Federal Trade Commission v. Texaco, Inc.

PETITIONER: Federal Trade Commission
RESPONDENT: Texaco, Inc.
LOCATION: Des Moines Independent Community School District

DOCKET NO.: 24
DECIDED BY: Warren Court (1967-1969)
LOWER COURT: United States Court of Appeals for the District of Columbia Circuit

CITATION: 393 US 223 (1968)
ARGUED: Nov 13, 1968
DECIDED: Dec 16, 1968

Facts of the case

Question

Media for Federal Trade Commission v. Texaco, Inc.

Audio Transcription for Oral Argument - November 13, 1968 in Federal Trade Commission v. Texaco, Inc.

Earl Warren:

Number 24, Federal Trade Commission, petitioner versus Texaco Incorporated et al.

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

The question in this case which is here on a writ of certiorari to the Court of Appeals for the District of Columbia Circuit is whether the Federal Trade Commission correctly held that a sales-commission plan by which the respondent, Texaco distributed, promoted -- not distributed, I'm sorry, promoted and sponsored the sale of tires, batteries and automotive accessories made by the respondent, Goodrich Tire and Rubber Company.

Promoted and sponsored the sale through the Texaco service stations in return for a commission paid to Texaco by Goodrich whether the commission properly held that this constituted an unfair method of competition in violation Section 5 of the Trade Commission Act.

The respondent Texaco or respondent Goodrich also had a similar sales commission plan with the Firestone Rubber and Tire Company but I will focus primarily in this case on their relationships with Goodrich.

This case is one of three companion cases that the commission instituted in 1956 challenging the sales-commission method of distributing tires, batteries and automotive accessories which are commonly referred to as TBA in the industry.

And each of these cases named as a respondent a major oil company and a major tire company.

In each case after protracted proceedings, the Trade Commission held that the sales-commission plan was an unfair method of competition and entered a broad cease and deceased order which prohibited each of these companies from engaging in this type of plan.

At the end of the 1964 term, this Court upheld the Commission’s order directed against the plan involving Atlantic Refining Company and the Goodyear Tire and Rubber Company.

Subsequent thereto, the Court of Appeals for the Fifth Circuit upheld the Commission's order directed against the plan involving the Shell Oil Company and Firestone.

Now, while those two cases were going through the courts, in the present case, the Texaco-Goodrich case, the Court of Appeals for the District of Columbia Circuit on a prior appeal set aside the Commission’s order.

The Commission filed a petition for certiorari in that case and a week after this Court decided the Atlantic case in favor of the Commission it vacated the judgment of the Court of Appeals and in effect remanded the case to the Commission with directions to reconsider it in the light of Atlantic.

Upon such reconsideration, the Commission issued a new opinion and which it again in the light of Atlantic concluded that this sales-commission system was an unfair method of competition and added a cease and deceased order the same as the order that had been upheld by this Court in Atlantic.

Once again, the Court of Appeals set aside the Commission’s order and directed the Commission to dismiss the complaint.

Now, the economic relationship that exists between the respondent Texaco and its retail gasoline service station dealers is basically the same as that was presented to this Court in the Atlantic case.

Potter Stewart:

Except in the Atlantic case there was coercion in here --

Daniel M. Friedman:

Those -- I'm speaking Mr. Justice of just the economic relationship the first element, the power relationship between the company --

Potter Stewart:

I see.

Daniel M. Friedman:

And the dealers.

I will come in a moment and --

Potter Stewart:

Right.

Daniel M. Friedman:

Explain the differences in the way in which the power was exercised.

Potter Stewart:

Correct.

Daniel M. Friedman:

Texaco is one of the largest petroleum dealers in the country.

It distributes its products to 30,000 service stations many more than involve in Atlantic.

In fact, this represents about one-sixth of all the service stations in the country.

These service stations operate on two bases as in Atlantic about 40% of them are so-called lessee dealers who lease their station from Atlantic, the remainder are so-called contract dealers who either lease their station from a third person or in fact on a station.

The way in which the stations are lease here is the same as basically as in Atlantic, the dealers hold the stations under short-term leases, one-year leases which permit termination by either side upon 10 days notice.

The leases have similar housekeeping clauses which permit immediate cancellation if the lessee fails to comply with these situations.