Swanee Paper Corporation v. FTC

• Decision Date: 22 June 1961
• Docket Number: No. 161,Docket 26311.,161
• Citation: 291 F.2d 833
• Parties: SWANEE PAPER CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Second Circuit

291 F.2d 833 (1961)

SWANEE PAPER CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 161, Docket 26311.

United States Court of Appeals Second Circuit.

Argued January 12, 1961.

Decided June 22, 1961.

Arnold A. Jaffe, New York City (Moses & Singer, Joseph L. Fishman, New York City, on the brief), for petitioner.

E. K. Elkins, Attorney, Federal Trade Commission, Washington, D. C. (PGad B. Morehouse, Acting General Counsel, Alan B. Hobbes, Asst. General Counsel, Federal Trade Commission, Washington, D. C., on the brief), for respondent.

Before CLARK, MAGRUDER and MOORE, Circuit Judges.

LEONARD P. MOORE, Circuit Judge.

Petitioner, Swanee Paper Corporation (Swanee), seeks to review a cease and desist order issued by the Federal Trade Commission (Commission) after proceedings in which Swanee was found to have violated Section 2(d) of the Clayton Act, as amended, 15 U.S.C.A. § 13 (d).¹ These proceedings were conducted upon a stipulation of facts with annexed exhibits which were submitted by the parties to the hearing examiner.

The dispute arose out of a series of arrangements involving Swanee, a manufacturer of paper products; The Grand Union Company (Grand Union), a customer of Swanee operating a number of retail food stores; and Douglas Leigh, Inc. (Leigh), the owner and operator of a "spectacular" advertising sign located in the Times Square area of New York City. This sign contained panels for stationary displays, and a panel (known as the "Epok Panel") which consisted of a bank of timed electric lamps against a black background, used for projection and display of animated advertisements.

On August 6, 1952, Grand Union accepted a proposal by Leigh offering "the use and occupancy of our combined electric spectacular and animated display located at 1552-1554 Broadway." In return, Grand Union agreed to pay to Leigh $50.00 and to secure "the agreement and consents of fifteen (15) participating advertisers to use the south panel animated part of the display * * for advertising on this display." These "participating advertisers" each were to pay Leigh $1,000 per month for the use of the Epok Panel for seventy-five per cent of its operating time. The remaining twenty-five per cent was reserved for advertising of Grand Union or its designates; one stationary panel was to be used for advertising by Grand Union; and the remaining space was to be developed in accordance with layout and copy plans prepared by Leigh for the approval of Grand Union. No design, layout or copy could be used on any portion of the display without the approval in writing by Grand Union. The term of the agreement was one year with Grand Union having the option to renew for two additional one-year periods. On August 20, 1953, the agreement was renewed and modified to the extent of increasing the number of participating advertisers from 15 to 20, eliminating Grand Union's twenty-five per cent participation on the Epok Panel, and requiring the payment to Grand Union of five per cent of the monthly rental paid by the first 15 participating advertisers and all of the rentals paid by the additional 5 participants. On December 13, 1954, the agreement was again renewed and Grand Union was given an option to renew, one year at a time, through 1960.

Following conferences, conversations and correspondence between its representatives and those of Grand Union and Leigh, Swanee, on July 30, 1952, agreed in writing with Leigh to become one of the participating advertisers on the Epok Panel. This contract recited that Swanee "agrees to undertake a participation in the Advertising Service arranged for and to be rendered to the Grand Union Company by Douglas Leigh, Inc."; that Grand Union had leased the sign from Leigh; that the contract would become null and void in the event that Grand Union did not secure 15 signed contracts from participating advertisers; that each such advertiser would be entitled to display its copy on the Epok Panel for one minute during each twenty minutes of operation; that all advertising copy used by Swanee was to be approved by Grand Union; and that Swanee would pay to Leigh $1,000 per month "for full service rendered under this Agreement by Douglas Leigh, Inc." As part of the discussions with Grand Union concerning the above agreement, a schedule of in-store promotions of Swanee's products was arranged with Grand Union to tie in with the use of the sign. No separate payments were made by Swanee for these promotions.

In November, 1953, Frederick Gash, Swanee's broker, wrote letters to Swanee and Grand Union in which he analyzed the results of Swanee's participation in the "Broadway Sign deal." He reported that Grand Union "is the costliest account that * * * Swanee had on its books"; that the account "is too costly for the amount of business" being done; and that Swanee's purpose "should be not to cut down on the amount of money being appropriated for this account, but to find a solution so that we can do sufficient business to justify the expense."

About a month later, Swanee advised Leigh that it did not intend to renew its participation in the sign deal, and Leigh, in notifying Grand Union of this, suggested that the latter might be successful "in securing a reversal of this decision." After discussions with Leigh and Grand Union, Swanee, on February 16, 1954, renewed its participation for another year. In 1955 Swanee notified Grand Union that, "`because of pressure from other concerns' including customers of * * * Swanee competing with Grand Union, it would be unable to renew its participation on the sign." However, following further discussions with Leigh and Grand Union, Swanee, in February, 1956, executed a new agreement. This contract differed from the earlier one in that all references to Grand Union were omitted, as were the provisions stating that Grand Union had leased the sign, that all copy was to be approved by Grand Union, and that the agreement was conditioned upon Grand Union's securing contracts from participating advertisers. Swanee's participation was canceled on December 31, 1956, and has never been renewed since that date. On November 6, 1957, these proceedings were commenced.

Section 2(d) of the Clayton Act makes it unlawful for a supplier, in the course of commerce, to pay anything of value "to or for the benefit of a customer * * * as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the * * * sale, or offering for sale * * *" of the supplier's products, "unless such payment or consideration is available on proportionally equal terms to all other * * *" competing customers of the supplier. There being no dispute that the payments made by Swanee to Leigh were not available on a "proportionally equal" basis to other customers of Swanee, the crucial questions on this appeal are whether the record as a whole supports the Commission's conclusions that the payments were "for the benefit" of Grand Union, and that these payments were made in consideration of services rendered to Swanee "by or through" Grand Union.

Although the payments by Swanee were not made directly to Grand Union, it is clear that they were "for the benefit" of that company, within the meaning of Section 2(d). As the hearing examiner found, these benefits included valuable advertising space on the sign at a nominal cost, valuable advertising in other media in exchange for Grand Union's right to a twenty-five per cent participation on the Epok Panel, and cash payments totaling $14,633.28. And Grand Union's right to these benefits was not unqualified, but was entirely dependent upon the willingness of Swanee and other suppliers to become participating advertisers. That Leigh and Swanee also benefited from these payments does not make the benefit to Grand Union any the less. There may be situations where payments by a supplier to a third person indirectly benefit a customer of the supplier and yet are not "for the benefit" of the supplier within the meaning of Section 2(d).² Such is not the case where, as here, the benefit is wholly dependent upon the payment, and the customer is one of the moving and essential parties to the entire transaction.

Swanee urges that no Section 2 (d) violation can exist here since it did not have knowledge that Grand Union was benefiting from the payments, and without such knowledge its acts were lawful. We need not decide the latter question, for the record fully supports the Commission's conclusion that Swanee knew or should have known that it was benefiting Grand Union. It is true that the parties have stipulated that Swanee had no knowledge of the terms of the arrangement between Leigh and Grand Union except as reflected in the 1952 contract between Leigh and Swanee; it may also be true that Swanee did not know the exact terms of the Grand Union-Leigh contract. It did know, however, that Grand Union had leased the entire sign, that all advertising thereon was...