Atlantic Refining v. Federal Trade Commission

PETITIONER:Atlantic Refining
RESPONDENT:Federal Trade Commission
LOCATION:United States Post Office and Courthouse

DOCKET NO.: 292
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 381 US 357 (1965)
ARGUED: Mar 30, 1965
DECIDED: Jun 01, 1965

Facts of the case

Question

Audio Transcription for Oral Argument – March 30, 1965 in Atlantic Refining v. Federal Trade Commission

Earl Warren:

Number 292, the Atlantic Refining Company, Petitioner versus Federal Trade Commission and number 296, the Goodyear Tire & Rubber Company versus Federal Trade Commission.

Mr. Ballard, you may proceed with your argument.

Frederic L. Ballard, Jr.:

May it please the Court.

This is a proceeding under Section 5 of the Federal Trade Commission Act.

The principle issue for the Court at this stage in the proceeding is the legality of a contract between the Atlantic Refining Company, an oil company, and the Goodyear Tire & Rubber Company, which is a maker of tires, tubes, and other rubber products.

Under this contract, Atlantic promotes the sale of Goodyear tires and batteries, and accessories, automotive accessories, which are called TBA.

They referred to in the proceedings and in the industry as TBA standing for tires, batteries, and accessories.

Atlantic promotes the sale of these articles through the service stations which handle Atlantic gasoline and this is Atlantic’s part of the bargain.

Goodyear’s part of the bargain is to pay Atlantic a commission for these services.

The Trade Commission issued a complaint charging that this sales and commission contract is an unfair method of competition within the meaning of Section 5 of the Act.

The examiner for the Federal Trade Commission after extensive hearings, upheld the legality of the contract, but he found that Atlantic had coerced its dealers to buy TBA, and he entered an order to prohibit that coercion.

This order in substance was affirmed by the Commission and it was also affirmed by the Court of Appeals from the Seventh Circuit.

Now Atlantic has not sought a further review of this portion of the order and this is the first point Your Honors that I would like to stress because it’s a very important point.

As this case was presented to the Trade Commission, and as it was presented to the Court of Appeals for the Seventh Circuit, the issue of coercion was not only in the case, but it dominated the case.

This was as the Trade Commission saw it, and that the Seventh Circuit saw it, a coercion case.

Now if Your Honors please, we took vigorous exception to this.

We felt that the evidence did not support these findings, but having lost that issue before the Commission and having lost it again before the Seventh Circuit, we do not press it here and we accept the sections of the Commission’s order which are designed broadly, sweepingly to prohibit and eliminate coercion and to guarantee to our dealers their freedom of choice.

Now Your Honors, we believe that that should have been the answer to this case.

We believe that once you are given — once the fact of coercion is approved or accepted, that the hearing examiner was right.

The correct disposition of the case was an order against coercion.

This would have taken care of the competitive evil which was uppermost in the mind of the Commission and we know it was uppermost in the mind of the Commission Your Honors, because the great bulk of the testimony in this case was from dealer witnesses and actually ex-dealer witnesses who complained that that they had been forced by various methods of coercion, some sophisticated, some more open to buy Goodyear TBA.

And the remainder of the bulk of the testimony was from independents so-called independent wholesalers of TBA, people who called on these dealers from time to time and who complained that they found it extremely difficult if not to impossible to sell to the dealers and that they felt that the dealers were required to buy the TBA that Atlantic was promoting, that the dealers themselves felt this and that therefore they were foreclosed in the station.

Now Your Honors, we believe that this was the heart of the Commission’s case, this notion of foreclosure, this notion of coercion, and it would be completely cured by the two paragraphs of the order which are not before this Court because we have accepted it.

Justice Bernnan:

[Inaudible] of pages B68 and 69 — Section 7, 8 and 9?

Frederic L. Ballard, Jr.:

Your Honor, I don’t have this.

I don’t — perhaps, it’s in one of your papers.

It is not in our papers as such.

Frederic L. Ballard, Jr.:

I had the appendix —

The Goodyear Appendix.

Frederic L. Ballard, Jr.:

The — in the Goodyear Appendix, the order of the hearing examiner, sir, is found on A 18 and 19.

Frederic L. Ballard, Jr.:

And it is a six-paragraph order, all of which is directed to the issue of coercion.

Justice Bernnan:

Well I’m looking at the Commission’s order.

Frederic L. Ballard, Jr.:

Now in the Commission’s order sir, the Commission’s order against Atlantic is on page 68 and 69.

Now could you just tell me which numbers you say are out of the case?

Frederic L. Ballard, Jr.:

The numbers that are out of the case are numbers five and six.

Five —

Justice Bernnan:

— and six.

Frederic L. Ballard, Jr.:

— which of course, must be read with the preamble, prevents Atlantic directly or indirectly from intimidating or coercing or attempting to intimidate or coerce any wholesaler or retailer of Atlantic Petroleum products to purchase any brand or brands of TBA products.

And number six, the that’s number five says, you cannot force him to buy it.

Number six says, you cannot prevent him or attempt to prevent him from purchasing and reselling, merchandising, or displaying TBA products of his own intended choice.

We believe as the case is presented, Your Honors may assume that no Atlantic dealer will be force to buy Goodyear and no Atlantic dealer will be prevented from buying whatever he chooses to buy.

Justice Bernnan:

Well then, do I understand the issue that the Atlantic raises that it is limited then the one, two, three, and four?

Frederic L. Ballard, Jr.:

Precisely, Your Honor.

Now —

Earl Warren:

It was not — it was not so limited in the questions presented in your petition, was it?

Frederic L. Ballard, Jr.:

Yes it was Your Honor.

Earl Warren:

It was.

Frederic L. Ballard, Jr.:

Yes sir, we specifically and expressly disavowed any effort to bring to this Court paragraphs five and six.

Now —

Potter Stewart:

You are with that question under the — under the sanction of those paragraphs —

Frederic L. Ballard, Jr.:

Yes sir.

Potter Stewart:

–right now that order?

Frederic L. Ballard, Jr.:

Yes sir, we are.

Yes sir.

No question about it.

Potter Stewart:

And if you presume if you do any thing you’re going to be entitled with the Federal Trade Commission, that’s the end of that.

Frederic L. Ballard, Jr.:

Precisely, it’s the assumption that I’ve been going on, Your Honor.

Now the Commission as, Your Honors have brought out —

Byron R. White:

— take at the word coercion means to the Commission, do you something besides whatever it flows from what the Commission called power?

Frederic L. Ballard, Jr.:

Your Honor, I believe coercion means the use of the power to deprive the dealer of his freedom of choice.

Frederic L. Ballard, Jr.:

We had felt and have stated in the beginning that freedom of choice is the touch down.

The relationship of power so-called, the relationship exists and the Commission recognized that it exists regardless of how you distribute the TBA to the dealer.

We believe that the touch down under the decisions of this case on tying and requirements contracts and so forth is freedom of choice.

And we believe that the — that at this point, we must give the dealer the freedom of choice and that it can be done.

We believe the Commission agrees with us so that it can be done.

Justice Bernnan:

Well let’s see what is happening Mr. Ballard is that your dealers now, you are going to say make this kind of contract and nevertheless free to go out, as is said here in six, displaying TBA products of his own independent choice?

Frederic L. Ballard, Jr.:

Yes sir, yes sir.

Actually Your Honor, we believe they were free before the case.

That’s why we – that’s why we carried it to the Seventh Circuit, but we’ve lost that question in the case and we don’t intend to argue it again here, if Your Honor please.

Now let’s see what the Commission did, because the Commission did not do as I have said they should have done and stopped at the same point the examiner did.

The exa — the Commission went further.

They said that the method by which the TBA was reaching the dealers was itself illegal.

In other words, they say the contract between Atlantic and Goodyear was illegal and this you will recall was a sales commission contract and they said they issued four paragraphs which read together abolished and actually they recognized, the word abolition appears in their opinion, they recognized that they were abolishing the sales commission plan.

Hugo L. Black:

What did Atlantic agreed under the contract [Inaudible]

Frederic L. Ballard, Jr.:

Atlantic agreed Your Honor, to promote the sale of Goodyear TBA through its dealers and through the dealers to the motoring public.

Because Your Honor will see that there is no point in promoting a tire to a dealer unless you help them to sell it on to the public.

Now, in order to understand what the Commission did here, you have to recognize that they did not prevent Atlantic from having a TBA program.

They put an exception.

They said that Atlantic cannot promote and it cannot assist the dealers except where Atlantic itself is the distributor or the marketer.

Now this is a very curious exception which can only be understood against the background of TBA distribution.

The fact of the matter is and it’s not in their dispute at all, that TBA is essential to service station operation.

Your Honors have only to check their personal knowledge to know this.

When a motorist calls at a service station, he expects to find there a new battery if he needs it, a new tire if he needs it, change if it’s a rainy day, a new headlight if his light — headlight is burned out at night.

It is essential.

It is what the motoring public expects.

The motorists expected.

They won’t patronize the stations if they don’t have it.

This means that the dealers can’t make money unless they carry TBA.

And it is to Atlantic’s interest that every Atlantic dealer, not just a great big station, every Atlantic dealer shall have TBA at the station in good supply or else a ready source of supply so that he can meet legitimate demands of the motorist.

And one dealer’s failure to do that hurts the other Atlantic dealers and it hurts Atlantic, because the resentment of the motorist who can’t get the item that he expects to find carries through to the brand.

Tom C. Clark:

I suppose in most cases, Atlantic could take care of that by provisioning or leasing through or rather arrangement with the dealer saying that a dealer in order to continue this arrangement, you must have an adequate supply of the tires and batteries?

Frederic L. Ballard, Jr.:

That is precisely what they do, Your Honor.

They say that the — they at least requires that handling of TBA, it does not require the handling of any particular kind.

And all oil companies to meet these legitimate needs that I described, all of the oil companies with any size, whatsoever, provide TBA programs for the dealers.

Tom C. Clark:

But the — as I read the Commission order, it doesn’t concern itself with the proposition that Justice Goldberg mentioned?

Frederic L. Ballard, Jr.:

The Commission’s order does not concern itself, but that is correct Your Honor.

Tom C. Clark:

It concerns itself was pressure by Atlantic like threats to cancel or renew at least if he doesn’t take a particular supplier’s product?

Frederic L. Ballard, Jr.:

Yes Your Honor, but my point is that that is no longer in the case.

We have accepted that course —

Tom C. Clark:

Well — but you mentioned just five and six.

I’m reading in paragraph one of their order.

Frederic L. Ballard, Jr.:

If you have read paragraph one of their order and two, and three, and four, you’ll find in every case an exception.

In other words, it says you — number one says you cannot have a contract except where — or relating to the marketing by any marketer or distributor other than the Atlantic Refining Company.

You see that does at the bottom of number one.

Number two —

Tom C. Clark:

Well I have the commission report and its bound volume; number one is inducing or attempting to induce the purchase of TBA products of a particular supplier by Atlantic dealers by threatening to cancel.

Frederic L. Ballard, Jr.:

Well Your Honor, I believe you have the — I believe you’ll have the examiner’s —

Tom C. Clark:

Was that the examiners?

Frederic L. Ballard, Jr.:

Yes sir, that’s the examiner’s.

The Commission’s order is quite different.

Tom C. Clark:

Well thank you very much.

That’s what confused me.

Frederic L. Ballard, Jr.:

Now to get back if I may to the argument today, we have the fact that all oil companies provide a TBA program for their dealers.

And in fact, it’s — this is so universal that —

Justice Bernnan:

I don’t want any [Inaudible] without the — I understood you to say that in fact things like other than the Atlantic Refining Company would mean what, that Atlantic could buy all these from Goodyear —

Frederic L. Ballard, Jr.:

Yes, sir precisely.

Justice Bernnan:

–directly and then market it to its dealer?

Frederic L. Ballard, Jr.:

Yes sir.

Justice Bernnan:

But what it may not do is what?

Frederic L. Ballard, Jr.:

What — well this is a very good question, Your Honor, but what it may not do, what it may not do, is to have its present arrangement under which the TBA instead of coming down through a distribution —

Justice Bernnan:

By Atlantic?

Frederic L. Ballard, Jr.:

— system — by Atlantic, goes down through a distribution system by Goodyear.

Justice Bernnan:

For which you get a — Atlantic get suppose some kind of overwriting?

Frederic L. Ballard, Jr.:

That’s correct, sir.

Justice Bernnan:

Yes.

Frederic L. Ballard, Jr.:

Now you — Your Honor, has just articulated the two methods by which oil companies handle this TBA problem and under both these methods, they sell the TBA to the dealer and they help him sell it to the public, and they train him in its use, that’s identical.

Byron R. White:

And in both of these they recommend the —

Frederic L. Ballard, Jr.:

Yes sir, the difference is simply how the TBA gets to the dealer, but this difference is very vital and it couldn’t be better illustrated than by — this case, the facts of this case.

The truth of the matter is that TBA distribution to small dealers who are buying in small quantities and who are needing emergency deliveries at various times, is an expensive and difficult proposition.

Now Atlantic used to do it the way Justice Brennan described, that is they had their own warehouses.

They had their own sub-distributors and they try — they bought the — they contracted for and bought the TBA and they distributed down to the dealers and they lost a great deal of money in so doing and they did not provide very good service to dealers.

Is that practice attacked [Inaudible]

Frederic L. Ballard, Jr.:

No Your Honor, that practice was not attacked by the Commission and the exceptions in the Commission’s order as we read them and I believe there is no dissent from this, allow us to go back to that.

In other words, we are allowed to go back to an uneconomic and a — and unprofitable method of distribution.

Tom C. Clark:

Did the dealer buy — he pays for the tire to pick on the [Inaudible]

Frederic L. Ballard, Jr.:

He pays for them, Your Honor.

This is not a consignment case.

Tom C. Clark:

He paid [Inaudible]

Frederic L. Ballard, Jr.:

He pays — he pays Goodyear either the Goodyear, if he takes it there are many ways in the Goodyear system.

He pays Goodyear directly or Goodyear dealers directly, yes sir.

And then Goodyear in turn remits the permission to us.

Justice Bernnan:

Well your precedents.

Tom C. Clark:

Have no money at all.

Frederic L. Ballard, Jr.:

Sir?

Tom C. Clark:

Your Company has no money at all.

You just trying to —

Frederic L. Ballard, Jr.:

That is correct.

Tom C. Clark:

The sale.

Frederic L. Ballard, Jr.:

Well the money that we have in it, Your Honor, is our rather extensive efforts to train and help the dealer.

Justice Bernnan:

Well that’s what you pay that expense.

Frederic L. Ballard, Jr.:

We pay that expense out of our 10% yes sir.

Byron R. White:

And you make no money at this present system really I mean in the — in the —

Frederic L. Ballard, Jr.:

As the record shows, that’s right Your Honor.

Byron R. White:

Is that — is that what commission found, that you make no money at all?

Frederic L. Ballard, Jr.:

The Commission didn’t dispute it.

We showed it I think no one disputes the fact that it’s about break even proposition for us.

It cost us just about as much to provide the services that we get back in the Commission but least we’re not loosing money as we were before and more than this, Your Honor, our dealers are getting better delivery and the example that we used in our brief is a rather striking one.

During the days before 1951, when we were on sales commission — excuse me, on purchase resale, we provided a total of six warehouses in our New England district.

Five of these were really only suited to handle tires and therefore, the sixth was the only warehouse we had for accessories and we had a very few.

It was described I think as a handful of sub-distributors who would help us out by having acting as supply points.

Now when we arranged with Goodyear for them to do the deliveries, instead of us, our dealers instead of relying on one warehouse and a few sub-distributors had 79 supply points from which they could draw and that meant every dealer had a supply point close to his station where he could draw if he wanted.

Now, this has been the experience of most small oil companies and while Atlantic Refining Company is the substantial company, it is a comparatively small company in this business.

It is a regional company.

It’s confined to the eastern seaboard and extending back perhaps as far as Ohio.

It’s spotty even along the eastern seaboard.

It is not a big powerful giant.

Byron R. White:

Well that majors that the use the purchase resale?

Frederic L. Ballard, Jr.:

The record seems to show, Your Honor, that the majors do and the — this point is made very strongly also in the amicus brief that the smaller companies, those with smaller resources, find it more convenient in effect to leave TBA distribution which is a pretty specialized thing to the tire companies, which who are specialized in it.

The larger companies, the big national companies, oil companies, can distribute on the purchase resale basis because I think really they’re big enough to warrant setting up the very expensive mechanism.

Tom C. Clark:

Suppose [Inaudible] eliminate would not go that way.

Who would fall in the same system that instead of a dealer thing, the tire company sent two of them —

Frederic L. Ballard, Jr.:

Instead of a dealer —

Tom C. Clark:

Instead of a dealer thing to charge.

They sell them to you and leverage to the dealer at the point of meeting just what they do now and then you collected from your dealer, would that come under your?

Frederic L. Ballard, Jr.:

Your Honor, that’s a – that’s a question that is suppose to be pass.

We feel this.

We feel that under this order, we cannot take the one thing that is changed under this order, we believe, is that we can no longer ask a Goodyear store or hire upon a Goodyear store to be the supply point.

And therefore I believe in the exact example that you gave, we could not do that under the order.

I believe it would be innovation to go to this instance.

Now I think I have brought out to Your Honors, I hope two things.

Frederic L. Ballard, Jr.:

First of all, that this order for this technical distinction that it draws between sales commission and purchase resale.

While it is a technical distinction and a narrow one, it hurts by the Atlantic Refining Company.

Potter Stewart:

Mr. Ballard, you – you referred to me a fact that there were exception in each one of the four paragraphs of the Commission quarter.

Frederic L. Ballard, Jr.:

Yes sir.

Potter Stewart:

I don’t quite see what you mean in this —

Frederic L. Ballard, Jr.:

Well I —

Potter Stewart:

— to be the first and other than the Atlantic Refining Company.

Frederic L. Ballard, Jr.:

In number two —

Byron R. White:

There is one to four.

Frederic L. Ballard, Jr.:

In – in number two, you don’t need the exception because number two, prevents us from receiving any commission for acting as sales commission.

So you don’t need it there.

That’s obviously number two could only apply —

Potter Stewart:

The commission [Inaudible]

Frederic L. Ballard, Jr.:

Now in number three, you will find it again toward the end, three is using any contractual device such as a training program, promotions, dealer meetings, service station identifications to sponsor, recommend, urge, induce or otherwise promote the sale of TBA products by any distributor or marketer other than the Atlantic Refining Company.

Potter Stewart:

And then you find other the Atlantic Refining Company down in number four.

Frederic L. Ballard, Jr.:

Yes sir.

Potter Stewart:

Is that the phrase that you meant when you called the —

Frederic L. Ballard, Jr.:

Yes sir.

We — and perhaps I may just as well say Your Honor, that this was not – this isn’t just inadvertent.

The arguments that I’m making to Your Honor is here were made to the Commission.

We said to the Commission, what is there about the sales commission plan which makes it worse?

Why do you deprive us of our economic and efficient system?

And their answer was — was that there are differences and this is the best point really that I want to come to.

Their answer was there re differences and they – they came – they pointed out two differences.

In other words, when I said, Justice Stewart, and perhaps I should get one step further, not only did they say there are differences but they contemplate in their opinion that we will return to purchase resale.

And they said —

Potter Stewart:

If these TBA products had been purchased by your client —

Frederic L. Ballard, Jr.:

Yes sir.

Potter Stewart:

— to you and you can do all this.

Frederic L. Ballard, Jr.:

They do.

Frederic L. Ballard, Jr.:

Now —

Potter Stewart:

Then that’s the purpose of observing that —

Frederic L. Ballard, Jr.:

Yes sir that’s — I have no doubt about it, sir.

Now this brings us then what is the justification for the — for this order because it seems to us the order hurts us and while I recognize that doesn’t necessarily mean it’s wrong.

Certainly the Commission should justify an order which forces us in practical effect undertaking uneconomic distribution.

Now what did the Commission added to justify?

They justified it on two rather simple grounds and they were these.

The first ground is that they felt that small tire companies, small tire companies could not use sales commission.

And that therefore, it should be abolished.

Now the reason they felt that, I believe was – was confusion and perhaps it was a natural confusion, at the same time, well perhaps you should go back one step further.

When we were operating under purchase resale, we were operating with a small tire company, the Lee Tire & Rubber Company which is a local company in Philadelphia.

And when we changed, we not only changed from purchase resale to sales commission, but we also changed from the Lee Tire & Rubber Company as our supplier to Goodyear.

And the Commission apparently felt that those things were — those decisions were in someway tied together.

They were not, Your Honors.

The reason we changed from the small tire company was simply that it did not have the public acceptance.

Our dealers were at a handicapped trying to sell the Lee brand of tires against the dealers of other outlets.

Byron R. White:

So how about the problem with distribution of the small tire company?

Apparently one of the real practices is the commission system is if we do have good service, you do have 79 points, distribution points, do you think Lee would have 79 distribution points?

Frederic L. Ballard, Jr.:

No, the truth of the matter was that they did not.

However, Your Honor, in the area, in our total area, and our management made the decision to try to get plan that they actually took two plans that would cover the total area, but there is nothing to say that Lee didn’t have adequate distribution in some small portion of the area.

And there was nothing to prevent Lee from offering us a sales commission plan and the record in effect they put us in other —

Byron R. White:

But do you know of any small tire companies so-called small rooms would cover your home to [Inaudible]

Frederic L. Ballard, Jr.:

No, Your Honor, I do not.

But I think it should be clear Your Honor, that Lee was offered the opportunity to take a smaller portion still under purchase resale and they turned it down.

They preferred not to and that was a business decision of theirs, but the point of it is this, Your Honor.

You can’t help the problem of the small tire company by trying to make him stay married to a small oil company.

Now we – – if we do have to go back to purchase resale, I’m quite confident, Your Honors, that we would not go back with Lee.

We had an unsatisfactory experience with Lee and we can’t go back.

I don’t believe we are going to try to do it on our own by selling an Atlantic tire and therefore I’m quite confident, Your Honors, that we – we as a small oil company, we have to have a national brand of tires.

But the point that I’m getting at here is, it isn’t the smallness of the oil company or the product of the tire company which distinguishes purchase resale from sales commission.

Frederic L. Ballard, Jr.:

Lee had a sales commission plan and we just wanted to [Inaudible]

Arthur J. Goldberg:

As I read the Commission’s important state 367, they don’t ask you to require you to go to any — go back to any small company that you say that tied – tied to one forecloses the market from all others.

Frederic L. Ballard, Jr.:

Yes Your Honor.

That is correct.

They do not ask us to do it.

They give us a reason for their opinion, the fact that small oil companies are hurt.

They can’t compete with this method but they don’t ask us to go back to a small oil company.

Byron R. White:

[Inaudible] commission plan?

Frederic L. Ballard, Jr.:

Yes sir, no question about it.

Now the second reason that the Commission gave is a very interesting reason.

The singled upon the only real difference between the plans and that is the fact that in the Goodyear plan there are Goodyear stores, independent stores, to serve as supply points, sub-distributors and that under the sales commission plan, those Goodyear stores will be eliminated.

They cannot under the purchase resale plan, use the Goodyear stores to supply our dealers.

Now, we will use other sub-distributors but not them.

Now the Commission says that this at least and they say at least, will do something because at least it will eliminate a preference that those stores have, that’s Goodyear stores.

As the Commission expressed it they have a chunk of business before the competitive race begins and this then when you get down to it, is what this whole order must hang on is did the Goodyear stores get such a chunk of business out of our plan as to make it unfair —

Justice Bernnan:

[Inaudible] all of you retailers are now using those Goodyear distribution points and continue to buy to them rather than from your new [Inaudible] —

Frederic L. Ballard, Jr.:

Yes sir, they can, — under the — that’s perfectly correct, Your Honor and it’s quite possible that many of the dealers who have – that if we went to — if we went to purchase resale that many of the dealers who have established long standing relationships with those stores, will continue to buy —

Justice Bernnan:

What I gather, if you understand this order to require, to return to the purchase resale and to establish your own distribution system with your own distribution centers, is that it?

Frederic L. Ballard, Jr.:

We believe under yes, Your Honor.

It doesn’t require in so many words but the practical effect is to require us and we think it means that we must use our own supply points.

I believe we can arrange for drop shipments from Goodyear owned facilities.

It seems to me that that would – I mean that’s a very normal —

Justice Bernnan:

Can you use one of the present Goodyear distribution point though?

Frederic L. Ballard, Jr.:

Not the independent ones, I believe Your Honor.

We think that this is the very narrow point of which it hangs and —

Arthur J. Goldberg:

You mean the Goodyear storage.

Frederic L. Ballard, Jr.:

Sir?

Arthur J. Goldberg:

You mean the Goodyear storage?

Frederic L. Ballard, Jr.:

Yes sir.

Arthur J. Goldberg:

Do you believe that?

Frederic L. Ballard, Jr.:

We believe we could not use the independent ones but we could use the company ones.

Justice Bernnan:

Those that they operate themselves.

Frederic L. Ballard, Jr.:

Yes sir.

Now just a word, I think I have pointed out that this is a pretty narrow distinction — pretty narrow point on which to rest an order of this very sweeping magnitude, but I wouldn’t point out this.

If this distinction means anything, it ought to be by analogy to some kind of a restraint of trade or an acquisition.

In other words, they’re troubled that the Goodyear stores get this chunk of business.

Now it seems to me, Your Honors, that they — that just to say that they have a chunk of business, they require a chunk of business is not and they are founded on the decisions of this Court.

There’s no measurement of that business, only one.

We know that with that $6 million of TBA pass through this contract in a year.

Now, that’s all.

We don’t know what percentage that is of anything.

We don’t know what percentage it was for the stores.

We don’t know what percentage it was for the dealers.

We don’t know what percentage it was for service stations.

We don’t even know whether it was profitable.

But the Commission says that because they get a chunk of business before it races around, as a result of our sponsoring in our recommendations, this makes that whole plan unfair.

Byron R. White:

Well wouldn’t Goodyear get a chunk of business anyway if you went back to your purchase —

Frederic L. Ballard, Jr.:

Yes sir, Goodyear —

Byron R. White:

I suppose you’d make a requirement’s contract with them sometime or (Voice Overlap) on the year’s basis.

Frederic L. Ballard, Jr.:

Presumably, Your Honor.

Yes and if the Goodyear would get the chunk of business —

Byron R. White:

And that would go out through their own stores.

Frederic L. Ballard, Jr.:

It would go out that they would get —

Byron R. White:

They would —

Frederic L. Ballard, Jr.:

That’s right, yes sir.

Yes sir, we go out through their own stores and their own way.

That’s correct Your Honor.

Potter Stewart:

The difference is you wouldn’t get the Commission.

Frederic L. Ballard, Jr.:

No, we get — we would get — now we would get Your Honor, the profit, the profit.

Now whether and then based on our previous experience, that profit wasn’t enough to allow us to the profit margin but it wasn’t enough to allow us to operate profitably.

Byron R. White:

Well you are talking about purchase and resale —

Frederic L. Ballard, Jr.:

Yes Your Honor (Voice Overlap).

Potter Stewart:

I thought the question was that this sort of maintenance in effect that the — that this Court should affirm the judgment of the Court of Appeals for the Seventh Circuit and your independent dealers would be free to deal with Goodyear.

Frederic L. Ballard, Jr.:

Oh certainly.

They are now.

Potter Stewart:

And as they are now, they then would be and that through Goodyear’s distribution system and then the only difference is that you wouldn’t get the Commission.

Frederic L. Ballard, Jr.:

We wouldn’t get the Commission on their sales.

That’s right, Your Honor.

We would get a Commission on — we would get a profit on the sales that we made through our distribution system.

Potter Stewart:

Yeah.

Frederic L. Ballard, Jr.:

And they would be free, of course, to – and now, I may say this.

I think it’s fair to say that there is a slight differentiation.

I think that these stores who now service supply points have facilities — they put in facilities and trucks relying on our recommendation and what not.

They may not find it so completely profitable.

They’ll be happy as everybody is to pick up our big dealers.

But I suspect that the little dealers will find that these supply points loose interest in them if they don’t have our sponsorship and recommendation.

It’s the little dealer who have the problem.

Justice Bernnan:

Well in any event, that you say it — at the outset Mr. Ballard that this Atlantic can’t afford not to do sponsoring —

Frederic L. Ballard, Jr.:

That’s right.

Justice Bernnan:

Operation with all these entail, they got a training, and —

Frederic L. Ballard, Jr.:

That’s right.

Justice Bernnan:

Keeping them supply (Voice Overlap) well that’s —

Byron R. White:

Well excuse me, is that — is that contested at all by the Commission?

Frederic L. Ballard, Jr.:

I don’t think so, Your Honor.

There’s a very clear case, there is a very clear statement of it in the Seventh Circuit as to the importance of it.

The Seventh Circuit says TBA is an integral part of service station operation.

Dealers must carry it in order to get complete service orders.

Byron R. White:

Well that doesn’t mean that you have to make sure they do it.

Frederic L. Ballard, Jr.:

No sir, it doesn’t say — it says every major oil company offers some kind of TBA program.

Byron R. White:

You might require to do but does it require you to undertake, to choose the brand that they have in.

Frederic L. Ballard, Jr.:

Your Honor, we’ve given a great deal of thought to this and this suggestion is made, of course, in the Solicitor’s brief, Solicitor General’s brief.

We feel that practically it does.

I think you can test it very —

Byron R. White:

Do you think the Commission deals with this at all?

Frederic L. Ballard, Jr.:

I don’t believe they did, Your Honor.

I think this is —

Byron R. White:

But do you think this is — do they just assume that you do have to do this?

Frederic L. Ballard, Jr.:

I believe they did, Your Honor.

Byron R. White:

Do you assume that you’re going to do it one way or another?

Frederic L. Ballard, Jr.:

I think they do, Your Honor.

There is one highly equivocal question.

Byron R. White:

They don’t purport to forbid you from doing at all.

Frederic L. Ballard, Jr.:

No sir, I think they did not.

Justice Bernnan:

Well it’s not a fact I would suppose that exceptions 1, 3, and 4 (Voice Overlap)

Frederic L. Ballard, Jr.:

That’s the way we read it, yes Your Honor.

Byron R. White:

Well they do it — they do accept from legitimacy if you’re pursuing carefully and insidiously the handling of the specific brand, wouldn’t you?

Frederic L. Ballard, Jr.:

Yes they do, Your Honor.

I believe that’s right.

Tom C. Clark:

Mr. Ballard, I didn’t quite read the commission’s report that way.

I have read that the complaint here dealt only with the sales commission system and really they were not ruling upon the validity of the purchase resale method, but rather that was not what was involved in this case and I also found the Commission to support on big report and this — and referred to the third method which is available today and that is the dealing with [Inaudible] —

Frederic L. Ballard, Jr.:

Yes sir.

Tom C. Clark:

Being in wholesale —

Frederic L. Ballard, Jr.:

It was to that paragraph that I was referring when I told Justice White, I found that a highly equivocal paragraph.

I don’t know what it means.

Now on the question on what they meant about purchase resale, whether they put it to one side and not, I think you have — you start with this, Your Honor.

The chances of supporting a complaint, the Commission staff said to the examiner and they said again to the Commission, you should strike down both methods and the Commission reversed the appeal of the staff in part and it reversed it in that part so it was presented to the Commission at the beginning.

They denied the appeal, that’s the word I’m looking for.

Now in the very early stages of the Commission’s opinion, I — I’m speaking now the record as it is before this Court, the Commission took note of this point.

I’m reading on page 64.

And on page 66, they said that the purchase resale plan and the sales commission plan make use of marketing facilities in different ways and with different competitive effects.

Frederic L. Ballard, Jr.:

And then going on to the section that on page 126 that Your Honor is referring to, they said assuming for the moment that Atlantic will return to the purchase resale plan and will felt the antitrust laws by requiring its dealers to handle TBA exclusively or even substantially.

So they’re willing to assume we were going back and they were willing to assume we were going to fight the antitrust laws.

They said still there is a difference and then they wrote an order with the specific exception and Your Honor, I submit that they knew what they were doing and they intended to not to allow us to go back to purchase resale.

I think it would be unthinkable for them not to.

Potter Stewart:

But you tell me, they are not allowing these principles because it begins to their paragraphs five and six, wouldn’t that be right?

Frederic L. Ballard, Jr.:

Quite right, quite right, Your Honor.

That’s right.

We don’t intend to fight the antitrust laws and I —

Potter Stewart:

I don’t intend to let you.

Frederic L. Ballard, Jr.:

Yes sir, I’m sure they don’t.

Now I think, if Your Honors please, unless you have anymore questions, I would like to reserve the rest of my time.

Earl Warren:

Alright.

Mr. Sonnett.

John F. Sonnett:

Mr. Chief Justice, may it please the Court.

On behalf of Goodyear in a few minutes before lunch, may I attempt mainly to refer to several of the questions that were asked and address myself to my principle argument when the Court reconvenes after lunch, we have about five minutes, I think.

The Court will find that in a footnote at page 46 of Atlantic’s brief —

Byron R. White:

Who’s brief?

John F. Sonnett:

Atlantic’s brief, a reference to the fact that smaller tire companies do have sales commission plans with other oil companies and specifically, Mr. Justice White, you will find there a reference to Lee.

It’s the footnote at the bottom of page 46.

With respect to Goodyear’s position —

Byron R. White:

But nevertheless this is one of the underpinnings of the Commission’s opinion, I gather?

John F. Sonnett:

Yes, Mr. Justice White.

May I say in terms of the basic Goodyear position, Goodyear will offer its customers whatever they want.

That is to say if they want to purchase resale plan, we’ll offer it to them.

If they want sales commission plan, we’ll offer it to them.

If they don’t want to either plan, we’ll try and sell tires and batteries, and accessories to them anyway.

The record in this case establishes that when Atlantic approached Goodyear back in 1951, because Atlantic had unhappy experiences with the – with its purchase resale prior there too, Goodyear offered Atlantic both plans.

It offered Atlantic a purchase resale plan.

It offered a sales commission plan.

Atlantic selected the sales commission plan.

John F. Sonnett:

The order of the Commission, the final order, which appears at the Appendix pages 114 to 117 has three paragraphs which relate specifically to Goodyear, the balance of the order relates specifically to Atlantic.

Your Honors will find at the bottom of page 116 at the top —

Justice Bernnan:

Is this the same thing at 370 in your Appendix?

John F. Sonnett:

Yes, Your Honor.

You will find the three paragraphs relating specifically to Goodyear which in substance outlaw the use by Goodyear of any sales commission plan or contract with any oil marketing company of the United States and I believe there are about 156 of them regardless of size, regardless whether that oil company has power to coerce dealers, regard of – regardless of whether it ever has coerced dealers and regardless of any likelihood that it might coerce dealers.

In other words, the Goodyear point of view, Goodyear is now put at a competitive disadvantage which is absolute.

It may not offer a sales commission plan to any oil marketing company in the United States.

The record will show that at the time of the hearing, we had about a dozen of the sales commission plans.

We had them with companies as large as Atlantic and we had them with companies very much smaller, little regional oil marketing companies.

Your Honors, will find an amicus brief here by Champlin which is one of the smaller companies listing a group of small oil companies who need sales commission plans in order to remain competitive.

William O. Douglas:

So that there was a violation, flagrant violation of — assuming there was that was not beyond unusual provision in a brief.

John F. Sonnett:

I intend, Mr. Justice Douglas to concentrate my file after lunch on that particular point.

This is unusual.

It is without precedent, I believe.

I don’t think, Your Honors will find it in any of your prior decisions precedent an order of this type, on this kind of record.

It goes beyond anything I’m familiar with.

In one fell of swoop a sales commission plan used by Goodyear alone so far as the problems before you, this is not an industry wide horizontal agreement case, nothing of that kind, but Goodyear alone is forbidden to make a sales commission agreement with any oil company of any size, anywhere in the United States even if the oil companies are small and selling in eight counties in some place and wants it, even if it has – and one of these has only eight less Lee dealers and then they have 20 contract dealers.

It’s the sort of the provision which I hope to be able to persuade, Your Honors, after lunch is completely without precedent and completely without reason, and not only as without reason but the Commission has failed to articulate any reason.

They have a rational reason why that drastic remedy is the appropriate and necessary remedy to deal with whatever problems they had.

In respect to Goodyear’s position therefore concerning the order, the Goodyear urges that, Your Honors, vacate paragraphs one, two, and three of the final order which relate to Goodyear and also hat Your Honors, vacate paragraphs one, two, three, and four of the Atlantic paragraph because Goodyear is indirectly prevented by those paragraphs from having a sales commission plan with Atlantic since Atlantic is prevented from having it with Goodyear.

So that we have an interest, Goodyear has an interest in one, two, three, and four of the Atlantic portion of the order and in one, two, and three of the Goodyear portion of the order.

Goodyear, of course, raises no question here with respect to the paragraphs five and six of the Atlantic order which enjoined any attempted coercion or coercive type pressure by Atlantic.

Atlantic itself does not see fit to attack those provisions of the order and we’re confident, they will eliminate any coercive practices by Atlantic if any fact is occurring something about which Goodyear had no knowledge in any event.

Earl Warren:

Mr. Sonnett, you may continue your argument.

John F. Sonnett:

Mr. Chief Justice, I will, may it please the Court, advance four points on behalf of Goodyear.

My first point briefly stated is that Goodyear is not a transgressor on this record and that it was so found.

My second point is that there was no inherent illegality in the sales commission plan itself.

My third point is that the government’s position as to the substantive test of illegality involved in this context is I believe is close to a confession of error as it could be without expressly purporting to be so and then applying what I believe the government’s substantive test of legality to be, there is no reason to sustain any provision of the order except the two provisions not in dispute.

My fourth point has to do with remedy and basically is that in any event, a remand would be required because the Commission failed to consider alternative and less drastic remedies and failed to articulate a rational basis for the remedy which was in fact imposed.

As to the first point, may I invite Your Honors’ attention to the conclusions of the examiner which are at page 110 of the record.

John F. Sonnett:

The first three conclusions are of such vital importance that I would like to read them to the Court, 110 of volume one of the joint Appendix.

Potter Stewart:

[Inaudible]

John F. Sonnett:

I don’t have the cross reference, Mr. Justice Stewart.

I will try to get it got you.

In any event they have the first three conclusions at the end of the initial decision of the examiner which read as follows.

The complaint does not charge —

[Inaudible]

John F. Sonnett:

110 of volume one of volume one of joint appendix.

Hugo L. Black:

The basic thing of the record — of this Appendix.

John F. Sonnett:

That I take it as the Appendix to the petition for certiorari, Mr. Justice Black.

Yes, Your Honor, A 16.

The complaint does not charge nor does the evidence introduced in this proceeding prove the existence of the conspiracy between Goodyear and Atlantic to restrict and restrain competition in the sale and distribution of TBA products.

Second, there is no evidence that the Goodyear Tire & Rubber Company or the Goodyear Tire & Rubber Company, Inc. engaged in or participated in any acts or any of the acts or practices designed to force dealers and distributors of the Atlantic Refining Company to purchase Goodyear TBA products.

Neither the sales commission contract between Atlantic and Goodyear, nor the contracts between Atlantic and its dealers and distributors, contain any clause or provision requiring such dealers or distributors to purchase only Goodyear TBA.

Those conclusions of the examiner led to the examiner’s dismissal of Goodyear in the proceedings below.

And he found no reason to impose any relief or whatsoever as to Goodyear as a result of the record below.

The Commission approved the findings and conclusions of the examiner.

Hugo L. Black:

Proved what?

John F. Sonnett:

The Commission approved —

Hugo L. Black:

These particular ones?

John F. Sonnett:

All of them, Mr. Justice Black.

In so many words, you will find — I must refer again to the – the joint appendix volume 1 but you will find the — that the Commission in its decision stated in so many words — and I read from page 187, substantial evidence is present in the record of this case to support every finding of facts and conclusion of law by the hearing examiner.

So that I think it’s a fact statement of the Commission approved the conclusions and findings with respect to Goodyear.

There is nothing in the decision of the Court of Appeals indicating any disapproval by that court of the findings I have just read and conclusions.

So that the matter comes to this Court I submit on the basis of an undisputed record with clear findings that Goodyear was not a transgressor and Goodyear did not participate in any coercive act.

The findings of coercion, Your Honors, will note which weren’t made by the examiner relate only and specifically to action by Atlantic.

So that the only nexus between Goodyear and any alleged unlawful trade practice that consists of the sales commission contract and arrangement.

That leads me, may it please the Court to my second point, that there is no inherent illegality in the sales commission plan.

And that commission counsel indeed has heretofore characterized the plan as itself wholly innocuous.

You will find in the proceedings before the commission, and I’m reading from page 227 of this appendix, statements such as this by counsel supporting the complaint.

John F. Sonnett:

These contracts are very innocuous in their meaning.

These contracts are very innocuous.

Again at 228 as I stated the contract is very innocuous.

The contract itself which Your Honors will find at 23 and 98 is a contract which does not require in any sense of the word the performance of any action by Atlantic except sales, promotion and assistance.

It does not require any coercive or tying action by Atlantic or whatsoever.

As a matter of fact, the record which is uncontradicted is clearly to the contrary.

Because of its importance in understanding what the contract in fact was, I should like to read very briefly from a critical provision which is found at 2406 of this record.

This is a letter agreement which was entered into between the parties, at a time when after testing the sales commission plan in certain areas, it was decided to extend the area and this is their operative document in that connection.

Your Honors will find that 2406 of the record, the statement in this letter as follows.

At the same time Atlantic, through its field representatives, will begin assisting Goodyear in the extended territory in the sale of the products and services outlined in said letter.

With the understanding that as has been the practice in the test area, our resale outlets shall be free to choose whether and to what extent they shall avail themselves of the opportunity to purchase Goodyear products and services, and that any resale outlet which chooses to carry products other than Goodyear shall not be prejudiced in any manner.

Of course we both understand that our organization cannot, this is an Atlantic letter, our organization cannot and will not use any methods other than salesmanship to encourage our resale outlets, to purchase your products and services, but that was the state of the record.

That was the understanding and agreement of the party.

There is no evidence.

There is no finding that there was any side understanding for all agreement or anything of a kind which would have imposed a requirement on Atlantic to coerce or to tie.

The government’s position of illegality I submit to Your Honors as set forth in the government briefs at page 83 purports to relate to remedy.

Briefly that test of illegality, I believe, is it doesn’t relate to remedy at all and I don’t think they seriously say that it does.

What they say is, that a sales commission plan becomes illegal.

When the plan is between a major rubber company and a major oil company, whatever that means.

And that the particular oil company has the power to coerce its dealers and has exercised the power, and has demonstrated a proclivity to exercise the power to coerce.

That’s the net of their position as to why this plan they say substantively is a violation of Section 5, an unfair trade practice or an unfair method of competition.

However, if that test be accepted and I’m willing to assume it for present purposes as a correct test of legality, the fact is that is if it were ever true of Atlantic, it’s no longer true because of the injunctive provisions Atlantic can never again exercise the power to coerce.

There was no finding.

There was no basis for a conclusion in this record as to whether or not it’s true of any of the other 150 added oil companies in the United States.

And surely it cannot be assumed in advance without a hearing that the oil companies are going to be so short sighted that they will reconcerntrate, that they are going to coerce their dealers into taking sponsored TBA.

There’s no more reason to deny their good faith and advance than there is to deny a good faith of the manufacture of automobiles.

And they have a right in dealing with their dealers under the statute to rely on their good faith.

Byron R. White:

[Inaudible]

John F. Sonnett:

It is not.

Mr. Justice White, there’s a curious change in position by the government here.

John F. Sonnett:

You’ll find —

Byron R. White:

[Inaudible]

John F. Sonnett:

Yes.

I think that fairly read, Your Honors, we’ll find that the government’s position before this Court is radically different from the position heretofore taken and I’m willing to take them on their own test and I say on that test, there is every reason to vacate this order except for the two paragraphs not in dispute.

The last point which I would like to mention briefly is that, it is clear from the Commission’s opinion that the Commission did not consider any less drastic alternative or indeed, consider any alternatives.

I think the Commission under the decisions of this Court was under that duty.

I think the Commission was under the duty to articulate a rational basis for the remedy which they chose — the remedy which they chose, may it please the Court, is to burn down the house to roast the pig or since we’ve been hearing so much about babies to throw the baby out with the bath water.

They were under a duty to consider and articulate other remedies.

We have set forth in our brief, five or six other possible alternatives, any one of which or all of which would have solve this problem.

So that if – even if Your Honors would agree as to substantive illegality, I submit to remand is necessary on remedy in any event.

I should like, Mr. Chief Justice, to save the remaining few minutes for replying.

Earl Warren:

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice, and may it please the Court.

I like to state at the outset the basic theory on which the Commission concluded in this case that Atlantic’s sales commission plans constituted and unfair method competition in violation of Section 5.

I don’t think that’s been brought out very clearly by counsel.

They rest it basically on what I would call free ultimate findings which the Commissions make.

The first one was that the Atlantic Refining Oil Company has sufficient economic power over its retail and wholesale distributors to coerce them to purchase a substantial amount of the so-called sponsored TBA.

That’s the TBA produced by Goodyear and Firestone with whom they had these plans to cause them to purchase a substantial amount of sponsored TBA even without the use of the coercive tactics.

Now there has been a great deal to talk about coercion.

The Commission said that coercion was merely symptomatic of the basic vice of these plans.

The first finding is that the economic power that Atlantic had over its dealers was sufficient to cause them to you to purchase the substantial amount of sponsored TBA.

The second basic finding was that Atlantic in this case in fact had used that power to accomplish that objective.

And the third and critical finding is that the result of the exercise of this power pursuant to the sales commission plan, resulted in a restraint upon competition at three different levels of the TBA business at the retail level that is the local gasoline distributor, at the wholesale level, and at the manufacturing level.

Now the thrust of my argument before the Court this afternoon will be first, I’m going to persuade the Court, I hope to persuade the Court that these three ultimate findings are as the Court of Appeals expressly found supported by substantial evidence in this record.

And then I shall show that on the basis of these ultimate findings, the Commission correctly concluded that these sales commission plans do violate Section 5.

And it —

[Inaudible]

Daniel M. Friedman:

The Mr. Justice Harlan, let me explain precisely what the Commission’s position is on purchase resale.

We do not believe that the Commission has expressly passed upon the legality of purchase resale.

The Commission has a provision in its order which in terms does not make the order applicable to purchase resale and therefore – and the order as it now stands they are permitted to do that.

Daniel M. Friedman:

That provision was put into the order because in the appeal from the examiner’s decision, Commission staff counsel asked for a broad order that would prohibit purchase resale as well as the sales commission plan.

The Commission declined to do that and we think properly because the validity of the purchase resale plan has never been litigated in this case.

It was not charged in the complaint and the Commission has not — has never passed upon the validity of that plan.

So that as we — as we view the case, what we now have is an order prohibiting the sales commission plan.

The order does not in terms condemn purchase resale because that was not at issue.

This is a matter that is open before the Commission.

Now we don’t know what type of plan these people might choose to adopt if this Court sustains this order.

They may go back to purchase-resale as they had it.

They made up some modified plan.

They may, as I shall come to in a minute, eliminate many of the features under the purchase-resale plan which the Commission found bad.

They may decide on something else entirely.

The record contains abundant evidence in this case that there are many wholesale distributors of TBA throughout entire — Atlantic’s entire area who were literally pounding on the door of these gasoline stations and I will show later that one of the complaints was that they couldn’t get into the door.

That this market was all tied up.

So we just don’t’ know what’s going to happen and let me add one other factor which I think is very important here.

If this Court affirms and Atlantic then wishes to try to go back to a purchase-resale program, the way that’s open under the Commission’s rules of practice for Atlantic to seek an advisory opinion from the Commission as to the validity under the statute of their any new proposal they make.

This Commission just about two years ago adopted a rule of practice in which it said that when someone proposes a new method, a new change in their business, now they were not given advisory opinion as to the validity of an existing method of business, but if someone proposes a new method of doing business, they can submit a detailed request to the Commission for an advisory opinion on that.

Tom C. Clark:

Mr. Friedman, why would they have to do that?

There’s an order that authorizes them to do it?

Daniel M. Friedman:

Well this — not, Mr. Justice, this order in terms permits them to do it but if they want to find out whether if they go back to this program, there is any danger that the Commission subsequently might challenge a purchase-resale program and this gives them an opportunity to get an advisory opinion in advance of going back to the program.

Tom C. Clark:

You say the Commission could merely challenge they’re going back in face of the Commission order saying that it’s okay for them to do it?

Daniel M. Friedman:

Well I think, Mr. Justice, all the Commission order has done in this case is saying, We’re not condemning it.

They haven’t purported to pass upon the validity of the purchase-resale.

Tom C. Clark:

But in – but in terms of the ordering part of the order, the enjoining them from entering into a contract, et cetera, et cetera, other than the Atlantic Refining Company.

Wouldn’t that — wouldn’t that imply to that exception here and that if they bought it themselves and sold it, and that they’d be authorize to do it?

Daniel M. Friedman:

Well under the terms of this order but this doesn’t bar the comi — would not bar the Commission some future date and if it sees fit to bring another proceeding against this new method of distribution.

I mean, this is a —

Tom C. Clark:

But it’s not a new method of distribution.

It’s a well known method of distribution in the industry.

The record shows that it had previously been engaged in by this particular petitioner and the Commission in effect is saying well they strike down this method and isn’t the inference of them will go —

Daniel M. Friedman:

Well —

Tom C. Clark:

It’s alright to go ahead with the other method?

Daniel M. Friedman:

Well we strike down if I may change a little – we strike down this method.

We now permit you to go ahead with the other method but the Commission has not made any determination as to the legality of the other method.

If I may suggest, Mr. Justice, if the Commission would have to bring a proceeding against another oil company which is not a party to this and challenge their use of a purchase-resale method, I don’t believe that the other oil party could say that Commission has already decided that.

Tom C. Clark:

I’m not talking about another party.

I’m talking about the Atlantic.

Atlantic was before the Commission.

In fact the Commission counsel asked for a broader order.

That was rejected by the Commission.

Is there any determination by the Commission that the — it’s alright for them to go ahead?

Daniel M. Friedman:

I think that — I think, Mr. Justice, I can always say it’s only a determination by the Commission that on this record — on this record they’re not going to condemn that order.

It might turn on precisely what they propose to do under the old plan, that the Constitution might be different.

Tom C. Clark:

The theory of the government’s theory is this that it is inherent per se a violation putting coercion and restraint a side, it is a per se of violation under the statute for a company on this side to enter into a — the contract of this kind, the Commission contract.

Isn’t it the same logic that is applicable to a purchase-resale contract?

Daniel M. Friedman:

Well, Mr. Justice, I think it’s a little more than that.

It’s a violation of the statute for this company, these two companies, to enter into this kind of a contract which had these particular facts.

The Commission’s opinion goes under a great detail as to the coercive impact of Atlantic’s practices why the dealers were coerced, how they were coerced, and I mean when I say coerced, I’m using it in the sense of not explicit coercion, the basic power that Atlantic has in the background over these dealers.

And on this basis, I’m also taking into account what the impact of this program was on competition, the Commission concluded that it was illegal.

Now depending on how they were to organize a sa — a purchase-resale program, it might or might not have the same effect.

I would concede that if we had a sales commission pla — if we had purchase-resale plan that was identical in every way, there’s only one respect as to which that might have a different effect and that is the impact on the competing manufacturers of TBA.

But in terms of the pressure, in terms of the pressure, it would obviously the pressure would be the same whether Atlantic is selling its own stuff or whether it’s pushing Goodyear and Firestone stuff.

We just don’t know how they’re going to do this.

It maybe that a purchase-resale plan, that they would come up with would have a very lesser in our competitor.

But if I may, I’d like to get into show actually what they did in this case and then to suggest why there may well be situations where eliminating some of the things they did in this case would not have the same adverse effect on competition as the time the Commission condemned.

Now the Court of Appeals in this case, we think correctly stated that the heart of the case is Atlantic’s economic power over its dealers.

And they went on and said the keystone of the relationship between Atlantic and its dealers are these short-term leases on which to which – under which they lease the stations and the short-term requirements contract.

This – this gasoline dealers are small business in the real sense of the word.

Many of them start business with only a thousand dollars.

We see in this record a man invested $3000 or $4000.

They sometimes don’t even have enough money to pay for filling up the gasoline tanks when they start business let alone to buy the tires, the batteries, and all the equipment.

Daniel M. Friedman:

So Atlantic loans the money frequently with which to open up their station.

The relationship between Atlantic and its individual dealers is obviously not one of equal bargaining power.

You have a tremendous company on the one hand.

You have a very small businessman who would presumably investing his small life savings to become an independent businessman and go into business for himself.

The majority of these leases the Commission found run for only one year and while they’re automatically renewable, it’s in the sole discretion of Atlantic whether to continue them in or whether to cancel it.

Now the lease which the dealers give it as a form or credit from which he is told to sign at the bottom, and sign somewhere else, again, a clear indication of the gross disparity in bargaining power.

And only last term in the Union Oil case, this Court recognized the tremendous power that an oil company has in getting its dealers to follow its wishes when the dealers are so dependent upon it because of the short-term leases.

And the Court of Appeals we think recognized the realities of the situation when it said that in view of this relationship, recommendation by Atlantic is tantamount to command.

They don’t have to coerce it.

They don’t have to threaten you that, If you don’t buy TBA, we’re going to cancel your lease although when it was necessary —

Potter Stewart:

I thought that by the contract that they buy TBA and has it simply [Inaudible] TBA.

It’s talking about this sponsored TBA —

Daniel M. Friedman:

Sponsored TBA, I’m sorry.

Potter Stewart:

There is no question about their duty there —

Daniel M. Friedman:

No, no —

Potter Stewart:

Buy these tire, batteries, and et cetera —

Daniel M. Friedman:

Everyone recognizes I think that a gasoline station does have to have TBA.

Potter Stewart:

That’s what I thought.

Daniel M. Friedman:

Yes.

I’m sorry, Mr. Justice.

I should have said sponsored TBA and in this situation, the sophisticated techniques that this company uses is just as effective to force the dealers into buying this stuff.

Byron R. White:

[Inaudible]

Daniel M. Friedman:

Well, if it may – it maybe —

Byron R. White:

[Inaudible]

Daniel M. Friedman:

It might – it might be, Mr. Justice that you would have enough in that situation but in this – on this record, we are far more than that.

This record we are far more than —

Potter Stewart:

But that’s enough, you don’t need more than that?

Byron R. White:

[Inaudible]

Daniel M. Friedman:

That’s right.

Byron R. White:

[Inaudible]

Daniel M. Friedman:

Well the use consists about – it take me about two minutes —

Byron R. White:

[Inaudible]

Daniel M. Friedman:

Yes, the use — Mr. Justice, is everything that Atlantic did which I will come to in just a minute in order to carry out its obligation with Goodyear to push the sales of sponsored TBA.

Byron R. White:

[Inaudible]

Daniel M. Friedman:

Yes, I proposed it.

That’s our case.

That’s our case which in these four volumes is our case, I think, Mr. Justice.

Byron R. White:

[Inaudible]

Daniel M. Friedman:

Non-coercive using the third point is the effect that non-coercive use had on competition.

Justice Bernnan:

Are you going to distinguish non coercive use in the ordinary [Inaudible]

Daniel M. Friedman:

No, we don’t distinguish that the – we think the overt act of coercion asymptomatic with the basic power.

In other words —

Justice Bernnan:

You are talking about non-coercive.

Daniel M. Friedman:

Well instead of using non-coercion, I use pressure.

I use pressure as distinguished in coercion.

Justice Bernnan:

Is that coercion?

Daniel M. Friedman:

Pardon?

Justice Bernnan:

Pressure is not coercion.

Daniel M. Friedman:

Well pressure is something less than explicit coercion.

When I speak of explicit coercion, I mean where they come in to the man and say, If you don’t get these tires out of here, you’re going to loose your lease, that’s what I call explicit coercion.

The end result I think is the same on the man whether they do that or whether they lead him to feel that if he has competing products, he’s likely to be in trouble.

Byron R. White:

Does the power alone is in the —

Daniel M. Friedman:

Well the power alone —

Byron R. White:

The power apparently, you’re just think are non-coercive.

Daniel M. Friedman:

Well the power maybe coercive but in this case, in this case we have the power and its use.

I don’t – I don’t think I have to take on the more difficult case that we didn’t have the actual use of the power.

Justice Bernnan:

Do you have power in use meaning pressure not power in use meaning pressure.

Daniel M. Friedman:

Power in use meaning pressure with some coercion, with some coercion.

And —

[Inaudible]

Daniel M. Friedman:

No we don’t, Mr. Justice but I’ll tell you the figures we do have.

We do have two sets of figures.

We have figures showing that in the last year under which Goodyear — I’m sorry, under which Atlantic view as purchase-resale plan the total amount of TBA that Atlantic sold to its dealers.

Then we have figures and that was roughly about six million two, then we have figures showing that in the first year of the plan, the two companies combined, sold about eight million two.

That’s at page 76 —

[Inaudible]

Daniel M. Friedman:

That was the spo —

[Inaudible]

Daniel M. Friedman:

No, Mr. Justice, but we do know this.

We do know there was a dramatic shift, dramatic shift from the purchases of the Lee tires and the Exide batteries over to the Goodyear at the time —

[Inaudible]

Daniel M. Friedman:

Well I – I —

[Inaudible]

Daniel M. Friedman:

I suppose conceivably – I don’t know a – I don’t know anything about their relations with their dealers.

All that I can say to that, Mr. Justice, is that beyond this record, that there was one marked shift to a very substantial sales amounting to about $50 million over the first six years of this program by Firestone and Goodyear to Atlantic.

And three, the evidence of a larger number of competing wholesalers that they were unable to sell.

It seems to me it’s a reasonable inference here that there was very substantial segment of the market tied up here, that there was — the [Inaudible] said that they had fenced off a very large part of their market.

Byron R. White:

But how do you know how much of that would do the non-coercion that you would notice, that there was a coercion here.

Daniel M. Friedman:

Well we don’t know how much if we do the non-coercion but it seems to me it’s a —

Byron R. White:

Well then how you could [Inaudible] how could you order – what basis do you have for borrowing the use of non-coercive — non-coercive power?

Daniel M. Friedman:

Well I think, Mr. Justice that it’s the basic vice of the plan itself.

The plan, under the plan Atlantic agrees for this fee to sponsor TBA and it spells out in considerable detail just what they are supposed to do by way of sponsoring.

It says well a man will call the other and let me just explain what they did under this plan.

How this this thing works?

We start with the fact that as soon as the plan was adopted, Atlantic immediately announced to its dealers that the plan was going forward.

They had Atlantic and Goodyear representatives jointly called on the Atlantic dealers to urge them to buy the plan.

They went around and took down the Lee and the Exide signs and put up Goodyear signs, put up Firestone signs, even though the dealers didn’t ask for them and in some instances the dealers objected to them.

The record shows, if – let me come back to that, let me go on with it.

Then after the plan was in effect, they conducted a tremendous pressure campaign on these dealers.

It starts with a new dealer.

Daniel M. Friedman:

When a man – when a man has been selected as a possible new dealer, he’s subjected to three interviews before they select by the salesman, by the supervisor, and by the district manager.

In each instance, they emphasize to him that Atlantic has a TBA program and that Atlantic wants him to carry it out.

Then he goes to the school.

They run a school.

They give him five weeks instruction course on how to run the service station.

At the school, again, there are demonstrations of TBA.

It’s always the sponsored TBA.

They give the company, the tire company’s advance notice when a new dealer is about to open his service station, they give him advance notice so that these companies can come in and get the initial order which is a large order to stock at the station.

They take them around and introduce them to the dealer.

The dealer has bought in, it is just assumed as one of the witnesses testified at the school that when you open your station, you’re going to buy this from the stocking point, from the Goodyear or Firestone supply point.

And then the salesman from Atlantic continues to come around with the salesman from the tire company, the salesman from Atlantic take the orders and the record shows that when the Atlantic salesman sees other products in there, they constantly criticize them.

They’re saying, What are you doing with this thing here and the whole thing just feels a tremendous pressure on the dealer that he in effect is no longer has the basic freedom of choice.

He feels under this pressure considering that Atlantic is behind him with this tremendous economic power that keep punching home to him, take this, take this, take this and he really feels that he doesn’t have freedom of choice.

Byron R. White:

He’s coerced.

Daniel M. Friedman:

He is coerced.

He is coerced in fact, in fact, he is coerced.

I guess like if I may to read to the Court so they can get a little of the flavor of this case.

Some of the statements that were made to wholesalers who tried to come in and sell competing products to Atlantic dealers.

Now these are all references to the Atlantic record which is number 292, there are two records in the case.

They are largely duplicated but I attached in here the Atlantic record.

The first instance it’s set fort in page 237 of the record, a wholesaler in Pennsylvania came to a dealer and wanted to sell him a Polish called Wiz which was not one of the sponsored products and the dealer said to him when he asked him about this coat, Sorry Glen, but I have to reserve this for Ed Paris.

Ed Paris parenthetically was the supply point to which the Goodyear particular dealer – I’m sorry, the Atlantic dealer was assigned, the Goodyear supply point.

And the importance of that is that under the plan, under the plan, Atlantic only receives the commission on Goodyear products sold through a Goodyear supply point.

That is if the dealer buys Goodyear tires but not from the supplied point to which he is assigned, Atlantic doesn’t get a commission.

It’s not just that you have to buy Goodyear but have to buy this for the Goodyear supply point.

And he said, I have to reserve this for Ed Paris.

You understand the situation.

I’m in an Atlantic station.

I must buy from an Atlantic TBA distributor.

Then here’s another example at page 556.

Daniel M. Friedman:

Another wholesaler asked the dealer, I asked him if he would buy some Exide batteries and you says, he’s not allowed to buy them.

I offered him a Polish and if it is in order, I will say the Polish was $4 below the price of Atlantic’s price for this and he said I wish I could buy these deals but I’m not allowed to.

But what’s the basis for that kind of evidence if the Commission found that there is coercion?

Daniel M. Friedman:

No, Mr. Justice.

This is in addition to the coercion.

The coercion evidence is the evidence of individual dealers.

The testimony is the dealers who were called, who testified they were threatened for the cancellation of a lease when they refused to buy.

Potter Stewart:

[Inaudible] dealers’ alleged statements to sellers and other —

Daniel M. Friedman:

Of other of competing lines, that’s right.

They’re in addition to this material.

I’m not going to bother the Court with it.

The examiner in his decision set forth 13 specific instances of the dealers who testified as to the pressure put upon them.

Potter Stewart:

That a pressure put upon you.

Daniel M. Friedman:

Coercive pressure — coercive pressure.

Perhaps, that’s of lease cancellation.

These are however are instances in which various dealers who refuse to purchase from wholesalers explain to wholesalers that they felt that they were not —

Potter Stewart:

That they were under coercion.

Daniel M. Friedman:

They were under coercion (Voice Overlap)

Arthur J. Goldberg:

If I say to the new distributor delivered papers every morning.

I’m sorry but if I buy my papers from Mr. Jones I intend to stay there.

Does that indicate that [Inaudible] this type of coercion?

Daniel M. Friedman:

No but — but —

Arthur J. Goldberg:

Some of the statements sound like that and it sounds very —

Daniel M. Friedman:

Well he said —

Arthur J. Goldberg:

It sounds like — it sounds like the fellow is – doesn’t want to be bothered.

He says, I’m tied up with so and so.

Daniel M. Friedman:

Mr. Justice, may I again refer in the last statement.

He said he’s not allowed to do.

He’s not allowed to do it.

Arthur J. Goldberg:

Well I’ve made some statements like that on occasion [Inaudible]but again so, occasionally yes.

Arthur J. Goldberg:

There’s —

Yes but how do you relate it to this, Mr. Friedman, assuming that this is all true about Atlantic and assuming under the conventional, the antitrust rules that you authorize to give appropriate relief which might go beyond, which it will do a coercion is not present, why should the Commission threw out Goodyear’s contract with the Chaplin which tells us about the contrary.

Daniel M. Friedman:

Well let me explain — come to that.

The record at the time it was before the Commission showed that Goodyear had contract with either [Inaudible] other oil companies.

The Commission found that the sales commission plan is a violation of Section 5.

The Commission had before it in this record evidence dealing with coercive or pressured tactics by three of the eight or ninth companies.

The Commission also found that the sales commission plan, the contracts, that Goodyear had with these other companies where in order to all respect identical with this – most of them with the same kind of letters.

They obligate the oil companies to do the same kind of thing.

And that the Commission I think reasonably concluded on the basis of the evidence of coercion but it adds the three of the none — that it was not unreasonable to assume that these other plans were likely to have the same effect.

The evidence by the way – the evidence is quite the same kind of evidence that we have dealing with Atlantic’s dealers.

I would like us to refer to a very dramatic example which is given in the record.

Now this is – this is not printed in the Atlantic record, this is in the Goodyear record but it’s also referred to in the Commission’s opinion involving a dealer named McMaster and I want to go beyond the Commission’s opinion because it’s amplified a little more, it’s at pages 11-12 to 11-13 of the Goodyear record.

McMaster was a dealer of Sinclair, a Lesse dealer, who had a Sinclair, of course, had an agreement with Goodyear and one day, Mr. McMaster who had been purchasing a rival brand of batteries called Bauers was summoned down to the Goodyear office.

And as the conversation went, they called him into the office and there were three men sitting there and one said, Mr. McCall, he said, We will make this brief Mac.

You are not buying batteries from us and McMaster said, No, he was not buying batteries that he couldn’t.

He had, during the war and just after the war, batteries were in short supply, had been able to get them from Bauers and that, that they have promised the Bauers company in return have given them their business, and went on.

And the require was, and the almost exact words were We don’t give a god damn who you think you are.

You are going to buy our batteries or else.

And by our batteries, we’re referring to Goodyear and then the question.

Thereafter, did you continue to buy Bauers batteries?

No, not for very long because I knew what the or else meant.

Question.

What did it mean to you?

Answer.

The man cancellation of my lease the next time it came up for a new one?

So that what we have in this record as far as Goodyear is concerned is the instances of three companies with whom they were doing – who were doing the same kind of pressures.

And we also have indications in the record at least two of the companies had short-term leases and we have evidence in the record showing that most of the oil companies do employ a short term lease and this is the basis on which we think that Commission was justified in entering the Court order against Goodyear.

[Inaudible]

Daniel M. Friedman:

They’re not contested.

That’s correct, Mr. Justice.

[Inaudible]

Daniel M. Friedman:

Well I think, Mr. Justice, that those facts, all those basic underlying facts are of importance in analyzing the theory on which the Commission decided the case.

Now it’s these facts which it seems to us, put some meat on the bones of this case.

This case is not an abstraction in question of coercive power.

This is a case in which the record, we think, dramatically illustrates not only the power but its use that pursuant to this agreement — this is – this is we think basically what Goodyear bought.

This is what Goodyear paid 10% for.

They’ve agreed to give them 10% of what Goodyear sell to Atlantic and return for Atlantic bringing its power to them.

[Inaudible]

Daniel M. Friedman:

If this is what they did.

If this is what they did, Mr. Justice, I very much doubt without the Commission whether they would have done it.

If it is without the – if they did the same thing, I think we have the same case.

If there was a contract, then they’re just going to try to do it.

This is the one other factor I think that’s very important to mention here in connection with this plan that I want to just refer to which is this.

In terms of how effective Atlantic was in getting its dealers to go along with this plan.

In 1948 and 1949, when Atlantic was still using the purchase-resale plan, made a survey of seven — of service station dealers of seven different companies to find out what their tie-up preferences were.

Now under this survey, 67% of the Atlantic dealers announced that they preferred the Lee tires and 79% preferred Exide batteries.

These were the two products which they were then handling under the purchase-resale plan.

Only 11% preferred Goodyear and only 4% preferred Firestone.

That was in 1947 and 1948.

In 1951, when the plan went into effect, by the end of the year, Lee and Exide, the two companies which previously had been connected with the purchase-resale plan had lost 75% of their business which they previously had with the Atlantic dealers as a result of this.

Byron R. White:

Mr. Friedman, I had still a little trouble what — understanding whether you’re arguing that that some of these remedy is justified because of the coercive practices in this case or whether you’re really saying that you would have the same result here before the Commission absent any of the coercive tactics is essentially is big question.

Some of these instances you just refer to, assuming all those instances were out of the case, now what you would call coercion.

I would think you would — that the Commission would have reached the same case from the government – same result on the government’s theory.

Daniel M. Friedman:

I don’t know — I don’t know — I don’t know, Mr. Justice whether it would or wouldn’t have.

Of course, what we have in the case is the coercive thing.

In other words, if we didn’t have any instances of coercion, all we had — well, if all they did was to enter into a contract and then Goodyear wrote letters to its dealers saying we have find —

Byron R. White:

They used their best efforts to convince their dealers and that they didn’t have any of these things that paragraphs five and six were addressed to.

Daniel M. Friedman:

Well for five – five —

Byron R. White:

What about that?

Daniel M. Friedman:

–five and six, Mr. Justice, five and six as we understand it, are not addressed to such things as having the Atlantic salesman take the orders as having the Atlantic salesman to – if it wouldn’t just find – well if it were just that, of course, if it were just that, the reason I’m frankly reluctant to say that it would just that alone as I’m not sure whether if that’s all you had we’ve been entitled to the broader order.

Byron R. White:

Well — well and why — what — what is wrong with the just forgetting coercion and then just having an order that – that enjoins of these coercive facts?

Daniel M. Friedman:

That —

Byron R. White:

Because they have engaged in them, because that’s just a matter of remedy?

Daniel M. Friedman:

No, no, Mr. Justice, the order that would merely prohibit the coercive practices, it seems to us would be inadequate because the —

Byron R. White:

An inadequate remedy.

Daniel M. Friedman:

An inadequate remedy.

Byron R. White:

For what has occurred?

Daniel M. Friedman:

For the — for the vice, that’s right.

That would not clean the thing up.

That would —

Byron R. White:

So that’s – so that’s your theory now is that — I mean if that is the — that’s the government’s position, without this coercion in the record, no case.

Daniel M. Friedman:

Well I — just don’t know with, Mr. Justice, whether without any evidence of coercion as I use it pressure in that sense, I would think it would be very doubtful whether we — the Commission would have brought this case.

But again, I don’t know —

Byron R. White:

Well but don’t you think that — if that’s your — if that’s your case, don’t you think it really is a lot different than the theory that you can’t get out of the Commission’s opinion?

Daniel M. Friedman:

Well I think Mr. Justice, I think Mr. Justice, the Commission’s opinion does – does reflect this theory.

I’d like to, if I may, come back to refer to very specific findings of the Commission here.

The first finding is at page – and this again to the Atlantic record.

I’m sorry, I don’t have it paginated.

Byron R. White:

On what page?

Daniel M. Friedman:

Page 64 B.

Byron R. White:

You don’t know on this — you don’t know on this?

Daniel M. Friedman:

No, but I think I could find that, Mr. Justice.

Page 64 of the Atlantic record is page B4 of this – B4 of this.

And about the first full paragraph of B4 around the third sentence, beginning define that Atlantic has in fact coerced at certain, we further find that Atlantic has sufficient economic power over wholesale and retail distributors to coerce in the purchase substantial amounts of sponsored TBA even without the use of overt coercive tactics.

That’s the power point and the same basic power pointing which repeated at 124 which I’m afraid I’m not able to paginate to this.

Maybe I can get that?

Then the Commission go – I’m sorry, I can’t find that in this page.

At page 122, it makes the finding that Atlantic has used the power as a major wholesale —

Justice Bernnan:

May I get back to [Inaudible]

Daniel M. Friedman:

Yes sir.

Justice Bernnan:

Are you suggesting that the first sentence that we find in the appellants has a —

Daniel M. Friedman:

Yes.

Justice Bernnan:

Then we further find, are you suggesting me through alternative basis, alternative findings?

Daniel M. Friedman:

Well there — there double find – the two findings as the first finding that they are actually coerced.

First of the finding, they actually coerced deal by threats to at least cancel it and then they find that without that actual coercion they nevertheless had specific power —

Justice Bernnan:

Well that’s what I’m trying to get it.

In other words, the conclusion for reasons set forth here in our brief, it means for either of those things.

Is that it?

We conclude that the Exide has found [Inaudible]

Daniel M. Friedman:

Well I think again of the Commission, the Commission said that it would go out of the coercion as merely symptomatic of the basic vice of the plan.

Byron R. White:

Yeah but they certainly go on here and they have the power even without the whole coercive acts —

Daniel M. Friedman:

Yes.

Justice Bernnan:

And that if they have the power, all they have to do with the power is to sign the Commission plan.

Daniel M. Friedman:

Well they say the acts of —

Byron R. White:

That’s all they have to do.

Daniel M. Friedman:

They said they exercise the power.

Byron R. White:

Yeah by signing the Commission plan.

Daniel M. Friedman:

Through the use of the sales commission plan.

Byron R. White:

That’s what I say —

Daniel M. Friedman:

Yes.

Byron R. White:

Through the use of the sales commission plan, all they have to do is sign it up with Goodyear and there’s the violation.

Daniel M. Friedman:

Well no, I think they have to do more than sign.

If they have to do sign up, and then they have to use the power.

No, they merely signed it up and didn’t do anything, but I think that the plan – I think that the – the contract requires them to use these powers.

The record shows they have used the power.

Tom C. Clark:

[Inaudible] what I’m reading from B37 of the Appendix which is the part where they mentioned [Inaudible] Now do I read this wrong?

It’s in reference to the question that Mr. Justice White just asked.

Do I read this wrong?

I thought the Commission would merely holding that in effect entering into a sales contract with a major oil company commission contract with a major oil company is a per se violation.

Now if we look at B 37 isn’t that where it says that it is where but could I say, where are the [Inaudible] of the record contained sample, I wouldn’t support the hearings and find that Atlantic has coerced.

Tom C. Clark:

However we regard this overt acts as the mere [Inaudible] to be more fundamental restraint of trade inherent in the sales commission system itself.

Isn’t this – and isn’t the fact that the Commission maybe properly so then extended this order to all dealers, to all — to all companies with whom Goodyear does business.

Doesn’t that indicate regardless of whether there was express coercion in those instances and again I refer to Champlin because of sale.

I don’t know if it adds up, but isn’t that therefore the finding by the Commission that this type of agreement is in inherent anticompetitive and it’s such a character that it maybe outlawed under the act.

Byron R. White:

And isn’t that exactly what the Court of Appeals affirmed?

Daniel M. Friedman:

Well I think Mr. Justice, it maybe to some extent a semantic problem because when you say this type of contract and when they speak of this type of contract, they mean this contract as the record shows that we view —

Tom C. Clark:

As symptomatic.

I think that that’s quite direct you have evidence of this case and the evidence ought to give relied upon, ought not to be a speculation.

I take it that Commission with regarding the evidence not to be evidence that the Union have just said this type of conduct is bad because the Commission’s order that extends to a number of companies where we don’t know what the conduct was and that is if we have some examples which I take means that as Commission itself said that these are mere symptoms of the inherent vice of this —

Daniel M. Friedman:

Now that’s (Voice Overlap) that’s said, Mr. Justice, that the overt act of coercion were mere as instances.

Tom C. Clark:

Yes, I — I agree.

I agree.

Daniel M. Friedman:

And I think what the Commission was really saying is that when you have this relationship between an oil company and its dealers and when you have this agreement by which the oil company agrees to sponsor the thing, that the inevitable effect of this is to believe this kind of pressure.

Now I think what happens to the coercion is that when the salesman finds that he cannot, by normal means, persuade the deal to buy this stuff, he eventually begins to put a little more and a little more pressure.

Tom C. Clark:

[Inaudible] to fact that this type of arrangement by reason of the inherent quality of pressure, there is an anticompetitive arrangement which the Commission may properly prevent.

Daniel M. Friedman:

I think it does, Mr. Justice, but I just want to emphasize this, that this finding, this conclusion, is not made in the abstract.

This is made on the basis of this record.

The Commission —

Tom C. Clark:

And I find no objection to that because it’s better that the case be proved than assumed.

Daniel M. Friedman:

But —

Tom C. Clark:

And I think that’s —

Justice Bernnan:

Well aren’t you just – exactly, this was to say the sales contract – it says that sales commission system —

Daniel M. Friedman:

System —

Justice Bernnan:

— itself.

And are you saying anything different then that the overt acts of coercion prove are merely things to establish that this is the way this kind of sales commission system inherently have found to operate the way it’s structured.

Is that what you’re saying?

Daniel M. Friedman:

I think — that’s right.

The pressure, in other words, the very nature of the thing, the very nature of the obligations of Atlantic assumes these themselves generate these pressures which Atlantic and few of its relationship with its dealers is not reluctant to you.

It puts pressure not only the suggestion to subtle things made the deals, of course, they didn’t have to club them.

I need dealers who are well aware of the relationship and when they were said, Why don’t you buy our product, we do it.

Daniel M. Friedman:

If I may just throw an analogy, Mr. Justice, it’s a quite different feel.

If you had a commanding general on an army post and you had a second – second lieutenants and the general called on each one of the men and said Now lieutenant, this is completely voluntary, it’s up to you but I think it would be a nice thing if you gave $10 to the American Red Cross, that’s all he said.

It’s completely voluntary.

I —

Justice Bernnan:

That’s not a hypothetical issue?[Laughter]

Daniel M. Friedman:

And I – I mean if this is – this —

Justice Bernnan:

How can he give?

Daniel M. Friedman:

This is — unfortunately, I was only enlisted man so I never had that kind of offer made to me but again it’s the reality and this is the way things work.

This is – this is what you have in the business world – in the world generally.

And – and the vice in this thing, the vice in this thing as we see it is that it brings together the oil company and the tire company.

The oil company has this power.

The tire company as the Court of Appeals said in effect buys the captive market.

The oil company can put pressure.

They’re able to sell a tremendous amount of stuff, $50 million worth over six year period.

They paid them a very substantial – an output.

And I just like to refer to one thing that Mr. Sonnett said about Goodyear not being a transgressor.

Because Goodyear, in this case, didn’t just signed the contract and then shipped tires, it did more than that.

The Goodyear salesman went around with the Atlantic salesman.

The Goodyear representatives participated in the demonstrations that were done.

The Goodyear people went around and removed the signs of the competing products.

Goodyear reported to Atlantic the names of oil dealers at the early stage where it couldn’t put the signs in.

And the findings to which Mr. Sonnett referred, the Commission’s finding that every one of the examiner’s findings supported by substantial evidence, that finding was made not in a general statement as to what it was doing with the examiner’s report.

That statement was made in response to the specific argument that the examiner in this case had been prejudiced because he relied on evidence he had heard in the Companion case and he wasn’t rejecting that that the Commission made the statement of the examiner’s finding is supported by evidence.

So what all that means is that the examiner’s findings in this case to the extent they were proved were supported by evidence in this case.

And at page 131 of the Atlantic record in the Commission’s final order in this case the third paragraph says, he has ordered that the findings and conclusion of the initial be in here by our modified and supplemented to conform to the findings and conclusions that you have set forth in this opinion.

So that the – to the Commission only adopted the examiner’s findings to the extent that those findings conformed to the Commission’s decision to this case.

Justice Bernnan:

I suppose Mr. Friedman you answered to Mr. Sonnett’s suggestions about the government’s attorney talking about the contract, there’s enough of this, that the system you —

Daniel M. Friedman:

That’s right.

Justice Bernnan:

– and not just a contract standing alone.

Daniel M. Friedman:

That’s right.

Daniel M. Friedman:

I suppose if you had just the contract standing alone, you couldn’t say that on its face this is fit.

It depends what they would do about it and this comes back to my other suggestion which I’d made early in the argument as to purchase-resale.

I’d like to come back to that now.

A purchase-resale plan might or might not have comparably adverse effect on competition.

It depends on what they did.

If all that Atlantic were to do, if this Court affirms the order was to announce that henceforth, it will have available for those dealers who wanted TBA supplies and dealers are free to purchase what they see fit, that there’s no obligation if it didn’t have its salesman going out and pushing its own line, if it didn’t what they call double teaming that is going out with the Goodyear men and supplying them, if it didn’t give Goodyear the entree every time a new dealer opens it.

Justice Bernnan:

[Inaudible]

Daniel M. Friedman:

Yes, the contract is specifically does refer to that.

Yes, 23 — 23 60 of the Atlantic record and volume 4.

Yes at page 2361, you will, from time to time at our mutual convenience have your representative call upon these customers, that’s the Atlantic customers, in company with our salesmen.

And throughout this business, generally vague language which on its face seems probably unobjectionable — objectionable but see that your field officers work energetically with us to assist us the fullest practical extent in perfecting sales and credit.

Your field representatives will suggest to these customers as the maintenance of adequate stocks of merchandised purchasing from us, and we’ll counsel them as to the maintenance of proper identification and advertising with respect thereto.

Well the record shows that such council as to proper maintenance of proper identification and advertising not to advertise competing product.

That’s what —

Justice Bernnan:

I’m still puzzled that Goodyear laying aside now what all that the samples of the three other oil companies, how — I’ve forgotten some said were 150 — you said they’re eight — eight or nine or whatever it is, how the Board can conclude it necessarily, whatever the arrangement maybe other oil dealers do anymore than what you said that eliminated at least the thought maybe permissible.

The stocks available go by.

Daniel M. Friedman:

Well let me – let me explain that, Mr. Justice.

First as to the difference between 150 and the eight or nine.

The 150 as I understand of the number of oil companies who were in the business with whom Goodyear might potentially have contract.

The eight or nine are the ones that the record shows at the time of the hearing with whom Goodyear actually had contract.

Now the Commission found that the contracts that Goodyear has with these other oil companies are the same form identical in numerous instances as the contract it had with Atlantic.

In other words, I’m sorry I have to correct it, no, it did so find – it did so find it.

In other words, in effect, these contracts obligated the other oil companies to do the same kind of thing with Atlantic had done.

It also found that at least just the two of these nine companies that they do have this short term lease, Shell and Sherwood, had short-term lease, it also found that evidence in the record that as to three of these eight or nine companies, there were similar pressures used by these companies —

Justice Bernnan:

You mean that the actual operation —

Daniel M. Friedman:

The actual —

Justice Bernnan:

— were similar to those that were proved in greater detail than the operation in the Atlantic company.

Daniel M. Friedman:

That’s correct.

Justice Bernnan:

Well as to the problem, I don’t know how that apprise to eight or nine.

Daniel M. Friedman:

Well if there – it seems to me the Commission having found that this having made findings as to the system, the operation of a plan between Goodyear and Atlantic having found that, had then found that Goodyear had similar arrangements with eight or nine other companies.

Justice Bernnan:

Which — oh and — three of which operated the same as the Atlantic company.

Daniel M. Friedman:

That’s right.

Therefore, it seems to us it’s not unreasonable for the Commission to conclude in formulating its relief.

Enough had been shown to justify a ban against the use of any of these.

And I may say that if in fact, if in fact there should be some particular company with whom Goodyear wants to or has a plan where there are not any of these features.

A Goodyear is always free to come back to the Commission to seek a modification to it.

Let me just post this specific case.

There’s an amicus brief in this case filed by the Shell Oil Company.

The Commission — this is one of the three companion cases brought against this TBA system.

If this case — there’s another one brought against the Texaco Company and the Goodyear Tire & Rubber Company which was set aside by the DC Circuit depending on certiorari, there’s a third case now pending on the Fifth Circuit which has not yet been decided involving Firestone on the one hand and Shell on the other.

And Shell also has a contract with Goodyear.

Shell says, well this is most unfair.

The Commission has an order against Goodyear protecting our — which prohibits Goodyear from carrying out its agreement with us.

Perhaps in the Fifth Circuit, we may win that case and the Fifth Circuit may hold that our agreement with Goodyear is alright because presumably on its theory that Shell wouldn’t have this economic power.

Well if the Fifth Circuit holds that, then it seems to me the way is open to Goodyear to come back to the Commission and say, now here’s a particular case where the finding of the Court of Appeals is that the basis of your decision does not exist here.

Therefore, we’re entitled to a modification as far as this particular contract is concerned.

But this seems to me and gives them an out in effect, if as to particular case, they can prove that the Commission was in error in pretending in entering in the Court order.

But it seems to me that this is not a basis — this possibility is not a basis for saying that the most the Commission could do in this case was to cancel the agreement between Goodyear and Atlantic.

Justice Bernnan:

I forgot [Inaudible]

Daniel M. Friedman:

Pardon sir?

Justice Bernnan:

[Inaudible] order or something like this, something like the Broch order?

Daniel M. Friedman:

Well the Broch order was a little different problem.

The Broch order was there had been true of a discrimination with one customer and the Commission added an order prohibiting a similar brokerage rebate with any other buyer or seller.

The Seventh Circuit struck out the provision extending it to any other buyer or seller and this Court reinstated it so the Commission was entitled to that.

That’s perhaps – I’ve read this just with the Broch case, perhaps it’s a closer analogy to the question of whether it could prohibit the order with Atlantic because it seems to me that it is a perfect analogy for the Atlantic contract.

The Commission found that Atlantic’s agreement with Goodyear was illegal and the Atlantic’s agreement with Firestone was illegal.

It seems to me both that the Broch case is perfectly thought in saying in those circumstances the Commission could also prohibit Atlantic from entering into similar contracts with other tire companies.

But I think — I figure it gives some help to us but basically it’s more on the general theory that if they find that a person has violated the law and there seems to be a reasonable basis to believe, that other practices are comparable that that too can be prohibited as an exercise of the Commission’s discretion.

Now I just like very briefly to refer which I haven’t come to yet but the basic theory, legal theory on which the Commission said this is an unfair method of competition, it’s by really by analogy to the tying cases, the Commission found that the effect of this agreement was to limit the opportunities for the retail gasoline dealers to purchase where they felt that they wanted to purchase, it limited the opportunities of the wholesalers to sell and it limited the opportunities of competing manufacturers to sell in this market.

And the end result, the end result of this it seems to me in terms of the effects on competition is basically the same adverse consequences to which this Court has alluded to in the tying cases.

Daniel M. Friedman:

To paraphrase the language of the tying cases, that the effect of this agreement is that at the retail level, the gasoline dealer is — makes his purchases not on the basis of his independent judgment that this is what he wishes to buy, but because Atlantic with its power in the gasoline business is putting the pressure on him to buy another kind of product.

Now I think there’s a very dramatic illustration of this kind of pressure in this record.

The two witnesses who testified that even though they could have bought the identical product, the Goodyear tire from another Goodyear dealer at less money than they had to pay at the Goodyear supply point, they nevertheless felt obligated to buy from a Goodyear supply point.

But there’s – there could be no question in those cases that it’d be in a different product that was cheaper was inferior, it was the identical product and here you have this supposedly independent businessman who pays more for the identical product than he could have gotten it elsewhere because of this plan.

Those are the two witnesses that I would like to cite them in our brief there at pages 634 and 644 and 652 of the Atlantic record.

Now in the other — the other point of view from the point of view of the wholesalers of TBA, they too are foreclosed from this substantial market covered by the sales commission plan.

There is testimony of wholesale after wholesaler who have testified that he just couldn’t make any in rows in this market.

And indeed, the most remarkable thing about this is, these wholesalers by and large indicated, they could sell to the Atlantic service stations products not covered by the sales commission plan.

There were certain types of automatic — automotive parts particularly things they use in repair works so-called [Inaudible] were not covered by the sales commission plan.

They were able to sell those, but they testified that when they try to sell the Atlantic dealers the products that were covered by the sales commission plan, that’s when they ran up against the stone war.

They could sell them on a filling basis.

If occasionally a particular dealer needed a battery and hurry for customer and his supply point couldn’t supply, that’s what they could sell but they couldn’t come in and sell the man a stock of these products.

Now so that the end result of this is that the plan operates has the same effect on competition as a time plan.

Now when Congress passed the Federal Trade Commission Act in 1914 and it intentionally left it to the Commission to fill down the basis of accumulating — accumulating experience in expertise just what were the unfair methods of competition is above.

Justice Bernnan:

[Inaudible] a sales commission plan or a system were modified as between Atlantic and Goodyear [Inaudible] well let’s put it in the context, we submit that it’d be alright on purchase and resale namely that Atlantic could be willing to pay Commission for doing it really encourage their dealers to buy from Goodyear and from Goodyear to sales points but made it clear that they were free and they didn’t care if they didn’t go shop around anywhere else, would that kind of thing be a sort of thing to the parties to get a modification in this order?

Daniel M. Friedman:

Well I’m not sure, Mr. Justice.

It would depend I suppose on the precise details of what they were to do.

I don’t know whether that particular suggestion, what would the Commission react into that would be I was —

Justice Bernnan:

Well I difficulty when I asked the question is I thought you told me earlier, there’s no contention of the government that the sales commission contract in and of itself runs afoul of such requirement.

It’s only the performance under the contract.

Daniel M. Friedman:

That’s right.

Justice Bernnan:

The method of operation —

Daniel M. Friedman:

I —

Justice Bernnan:

I would suppose that would mean, there would be a number of the method employed in the performance of the contract if eliminated that would satisfy.

Daniel M. Friedman:

Well they’re — they’re conceivably might but again it would depend on precisely what the modifications were I would think.

Justice Bernnan:

But you do not — the government does not suggest that there may not be commission sales arrangements which wouldn’t – which would satisfy Section 5.

Daniel M. Friedman:

No we don’t go that far.

We don’t — all we have is this plan.

I don’t know what plans and another thing, I suppose the more you reduce the things that the oil companies going to do under the program, the less attractive the program is going to be in the tire company.

At some point it seems to me the tire company will say, there’s no point in paying these Commissions, we’re not getting anything.

Daniel M. Friedman:

Now whether in fact these various changes would have the result of making the plan so unattractive, I don’t know, but again I think it would turn largely on precisely to what extent they’ve eliminated these and there’s something I should say.

During the operation of this plan, and if I may just continue, during the operation of this plan Atlantic put out various written instructions to its dealers, to its salesmen, in which they keep repeatedly saying, no coercion.

The dealer is free to select what he wants.

But despite what they said, despite what they said, it’s quite apparent that it’s from the dealer’s point of view, the dealer believed that he was required to buy this and I point this out to Mr. Justice Brennan in answer to your question because again, if there would be modifications of the sales plan, it might well depend on precisely how the modification was made.

Byron R. White:

Mr. Friedman, the Court of Appeals referred to the company’s arguments that they should be free to recommend a particular line of TBA.

And the Court of Appeals said that that would be a persuasive argument except for the power of the company.

That that is the real nub of your argument I gather this that the company can’t recommend and at the same time, have this power.

Daniel M. Friedman:

They can’t recommend as they — in the way which they recommend it here.

I think – I think again it’s just a matter of degree I suppose.

It depends on —

Byron R. White:

But why wouldn’t you argue that is it is the contract with the recommendation, it’s the contract with the recommendation has done here that that’s really bad why shouldn’t – why shouldn’t the Commission be able to bar them entering into a contract by which the company promises to do this.

Promises directly and then promises to do all these other things that you read us.

Daniel M. Friedman:

Well I think that — I think again I suppose that the Commission would have to — the Commission in effect has done that here saying that on the basis of what they have done —

Byron R. White:

Then why can’t you just order Goodyear, bar Goodyear from entering into such contracts which require people to do this solely.

Daniel M. Friedman:

Well we think —

Byron R. White:

Without any regard to coercion or —

Daniel M. Friedman:

Well I think the coercion is —

Byron R. White:

So he would just say — this would just say these kinds promises in the contract it is bad contract.

Daniel M. Friedman:

Well I think, Mr. Justice, he probably needs something more than that because the basis on which the Commission’s decision holding the Atlantic contract to be invalid rests is the power that Atlantic has and the fact that in these circumstances that the power is brought to bear and I think we need something probably more than that to indicate that the power is brought to bear in this case against others as well.

Byron R. White:

And you – and you think that satisfies Goodyear by saying three of the others operated in that same way.

Daniel M. Friedman:

Well a little more — three of the — three of the eight operated in the same way and we show that all of them had substantially the same basic contract.

Thought he contra —

Byron R. White:

How about 156?

Daniel M. Friedman:

Well we — the 156, Mr. Justice, is merely the number of oil companies —

Byron R. White:

I’m understand that.

Goodyear passes — the Goodyear does not go around in that I suppose finding on one of these contracts.

Daniel M. Friedman:

To sign one of these contracts, Goodyear maybe able if Goodyear think —

Byron R. White:

How about all those fellows with the power in the sense?

Daniel M. Friedman:

Well we don’t – we don’t know again if it seems to me —

Byron R. White:

But less prevented for entering into the contract —

Daniel M. Friedman:

If they could —

Byron R. White:

The only thing about their power —

Daniel M. Friedman:

We know nothing about their power.

We do know that on the basis —

Byron R. White:

But I thought you just said you needed that element in there.

Daniel M. Friedman:

As to the existing contract — as to the existing contract but as to the others, there is the prohibition on entering into with any other favor again, it seems that this is the kind of situation where if Goodyear can show that a particular contract is unlikely to have this vice, ti can come forward and demonstrate this to commission.

Byron R. White:

Having permitted and get around without filing the order, giving around the [Inaudible] 156.

Daniel M. Friedman:

Well the – the order doesn’t prohibit them as I understand it from really initiating discussions.

They can look around and find out.

And again as I say, they can come in to the Commission to seek an advisory opinion of that anytime if they wanted to I suppose.

Earl Warren:

Mr. Simon.

William H. Simon:

Briefly in reply, Mr. Chief Justice and may it please the Court.

There is, Mr. Justice Goldberg, an expression in this industry which I’m sure is not confined the brush off technique in dealing with the salesman and what you were describing earlier is very prevalent in this industry.

Statements to which counsel referred where it would be a supply that came into a refilling station and just brushed off by the dealer were statements incidentally that got into this record being statements by a would be a supplier of what dealer told them and they were admitted not for the truth of the statements but as showing the dealer’s state of mind.

They were not admitted for the truth of the statement.

In respect to the question as to whether or not Goodyear is a transgressor, I do not understand counsel to dispute what I’ve said to this Court.

The uncontradicted finding in this case is that Goodyear is not a transgressor and has not participated in a single coercive act.

The reference by counsel, the one with McMasters and some very unpleasant meeting at somebody’s office as the record will show was not a Goodyear office.

We were not there.

In respect to this attempted distinction between overt and covert coercion, I don’t understand it.

And I think there’s only one kind of coercion and if it’s overt, it relates to one way of doing it and if it’s covert, it relates to another way of doing it.

It’s just the means of whether they’re explicit or implicit.

That’s overt and covert coercion and this is a coercion case.

I think it emerges from counsel’s argument.

Now it’s equally clear from counsel’s brief that that’s what the government’s position before this Court really is.

Your Honors, will look at page 70 of the government’s brief, you’ll find at the bottom of page 70 a statement beginning the Commission properly viewed everything that Atlantic did under the sales commission plan as a single interrelated program, say these were the steps by which Atlantic satisfied its contractual obligation to sponsor and promote Goodyear products and for all which Goodyear undertook to pay it a substantial commission.

These steps included the various activities described at length in the statements such as promotion of sponsored TBA, et cetera, et cetera, and then they go on and at page 71 has a semicolon and then they say, and finally threatening dealers who refuse to purchase Goodyear TBA with cancellation on non-renewal of their leases on contracts.

In sum it says the government, Atlantic marshaled the full measure of its economic power of rich dealers to carry out a pressure campaign designed to get them to handle Goodyear and Firestone products and because of the extent of that power that campaign was highly successful.

I think if, Your Honors, we’ll also look at page 73 of the government’s brief, you find the statement since the basic vice of the sales commission plan is Atlantic’s exercise of its economic power of its dealers to require them to purchase sponsored TBA.

That theme is throughout the government’s brief.

William H. Simon:

I think it’s implicit in the argument which counsel was made and with that, Mr. Justice White, that I had in mind what I said that in substance I believe government before this Court confesses error in respect to the position of its Commission and the Court of Appeals relied upon.