Federal Trade Commission v. Fred Meyer, Inc.

PETITIONER:Federal Trade Commission
RESPONDENT:Fred Meyer, Inc.
LOCATION:Connecticut Welfare Department

DOCKET NO.: 27
DECIDED BY: Warren Court (1967-1969)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 390 US 341 (1968)
ARGUED: Nov 06, 1967
DECIDED: Mar 18, 1968

Facts of the case

Question

Audio Transcription for Oral Argument – November 06, 1967 in Federal Trade Commission v. Fred Meyer, Inc.

Earl Warren:

Number 27, Federal Trade Commission petitioner versus Fred Meyer, Incorporated, et al.

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

This case here on a petition for certiorari — writ of certiorari to the Court of Appeals for the Ninth Circuit, presents an important question under Section 2(d) of the Robinson-Patman Act.

That section prohibits a seller from giving a promotional allowance for a customer unless he makes that promotional allowance available on proportionately equal terms to all other customers competing in the distribution of the seller’s goods involved in this allowance.

The question in this case is whether a seller violates that provision.

When he makes a — gives a proportional allowance to a retailer who buys directly from him but refuses to make the allowance available to wholesalers whose own retail customers compete with the direct buying retail or to put the question a little differently within the statutory term, the question is whether those circumstances that this private wholesaler is a customer competing in the distribution of goods.

The case comes before this Court in a somewhat unusual factual posture and that the respondent, Fred Meyer is not the supplier who was given the discriminatory promotional allowance but the purchaser who has received.

The Commission on this case found, that the respondent had violated Section 5 of the Federal Trade Commission Act by knowingly inducing a discriminatory promotional allowance that violated Section 2(d).

Abe Fortas:

Are you — are you asking us to consider this case in terms of the limitation of Section 5?

That is to say Section 5 is — the purpose of this case has not been violated unless there is a violation with 2(d)?

Daniel M. Friedman:

That is correct.

That is the issue under this Court’s limited grant of certiorari.

That’s the issue before the Court because the validity of the Commission, Section 5 violation directly depend on whether the giving of this allowance violated Section 2(d).

Abe Fortas:

Well, if that’s — and you agree that Section 5 could not be violated unless there is some technical terms in violation of 2(d) of the Robinson-Patman Act.

Daniel M. Friedman:

That is correct.

We make no contention that there’s any violation to Section 5, unless there is a violation by the seller of Section 2(d).

Now, the facts that are in dispute are relatively simple.

The respondent operates a chain of 13 supermarkets in the Portland, Oregon area in which it sells groceries, some clothing items, drugs and various miscellaneous goods.

It’s a large firm.

Its sales in 1957, one of the two years involved in this case totaled more than $40 million.

And it also is the second largest seller of goods in the area.

The Commission’s case, the discriminatory allowances involved here, turned primarily upon certain things that was done by the respondent in connection with an annual promotion plan that runs a so-called “coupon book promotion”.

Since 1936, each for four weeks, the respondent has conducted this coupon book promotion.

I have here from the record just to be wise with the purposes of one of the coupon books.

This is a little book which the respondent sells to its customers for $0.10.

It contains 72 pages.

Each pages of coupon advertising a particular product, I just open this at random coupon worth $0.56, amends a 100% (Inaudible) regularly up to a $1.25 a pair, $0.69 a pair.

And 72 different products are involved and in each instance, the customer takes the coupon, turns the coupon in and gets some bargain.

This has been a rather substantial campaign on the part of the respondent and the two years involved approximately a sale of $140,000 in one year, a $120,000 in the other year.

Daniel M. Friedman:

The respondent finances the coupon book based at the actual production of the book, by charging each supplier $350 for it’s own advertising in the coupon.

And the total of cost, the total amount received, the 72 coupons times $350 approximates the cost to respondent in producing the book.

Now, in addition to the $350, the respondent has also received from a number of the suppliers various other concessions, relating to the fact that under the plan, they sell the goods for less than the regular price.

In some instances, for example, they’ve gotten three goods from the supplier.

In other instances, the supplier has given them discounts on the price of goods.

And in other instances, the supplier has redeemed coupons.

It’s conceded, no one questions that the initiative for this program came from the respondent.

That these suppliers did not come to Fred Meyer and suggest it; Fred Meyer demanded it from the suppliers and Fred Meyer was moving forth in obtaining these allowances.

After a full-hearing, the Federal Trade Commission found that the first $350, that is the amount paid for the book, constituted a promotional allowance that was illegal under Section 2(d) because it’s not made available to all competing customers.

And that the remaining amount of the benefit that is the free goods, the redemption of the coupons and the discounts constituted price discrimination illegal under Section 2(a) of the Clayton Act.

And the Commission further held that Fred Meyer had knowingly induced these discriminatory allowances in violation of Section 2(f) of the Act that being the provision prohibiting the illegal inducement of price discrimination and Section 5 of the Trade Commission Act that relating to the allowances involved in this case.

And as I have indicated, the finding that there was an illegal promotional allowance involved by the sellers of this case rested in part on the fact that two of the wholesalers to whom these allowances were denied had customers who competed at retail in selling with Fred Meyer.

Now, the Court of Appeals upheld the Commission in two respects.

It agreed with the Commission that Fred Meyer had knowingly induced illegal price discrimination.

It also agreed with the Commission that the respondent had knowingly induced discriminatory allowances not made available to other wholesalers.

There were two other wholesalers in the area — I’m sorry, excuse me — there are two other large retailers in the area.

It agreed that the failure to make the allowance available to the other large retailer has violated the Act.

The Court held, however, that the Commission was in error in predicating a violation on the fact that the suppliers had not made the allowances available to the wholesalers whose customers competed with the direct buy and retail.

Because in its view, Section 2(d) only pertains to customers who compete at the same functional level, that is retailer against retailer, wholesaler against wholesaler, but not retailer as against wholesaler whose customers compete with the retailer.

And the Court of Appeals therefore struck from the Commission’s order, a provision which prohibited the respondent from knowingly inducing discriminatory allowances that were not made available to wholesaler whose customers competed with Fred Meyer.

Now, as I have indicated, the statute which was set forth at page 3 of our brief, prohibits a seller from giving proportional allowances unless they have made available on proportionately equal terms to all customers competing in the distribution of the goods.

And they think the purpose of this prohibition is very clear.

It is to prevent a supplier from subsidizing the promotional and advertising activities of a particular customer unless he makes the same benefit available to those who will likely to be injured by this type of favoritism.

That is to the other people competing in the distribution of these goods to the public.

The promotional allowances of this type, allowing a man — giving a man $500 because he performs certain services in connection to the distribution of the seller’s good is to put really just an indirect form of the broader prohibition of the Robinson-Patman Act against price discrimination.

And this Court has pointed out frequently that the basic purpose of the Robinson-Patman Act was to prevent a large buyer from getting these discriminatory advantages over his smaller competitors as a result of his superior purchasing power.

In this case, it’s clear that the respondent is a large buyer that it took the initiative and that actually now come to the point that the effect of this arrangement was to give at a very significant advantage over the smaller retailers in the area who competed with him.

The injury that a small retailer suffers, when his wholesaler is denied of promotional allowance of this type is basically the same as if the small retailer was purchasing directly from the supplier and the discrimination was made available to one but not to the other.

Abe Fortas:

But that’s not his injury, is it, Mr. Friedman?

His injury is if doesn’t get it and that this wholesaler doesn’t get it.

Daniel M. Friedman:

That’s right.

His injury is that he doesn’t get it.

Abe Fortas:

And as I read the Commission’s order, it makes no provision for the qualitative affair of this problem by making a promotional allowance available to the retailer advised from the wholesaler.

But what it does there is to make the supplier pay all of the — place all who left and make the allowance available to the wholesaler which it hopelessly and may not materialize, that the wholesaler will pass the allowance on to the retailer and thereby achieve the purpose in the Act.

Daniel M. Friedman:

Well, we think the — it requires him to make it available to the retailer.

Abe Fortas:

That is not what it says.

Daniel M. Friedman:

I’m sorry, to make it available to the wholesaler.

Abe Fortas:

Wholesaler.

Daniel M. Friedman:

To make it available to the wholesaler, but we think that this is basically what the statute contemplates, that what is likely to happen in this case as we have developed in our brief is very much going to be the interest of the wholesaler to see to it that these allowances that are — have been given to the large retailers will be —

Abe Fortas:

On the contrary, it may be the interest of the wholesaler to put the allowances right in his own pocket.

Daniel M. Friedman:

Well, that he could not do Mr. Justice —

Abe Fortas:

Why?

Daniel M. Friedman:

That he could not do under provisions of the Robinson-Patman Act.

Because under — this might consist of a violation of either Section 2(f), the receipt of an illegal price discrimination or an unfair method of competition.

Abe Fortas:

You’re riding a little fast there.

Daniel M. Friedman:

Now take it a little — let’s go back a minute.

Under the statute, the requirement is that the seller must make the allowance available to all of these competing customers.

It’s up to the customer to decide whether he wants to take the allowance.

But if he likes to take the allowance, then he has an obligation under the statute to use it for the purpose to which it is provided.

That is to make it available, to be used for the purpose that is for example as an advertising allowance.

Abe Fortas:

Too bad they didn’t think of that — think of that whether that’s in the statute, Mr. Friedman.

It’s a little difficult to find them.

Daniel M. Friedman:

Well —

Abe Fortas:

What you’ve got to do is to say that 2(f) it and that’s a long, hard job, isn’t it?

Daniel M. Friedman:

Well, it’s a difficult argument or I would also suggest that it would be an unfair method of competition, Mr. Justice, for the wholesaler to take this allowance given to him because it’s necessary to ensure competitive equality between the distribution system on one hand involving the wholesalers and retailers as we say and the other cases which buying retail and thus — and then just put it in the pocket.

He has taken the money for one purpose, he’s taken it to the purpose of ensuring competitive equality and injured him to another purpose.

Byron R. White:

Well, he just have to use it with his own customers who are competing with the other retailers who were getting the allowance.

Daniel M. Friedman:

Well in this — he would.

In this particular case, the Commission found that there were a large number or in fact virtually all of the customers in the City of Portland to be wholesalers were competing.

Fred Meyer has advertised to the state that it has a supermarket in every part of the town.

Daniel M. Friedman:

And there is evidence that the two wholesalers, one had I think hundred retail customers and the other had 40 retail customers.

There is a testimony by some of them at least but they did directly compete with Fred Meyer’s stores.

He would have to — he would have to make it available.

Now, what we give as an example in this particular case, what was involved was a promotional allowance.

That is a giving of money for this particular form of promotion if some of the suppliers — if they would, some of the suppliers which of this type of promotion would have to make it available.

On the other hand, there may be equivalent forms of promotion that would be available for some of these smaller retailers.

Now, it doesn’t have to — they don’t have to make the allowance available for the exact same thing that was given to the one say the customers.

They have to give them comparable —

Byron R. White:

The way you read it now doesn’t sound as too much (Inaudible).

Daniel M. Friedman:

But there is this difference — I think there is a basic difference.

Commissioner Elman would say, I think that in this case the retailer is a customer.

Byron R. White:

I know but the end result — there is no difference.

You say the wholesaler although he gets it, has to use it to give a fantastic benefit on to the retailer’s customers.

Daniel M. Friedman:

He would have to.

But Commissioner —

Byron R. White:

And the end result would be the same.

Daniel M. Friedman:

Except that under Commissioner Elman’s theory, the wholesaler would have no discretion whether to accept it or not.

In other words, as I understand Commissioner Elman’s theory, he says that what the supplier should do is go to the retailer.

Byron R. White:

So the wholesalers can make up his mind as to whether the retailer is competitive disadvantage.

Daniel M. Friedman:

Well, the wholesaler — the wholesaler can decide where he wants to make it available to the retailers.

Byron R. White:

And if the — whether or not the retailer will or will not be at a competitive disadvantage.

Daniel M. Friedman:

Well, in that sense, yes.

But it’s very much to the wholesalers interest we think that accept these allowances because these allowances to be passed on to the retailers, are obviously going to read down to the benefit of the retailers.

They’re going to increase the retailer’s sales.

And this in turn will directly increase the wholesaler’s sales.

So we think as a matter of self-interest, the wholesaler will be very anxious to receive these promotional allowances.

Now, there are — I’d like to point out a couple of the anomalies and rather inconsistent results of flow from the Court of Appeals’ interpretation of the statute, both of which the Commission refers to.

In the first instance, let’s assume the market where there are two large chains.

Both of whom buy directly from a supplier.

In addition to that, there’s a wholesaler in the market who supplies all of the existing small retailers.

Daniel M. Friedman:

The — under the Court of Appeals’ interpretation, if the seller gives one of these allowances to a chain, one of the chains, it is required to make it available to the other chain.

Yet at the same time, it is not required to make it available to the wholesaler.

But this means basically, that the firm best able to protect itself because of its economic power, the second chain gets the benefit of this action.

Whereas the people who least able in the long run, the wholesalers do not get the benefit of this thing.

That is the people least able to protect themselves.

The people who need the protection of the statute most are denied that right.

Now, the statute uses the words competing in the distribution of the seller’s goods.

And we think in the light of the purposes of the Robinson-Patman Act that what this means is, it’s seeking to protect the entire distribution process by which goods flow from the supplier through the wholesaler to the retailer to the ultimate consumer.

Now, the wholesaler we think, in this light of this purpose make fairly be viewed as competing in the distribution of the seller’s goods.

Because he, together with retailers form a conduit, form a distribution unit by which the goods are distributed.

The direct buying retailer in this kind of a case basically combines the function of the wholesaler and the retailer in a single entity.

And it seems to us that what Congress was intending to protect here, to avoid the dangers of being powerful buying organization, bringing their power to bear in getting advantage is not available to the small merchant which is necessary to accomplish this protection.

Abe Fortas:

But you have any difficulty in looking at this acrobatic fee that’s so often has to be in the form of the statute, looking at it upside down and saying that — and saying that the retailer in these circumstances, the retailers buys from the wholesalers through indirect customer or the supplier and indirect customer is still a customer that you will be dealing with tomorrow.

And therefore it’s the duty of the supplier to that an opportunity to get in these great benefaction goes to the indirect retailer or direct customers.

Daniel M. Friedman:

I have to answer it this way, Mr. Justice.

I would not have any difficulty with that argument.

I think the Commission would because the Commission has always said that for the retailer to be viewed as an indirect customer there has to be something more in a way of a connection from the supplier to the retailer.

Abe Fortas:

I’m aware of that but what bothers me is what the Commission did is that the supplier lacks the — it seems that they were down to the enrichment of wholesalers and not trickle down to retailers whom the Act by hypothesis has intended to benefit and protect.

The Act is interested in small retailers would buy through wholesalers, that’s a common picture.

And that these wholesalers are given some benefits to guide in some of your argument which I certainly respect.

There is no assurance whatever that the benefits will be passed on to the competing retailer.

I don’t — I have difficulty saying that that advances the purposes of the Act.

Daniel M. Friedman:

Well, I think Mr. Justice that we have no assurance any more than we have assurance that if one of these allowances has made available to someone who is directly competing, that he will accept it.

I mean anyone of course is free project and allowed.

But it seems to us there are a couple of considerations which indicate that the wholesalers will want to take advantage of this allowance.

One thing as I suggest, it’s just in their self-interest because this allowance rids down to the benefit of a customer it seems to us, it will be to the benefit into the advantage of the wholesaler to take little steps that will facilitate increasing the benefit of its customers.

Then another suggestion we make in our brief is that if you have a market with more than one wholesaler, one wholesaler is giving this advantage to his customers and it seems to be it won’t be long before the other customer will be coerced to do so.

It just seems to us that while you — you can’t force the horse to drink but at least give him a chance to get to the water.

Abe Fortas:

(Inaudible)

Daniel M. Friedman:

I think that what is involved in this case basically is that this may not be a perfect solution to the problem.

Daniel M. Friedman:

But that this at least facilitates it.

In other words, at least the retailer should have the opportunity to get to the benefit of having his wholesaler in the position to pass these things on to him.

Now, I’d like to refer to one other anomalous result of the Court of Appeals’ decision, which is this.

Under the price discrimination provisions of the Robinson-Patman Act that is Section 2(a), it has long been viewed as subtle since this Court’s decision in the Morton Salt case, that it is a violation of Section 2(a) if a seller discriminates in price between a direct buying retailer and a wholesaler whose customers compete with that direct buying retailer.

Now, since these discriminatory promotional allowances are about one form of the larger species of price discrimination condemned in the statute, it seems to us it’d be most anomalous to say, that if a seller engages in the direct form of price discrimination, that is he actually gives a price discrimination to a direct buying retailer but refuses to make it available to the wholesaler whose customers compete, he’s violated the law.

Yet, if he does it through the device of a promotional allowance, the benefits are not available to the direct buying retailer.

Byron R. White:

But in that case, you do call the retailer-purchaser, the indirect purchaser, don’t you?

Daniel M. Friedman:

No we do not Mr. Justice —

Byron R. White:

What do you say?

Daniel M. Friedman:

No, no we would not call an indirect purchaser unless there was some direct relationship between the seller and the customer.

Byron R. White:

Well, but the 2(a) says purchasers.

Daniel M. Friedman:

2(a) says purchasers or customers of purchasers.

If the 2(a) —

Byron R. White:

Yes, I —

Daniel M. Friedman:

2(a) — now they rely — they rely upon — our opponents rely on that distinction in the language.

They say, you can’t fairly compare the two because 2(a) in terms speaks discrimination, the effect of which maybe the less in competition with the seller or the customers of the people receiving the benefit of the discrimination.

We suggest that that is no ground of distinction for two reasons.

First, in terms of the basic policy, I don’t think it makes any difference.

And secondly, that provision as we read that merely indicates what the Commission has to show in order to establish a violation.

That is it defines the kind of showing of competitive injury the Commission must make in order to establish the violation.

And Congress has — in dealing with Section 2(d), the discriminatory allowances provision has imposed a per se rule.

It is limited — eliminated.

This is the need of showing injury to competition or it has also eliminated the coerced justification provision and it seems to us that it read the strange rule to suggest that what Congress has made a strict provision in dealing with promotional allowances than in dealing with coerced direct price discriminations that a seller may do — may accomplish as a discriminatory allowance but he’s prohibited from doing as a price discrimination.

Abe Fortas:

Mr. Friedman, would you measure the offer that has to be made to the wholesaler in terms of the wholesaler’s volume.

Let’s assume that the 2(d) the violation consisted of a payment for services measured by volumes.

On the base of the Commission’s order, I assume that the wholesaler would be entitled to that kind of volume measured payment himself, wouldn’t he?

Daniel M. Friedman:

I would think so.

Abe Fortas:

And then when he passes it on to a retailer, he may — as a result favor one retailer who over another who was a direct buying customer from the supplier.

Daniel M. Friedman:

I would think Mr. Justice, he has to pass —

Abe Fortas:

I mean — the question again, I don’t want to take more of your time but the question again is whether you don’t get this whole thing out of the sculpture, once you start measuring it in terms of the wholesaler, which I take the Commission order to affirm?

Daniel M. Friedman:

I would think Mr. Justice that he would be obligated to pass it on to his retail customers in the same basis which he got it.

Abe Fortas:

Well, then a retailer customer who buys to the wholesaler gets an advantage over a retailer who buys direct from the supplier in the same volume.

You figure that out.

Excuse me for taking so much of your time.

I think you’ll find the word to that.

Daniel M. Friedman:

I have to think about it Mr. Justice.

I’d like to reserve a balance of my time.

Earl Warren:

You may.

Mr. Howrey.

Edward F. Howrey:

Mr. Chief Justice and may it please the Court.

I should like to discuss two propositions.

First, that the statute involved here namely 2(d) of the Robinson-Patman Act means exactly what it says.

And when that refers to competing customers, it refers to competitors who compete with each other and who buy for a business of the same third person.

In other words, the customers who compete at the same functional level, and secondly, that the Government’s construction requiring proportional payments to wholesalers with the hope that the wholesaler will pass it on to the retailers is administrative and practical, and impossible application in the day-to-day, early-burley commercial work.

First, the Government tries to analogize 2(d) to 2(a) of the Robinson-Patman Act.

I may say that since 2(a), a more solved case, prohibits the price discrimination whether, it does refer to promotional allowances prohibits the price discrimination between direct buying retailers and wholesalers whose customers compete with direct buying retailer that 2(d) should be construed the same way.

And now the difficulty here is that 2(d) is entirely different statute from 2(a), has entirely differently language.

2(a) for example, prohibits the price discrimination which may injure competition with any person who either grants or receives the benefit of the discrimination or with customers of either of that.

It covers the primary line, secondary line and the so-called tertiary line.

The 2(d) doesn’t contain language that even resembles them.

2(d) simply prohibits non-proportional promotional allowances only as between “customers competing” in the distribution of the particular product.

Now, the Government argues in effect that the word distribution as used in Section 2(d), negates or at least modifies the word ‘competing’.

So as to give the word ‘competing’ or ‘competition’ an entirely different meaning of the dictionary or from the commonly accepted meaning of the word, particularly in the antitrust field.

In other words, the Government rewrites the statute, strikes out the words competing customers and inserts the words engaged in, so as to prohibit non-proportional payments to anyone engaged in the distribution of the product.

Now, we think such rewriting the statute should be left with the Congress.

Particularly, in view of the history of antitrust legislation, the Congress passed the Sherman Act that prohibits or restraints a trade then passed the Federal Trade Commission Act and prohibit unfair methods of competition.

But when they came to Clayton Act and more particularly to the Robinson-Patman Act and amended it, they got very specific and they dealt with specific problems in specific language.

And 2(d) is one of the most specific of all, because it is an amendment to promotional allowances to foresee statute limited to promotional allowances.

So, in passing 2(d), Congress didn’t give a three formed mandate for the Federal Trade Commission to cure any and all ills that they might find to exist in this field.

For example, if I may again go back to comparison of 2(a) and 2(d), 2 (a) as I said covered primarily line as a cost justification proviso.

Edward F. Howrey:

It intended to save the economies at large scale buying for the consumer, and it had many passed exhibit which 2(d) doesn’t view at all.

2(d) is considered that —

Abe Fortas:

But you don’t have any question Mr. Howrey about the congressional intent here being inconsistent with what the Commission did.

The congressional intent being that, if you will offer a promotional allowance to one retailer, the promotional allowance has to be offered to retailers who compete with him and then you get difficulty because of the enacted language.

Because the statute says, it uses the word ‘customer’.

The retailer has to be in competition and it has to be a customer and the question here then is whether the statute can be read within accepted legal and judicial techniques so as to carry out the intent of Congress whether the Federal Trade Commission has been here.

That’s what comes down to it.

Edward F. Howrey:

Basically, Mr. Justice Fortas, that is correct but I do not believe that it would interpret the statute differently from the words which the statute used which is ‘competing customers’.

You spoke of the general legislative intent as expressed — the Government in its brief — the referring language which this Court used in the Broch case which you would paraphrase in your question.

But if you will return to more recent Sun Oil case, you use different language.

This Court used different language.

They said, I quote, “Congress intended to assure that businessmen at same functional level would start on equal competitive footings.”

So I don’t think that the Congress intended —

Abe Fortas:

But that doesn’t help you at all, does it?

It didn’t help you really because, obviously, what Congress intended here was that retailer as against retailer who got their suppliers from the same supplier would be on the same basis.

Now, if these — if they were not a wholesaler here, they were not a wholesaler let’s say but an agency — an agency either of the retailer which sometimes happens or the resource, the supplier, you wouldn’t have any question, would you?

Edward F. Howrey:

Not the slightest —

Abe Fortas:

Then the 2(d) allowance would have to be offered.

That’s what we’re troubled about here is the circumstances of title.

Edward F. Howrey:

Well, the Court of Appeals if that’s what you’re saying.

The Court said that if these retailers who buy from wholesalers were indirect customers.

By then, they would be required — the supplier would give a proportion on his balance but there was a specific finding that they were not indirect customers in the sense that the supplier did not deal directly with him.

So — well, I would concede the Robinson-Patman Act’s general purpose.

That’s in fact the record says, still they use specific language to deal with specific problems and I think the problem with the Act of Congress do not strike out words which were the statute namely ‘competing customers’.

And in the Sun Oil case, just decided by this Court in 1963, the Court said precisely the same thing.

There, the Government was contending just the opposite of what they contend now.

There they were contending that you couldn’t ignore the functional levels.

You will recall that that case arose under 2(b) of the Robinson-Patman Act which permits a seller to be competition.

And there this Court held that the defense meeting competition was not available to a gasoline with client who gave lower prices to the service station customer to enable to meet the price of the competitive service station across the street.

There, this Court said that you can’t expand the word ‘competition’ to include customers at different functional levels.

Edward F. Howrey:

And there the Sun Oil Company used exactly the same argument which the Government uses here namely that the buyer, the customer in that service station was just conduit to the consumer.

Here, the Government says to the wholesaler, it is just a conduit to the retailer.

But this Court rejected that argument and as I recall it did so unanimously.

Thus, that ends the discussion of my first proposition, namely that statute means what it says and in order to hold otherwise, with respect to submit to this Court would have to strike out the word ‘competing’ and insert the word ‘engaged’.

Now, the second argument, I should like to make is that if we adopt the government structure, it would be impossible of application.

Now, the rationale, I agree with Mr. Justice Fortas, that there is no compulsion here for the wholesaler to pass it on profitable on how they — but the rationale of the Government’s argument is that it should be passed on and that the customer of the wholesaler’s disadvantage because he’s a small retailer and he doesn’t get what he argued competitively.

There again, I said the Robinson-Patman Act can’t cure all ills.

And if they try to do it here, let’s take an in-store promotion for example.

The Commission suggests that the wholesaler — it’s just $350 the Government suggests that the wholesaler fragment that $350 and proportionalize payments to over a hundred retailers.

$350 not a — on the average $350 but I supposed the wholesaler would have to try to do it to buy them so it would ascertain the dollar volume of the quantity that each 100 — each of the 100 retailers try to proportionalize these payments so that can get down to almost ridiculous sum of maybe a dollar here and maybe $3 there and $5 —

Abe Fortas:

Why shouldn’t every retailer competing with the direct retailer or purchaser to get that opportunity to get that $350, that’s what — isn’t that the intent of the Act by getting the barbarous language.

Edward F. Howrey:

Well, if the intent of the Act is proportionalize based on dollar volume or —

Abe Fortas:

I understand that but I say that here, what’s happening is that $350 is given for a page and that if any retailer wants to provide the same service or to be able to get the $350 and that’s the theory of the Act.

Edward F. Howrey:

That’s the theory of the Act.

But the —

Abe Fortas:

It’s not that the wholesaler in getting and then fragmented as you’ve stated and that’s my problem (Voice Overlap) the Commission’s approach to this —

Edward F. Howrey:

The Government as — I mean the Federal Trade Commission and its order hasn’t provided the retailer to get it and the Government in its brief rejects the dissenting opinion.

So we’re placed here with a case where the supplier has ordered to pay it to the wholesaler, to the hope that you passed it on.

But still, you have to be — one has to be practical I think in this commercial world.

And I say that it would be impossible to a wholesaler to do all the things that the FTC Guide require him to do with these hundred retailers.

First, you have to go and find out which one of them actually competes with the direct buying retailer.

Then he would have to find out what proportion those to each of these, and I say it would be a rudimentary portion.

Then he has to ascertain whether the plan is suitable for the small retailer and obviously the plan involved here was not to be suitable to little retailers because this involve a coupon book promotion.

Covering four weeks time, covering in store — and a small retailer who buys from wholesaler wouldn’t want to put in use such promotion.

So this wholesaler would have to go to each of the 800 customers and devise an alternative plan so that he could have the benefit of it and it would be of some use.

Then he’d have to collect the money from the supplier, passing on to these hundred retailers.

You’d have to see that it was actually used and if it he didn’t use at all, he’d have to see that he did.

I say that that’s impossible on application.

Now, the Government recognizes that that might be difficult but they say in some instances in advertising for example, would there be no problem because the wholesaler could do the advertising for the retailer.

They could publish the ads and say, go to so and so retailer and get direct buyers of goods.

Edward F. Howrey:

Well, the difficulty with that is, that every or universally I would suggest, the advertisements of food retailers combined product and price.

You never pick up an ad of a supermarket and just see meat advertised, you see the price under.

So here, you would have the wholesaler, publishing ad for hundred retailers giving a price.

They couldn’t have separate ads — they’d have to have a joint or a common ad.

So, you would have a situation I would suggest where you’d have a direct Sherman Act violation suggested by the Government, financed by the supplier and managed by the wholesaler.

And that it’s exactly what of become to if the wholesaler has to do the advertising for his hundred retailers.

Well, the Government has suggested another alternative that might not be too difficult.

They suggest as I take it has been suggested here this afternoon that the retailer or that the supplier deal directly with the wholesaler’s retail customers.

So the wholesaler would be added with all to these.

So now, in that case, their deal directly may become under the decisions an indirect customer.

Therefore, you have the Robinson-Patman Act questions and Sherman Act questions raised.

The supplier would have to police and supervise the wholesaler’s prices to these hundred retail customers to see that they were not discriminatory among themselves and perhaps more importantly incomparable with supplier’s prices to the direct buying retailer.

So you’d — he’d have to do that to avoid the Robinson-Patman Act, price discrimination law.

But the minute he polices the wholesaler’s prices, he engages in resale price maintenance.

So I suggest there again, the Government has suggested an alternative which has violative of two other laws.

And in the impossibility or impractibility of the Commission’s order is even more apparent when you would apply the principle to a more complex method of distribution such as where you have a job before you get to the wholesaler.

There, you’d have the job for the wholesaler and the retailer and there are even variations of that.

So I think if the Commission’s order is affirmed by this Court, it will have a devastating effect on the distribution system of this country.

It will either put the wholesaler out of business or can go away with promotion allowances (Voice Overlap) —

Abe Fortas:

I merely haven’t quite got that facet, Mr. Howrey.

As I understand the theory of the Act, it is that — it’s an admonition in effect, a legal instruction in effect to suppliers to device promotional systems that are capable of being administered in whatever way the Act says and the general purpose however inevitably expressed is that you have to device a promotional system that is capable of being offered on proportionally equal terms to all retailers who are in competition one with the other.

And if I — if your particular promotional scheme can’t be so administered, why don’t use it, that’s what the Act says and sometimes it is indeed, established ingenuity.

Edward F. Howrey:

I don’t think the Act says that here.

I think it says the competing customers.

In fact it does say that, well how you interpret that, well it’s a different thing.

But I go back to where the language of the antitrust field, no word is more used or more understood than the word ‘competition’.

And you can search every picture in or look at every antitrust opinion that I’ve ever seen and the word ‘competition’ refers to competitors who buy or a customer or business of the same third person.

Now, if you just want to forget the functional system, why — you could do it but it certainly is a concept which I think shakes the foundations of the distribution work.

I think I’ve covered the two propositions I started to discuss and since I have a minute left, I would like to add the third argument.

And that is that this issue that is before this Court was not tried.

Edward F. Howrey:

For 25 years, the Commissions and the courts had held that you didn’t have to proportionalize promotion allowances as between retailers and wholesalers.

In fact, when the hearing were going on in this case, the Commission decided to link Meyers to back up case and then repeat what it had held before that proportionalization was required only among customers competing at the same functional level.

And then when this case came up, they expressly reversed Meyers and held the contrary.

So, the issue was not post in the complaint, it was not tried, no evidence was submitted on the issue, the — it was assumed once you showed there wholesalers that they didn’t — that was an absolute defense that isn’t covered within 2(d).

Now, of course the Commission has the right to reverse itself as the courts would like to do.

But it seems to me that if they’re going to do it at the very minimum, it should be — minimum of course, it should be followed would be to wait until the case comes up where the issue is posed by the pleading.

The evidence is introduced and the case is decided in broad daylight and not by just a change of law based on a record which merits on all the things I’ve talked about exactly.

There’s nothing in the record about how difficult it would be to administer because it wasn’t an issue.

Thank you very much.

Earl Warren:

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

On the point that Mr. Howrey has just made that this issue was not adequately presented to the Commission.

I’d like to invite the Court’s attention to pages 107 to 113 of the record, the Commission’s opinion on the exceptions to the proposed form of order in which the Commission points out that all of the facts involved in this case were fully litigated.

The respondents were unnoticed in this case when the Commission counsel began putting in its quote that the Commission was treating wholesalers as the customers competing in the distribution because they introduced a lot of evidence dealing with that.

And of course, in the issue under the price fixing section of the complaint, 2(a), 2(f) charge.

Of course under a central line of authority that particular issue was opened in terms of whether there was — whether the wholesalers had retail customers who were competing.

The only thing that was not litigated during the course of the initial Commission hearing was the legal issue.

The legal issue whether under Section 2(d), the wholesalers need circumstances that were competing in the distribution of the goods within the meaning of the statute.

And that issue was fully argued by the respondent in the exceptions to the proposed order which for the first time, specifically dealt with this issue and the Commission analyzed the problem and disposed of it in its opinion.

So we don’t think that there’s any basis of the claim which is now asserted that the record in this case is not adequate to dispose off the issue.

The suggestion that all of the contentions to which Mr. Howrey eludes that there was no record evidence upon which that could be based, this symbolized the kind of factual economic arguments that are always in advance to justify a particular construction of the statute.

It was never suggested by the respondent in the exceptions before the Commission on the form of the order that the record was inadequate to permit a judgment, a determination of this issue.

The argument was that the Commission was wrong as in the matter of law.

So in terms of the fairness of this, we think that this record thus fully presents all the evidence necessary and if the case is inappropriate posture for this Court to decide.

Thank you.