeper and the farmer by the roadside could not be induced, and frequently were not able, to invest capital in the purchase of an outfit. The result was that outfits were purchased by the wholesaler and loaned or leased to the retailer at practically no cost to him, yet upon the terms with respect to their use which we have detailed.

The view which the Federal Trade Commission takes of this practice is quite different. Its conclusions based on its findings of fact are that the installation of one outfit either supplies the needs of the retailer or meets the demand of his locality, and that, in consequence, the retailer has neither economic means nor personal desire to permit the installation of more than one outfit on his premises; that the contract for an outfit has the effect of tying the retailer to the products of the one wholesaler so long as one outfit meets the local demand and of substantially lessening competition by enabling the wholesaler to monopolize first one retailer and then, as the contracts are multiplied, to monopolize many thousand retailers, and eventually the whole territory in which they reside. Finding this practice of the petitioners violative of the laws referred to, the Commission entered the orders to cease and desist here under review.

On this statement of facts we shall discuss the practice as it bears on four classes of interested parties. The first of these is the public.

The Federal Trade Commission Act, in so far as proceedings thereunder are founded on a public interest, provides: ' * * * If it shall appear to the commission that a proceeding by it in respect thereof would be to the interest of the public, it shall issue and serve upon such person, partnership, or corporation a complaint stating its charges in that respect. * * * ' 38 Stat. 719, Sec. 5 (Comp. St. Sec. 8836e).

See F.T.C. v. Gratz, 253 U.S. 421, 40 Sup.Ct. 572, 64 L.Ed. 993.

The petitioners challenge the authority of the Federal Trade Commission to institute and prosecute these proceedings on two grounds as affecting the public interest. The first is that the complaints do not allege facts necessary to show that public interest is...