Sun Oil Company v. FTC
| Decision Date | 19 August 1965 |
| Docket Number | No. 14503.,14503. |
| Citation | 350 F.2d 624 |
| Parties | SUN OIL COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Leonard Emmerglick, Washington, D. C., Henry A. Frye, Richard L. Freeman, Philadelphia, Pa., Edward A. Groobert, Washington, D. C., for petitioner; Pepper, Hamilton & Scheetz, Philadelphia, Pa., Perlman, Lyons & Emmerglick, Washington, D. C., of counsel.
J. B. Truly, Asst. Gen. Counsel, Alvin L. Berman, Atty., James McI. Henderson, Gen. Counsel, Richard Campbell Foster, Atty., F. T. C., Washington, D. C., for respondent.
Before SCHNACKENBERG and KILEY, Circuit Judges, and GRANT, District Judge.
On November 8, 1957, the Federal Trade Commission (Commission) issued its complaint against the Sun Oil Company (respondent or Sun), a corporation, charging it with unfair methods of competition and unfair acts and practices in violation of § 5 of the Federal Trade Commission Act (Act), 38 Stat. 719, as amended, 15 U.S.C. § 45 (1964 ed.).1 Thereafter, on April 7, 1959, the Commission granted the motion of counsel supporting the complaint to amend same by adding a second count charging an additional violation of § 5 of the Act. As amended, Count I of the complaint alleged that an agency consignment agreement between Sun and its dealers was a fiction and subterfuge, and in fact was an agreement or combination to fix the resale prices of gasoline. Count II alleged that, assuming such consignment agreement created a valid agency, Sun engaged in a predatory pricing practice for the purpose of destroying competition or competitors, with the effect of unduly restraining and lessening competition. The hearing examiner, on May 17, 1962, entered an order directing Sun to cease and desist from such practices as alleged and complained of in Count I. He further ordered the charges under Count II of the amended complaint dismissed, from which action no appeal was taken. Upon Sun's appeal, the Commission modified the initial decision to conform to the views expressed by the Commission and, as so modified, adopted that decision.2 The Commission concluded:
Under these circumstances we hold that respondent\'s consignment plan was unlawful not because it did not constitute a genuine consignment under the law of agency, but because the proof showed it to be a vertical and horizontal price fixing device in violation of the Federal Trade Commission Act.3
Accordingly, the Commission entered its final cease and desist order on November 22, 1963.4 The case is now before this Court upon Sun's petition to review the Commission's order, pursuant to § 5(c) of the Act, 52 Stat. 113, 15 U.S.C. § 45(c) (1964 ed.). For reasons hereinafter set forth, we agree with the Commission and we affirm.
The facts in this case are not in substantial dispute. Respondent, Sun Oil Company, is a New Jersey corporation with its principal office and place of business located in Philadelphia, Pennsylvania. Respondent operates an integrated petroleum company engaged in the production, purchase and sale of crude oil, the refining of crude oil and its derivatives, and the sale and distribution of gasoline and other petroleum products in various states5 of the United States and foreign countries. It is one of the nation's leading producers and marketers of gasoline and enjoys wide public acceptance. Sun has refineries in Pennsylvania and Ohio and markets its products through wholesale distributors, company owned and operated stations and independent dealer stations. It distributes gasoline under the brand name "Blue Sunoco" through approximately 8,900 outlets in the United States and Canada, and its 1956 gross petroleum sales exceeded $731,000,000.
The market area involved in this proceeding is comprised of the metropolitan areas and surrounding contiguous territory of the cities of Norfolk, Portsmouth and Virginia Beach, Virginia (sometimes referred to hereafter as the Norfolk area). The period covered by the complaint is November, 1956, through April, 1959.
Present in the relative market area were several military exchanges selling major-brand gasoline at prices substantially below those prevailing elsewhere in the Norfolk area. In 1956 there were 12 such Navy exchange stations plus several other PX stations. They normally posted prices which were from four to five cents below the prevailing prices of major brands for regular gasoline. However, only authorized military personnel and their dependents could purchase at such exchange stations. With what the hearing examiner aptly described as a "universe" of approximately 100 million gallons of gasoline a year in the Norfolk area, the Navy exchanges accounted for approximately 8 million gallons thereof during the relevant time period.
In addition to the Naval exchanges, in 1956 there were 21 private-brand stations in the area. They normally and customarily posted a price for regular gasoline two cents below the prevailing price at the stations of the major oil companies. During the period in question, the private-brand stations accounted for about 9 million gallons of the same universe.
As the hearing examiner found, the Norfolk area was an unstable market in which depressed prices occurred spasmodically. There were occasional price wars, and a price disturbance in one section, in time, usually would spread throughout the entire area.
Sun entered the gasoline market in the Norfolk area in 1946, marketing its gasoline exclusively through a wholesale distributor, Taylor Oil Company. Taylor sold Sun gasoline at prices equal to the lowest posted by the private-brand operators. As a result, the purchasing public did not think of Sun's gasoline as a major brand, and was accustomed to purchasing it at the same price level as the private brands.
In September, 1954, Sun took over the operation from Taylor. At that time Sun began to open its own stations, leased to independent dealers, and unlike its operation under Taylor, operated as a major, with its dealers and company-operated stations generally posting the prices prevailing at the stations of the other major oil companies. At the time Sun took over from Taylor, its sales of gasoline products constituted about 6 percent of the overall market.6 Sun commenced operations with fewer stations7 and sold at the same prices as majors. This resulted in a smaller share of the market as well as less gallonage per station than Taylor enjoyed.8
After taking over from Taylor and prior to November 5, 1956, Sun sold its gasoline to retail dealers, who were independent contractors operating filling stations. Sun and such independent dealers entered into contracts providing for the sale of gasoline and other petroleum products by Sun to the dealers, and also entered into leases of the stations from Sun to the dealers. The agreements required the purchase of specified minimum amounts of gasoline. The leases contained a specified base monthly rental plus an additional rent of one-half cent per gallon sold. The computation of the specified base rental was based upon Sun's estimate of the potential gallonage the station might be expected to sell. Such estimates (and hence such base rental figures) were in all instances substantially in excess of the actual gallonage achieved. At nearly every station the actual gallonage sold was approximately one-half of the estimated potential. As a result, the stated base rental in each lease was substantially in excess of what it would have been, computed on the basis of the actual gallonage, and substantially in excess of what a dealer could afford to pay.
The leases were for year-to-year periods. At the time of the execution of the original lease, and every three months thereafter, an amendment to the lease was executed, reducing the base rent to a figure in most cases slightly less than half of the base rent set forth in the lease. In the event that such a quarterly amendment to the lease was not entered into, the rent set forth in the original lease immediately became effective. As was found by the hearing examiner, this situation gave Sun a potential power of coercion over its dealers because, if a quarterly amendment was not executed, the rental immediately more than doubled, which would probably force the dealer out of business. This could occur if the dealer declined to execute such a quarterly amendment to the lease, or if Sun chose not to execute such an amendment for any reason, including lack of cooperation.9
During late October and early November, 1956, a localized price disturbance occurred in Norfolk on upper Hampton Boulevard in a few blocks' stretch near the seven military exchange stations clustered in that area at the Naval Base. Several major stations, namely, Cities Service, Esso, Pure, Shell and Texaco, posted prices three cents under the major price generally prevailing in the Norfolk area. There was one Sun station located in the same general neighborhood.10
On November 5, 1956, as a result of this price disturbance, Mr. Southard, Norfolk District Manager of Sun, called all of the Sun dealers to a meeting at his office. Southard explained the details of Sun's commission consignment plan to the dealers, pointing out to them the situation on Hampton Boulevard, the declining gallonage per station, the fact that Sun had not achieved a share of the market comparable to that enjoyed under Taylor, the need to be more competitive in price with the military exchanges and the private-brand stations. He also indicated the probable necessity in the near future of Sun's posting a price within one cent of the prevailing private-brand price and an intention of maintaining such a differential no matter how low the private brands might reduce their prices.
Southard explained to the dealers that under the consignment plan they would be company agents for the sale of gasoline only, the company would retain title to the gasoline, establish the prices...
To continue reading
Request your trial
-
Granader v. Public Bank
...D.C., 110 F.Supp. 295 (1953). 10 United States v. General Motors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1965); Sun Oil Co. v. FTC, 7 Cir., 350 F.2d 624, cert. denied, 382 U.S. 982, 86 S.Ct. 559, 15 L.Ed.2d 473 (1965); United States v. Paramount Pictures, Inc., 334 U.S. 131, 68 ......
-
Simpson v. Union Oil Company of California
...cases and comments concerning the General Electric Rule, all stating that Simpson was a new rule in antitrust law, Sun Oil Co. v. F.T.C., 350 F.2d 624, 635 (7 Cir. 1965), cert. denied 382 U.S. 982, 86 S.Ct. 559, 15 L.Ed.2d 473 (1966); C.B.S. Business Equip. Corp. v. Underwood Corp., 240 F.S......
-
Mowery v. Standard Oil Co. of Ohio
...of the Maumee River. The Standard Oil Company apparently did recognize East Toledo as a distinct market area. 7 Contrast Sun Oil Co. v. FTC, 350 F.2d 624 (7th Cir. 1965); Atlantic Refining Co. v. FTC, 344 F.2d 599 (6th Cir. 1965). In both cases, the consignment agreements between the distri......
-
Greene v. General Foods Corp.
...(1964), Reprinted In M. Handler, Twenty-Five Years of Antitrust (1973), vol. 1, p. 531. For cases following Simpson, see Sun Oil Co. v. FTC, 7 Cir. 1965, 350 F.2d 624, cert. denied, 1966, 382 U.S. 982, 86 S.Ct. 559, 15 L.Ed.2d 473; Atlantic Refining Co. v. FTC, 6 Cir. 1965, 344 F.2d 599, ce......