FTC v. Henry Broch & Company

RESPONDENT: Henry Broch & Company
LOCATION: Approximately half-way between Santa Marta, Colombia and Miami. Florida (by water)

DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 363 US 166 (1960)
ARGUED: Jan 14, 1960 / Jan 18, 1960
DECIDED: Jun 06, 1960

Facts of the case


Media for FTC v. Henry Broch & Company

Audio Transcription for Oral Argument - January 14, 1960 in FTC v. Henry Broch & Company

Audio Transcription for Oral Argument - January 18, 1960 in FTC v. Henry Broch & Company

Earl Warren:

Number 61, Federal Trade Commissioner -- Commission, Petitioner, versus Henry Broch & Company.

Mr. Rowe.

Frederick M. Rowe:

Mr. Chief Justice and may it please the Court.

This case continued from last Thursday, presents a novel and unique issue of statutory interpretation by the Federal Trade Commission of Section 2 (c), the so-called brokerage clause of the Robinson-Patman Act.

Briefly, what we have here was an open and competitive price reduction by a seller to a buyer coupled with the acceptance by a broker of a lower rated commission, a price which has the earmarks of legality under those provisions of the statute relating to prices, the grant by sellers and the receipt by buyers.

Instead of proceeding or invoking the provisions of the statute relating to prices by buyers and sellers under the statute, the Federal Trade Commission in this case invoked for the first time in the history of the Robinson-Patman Act over two decades, the theory under Section 2 (c), the brokerage clause, that the broker in this case by accepting a lower rate of commission on this transaction was guilty of having paid indirectly a so-called allowance in lieu of brokerage to the buyer.

Is this the first complaint, you say, that's been filed of this character?

Frederick M. Rowe:

Yes, sir.

This is a unique situation.

It was the first complaint of this sort filed in the history of the statute where the charge was that the broker's acceptance of a lower rate of commission was tantamount to his having paid over an indirect allowance in lieu of brokerage to the buyer.

The argument of the Commission to which we addressed ourselves on Thursday was principally the policy justification by the Commission for bringing this type of proceeding and for vindicating it, rather than the statutory basis and the -- the precedence which bear on the problem.

To summarize very briefly, on Thursday, we stated that the position of the Commission, namely, that its interpretation of the statute here was compatible with the policy of the Robinson-Patman Act against discrimination and in favor of the small merchant.

Our position was that this was not the fact in neither event because the policy of the Robinson-Patman Act as interpreted by this Court quite recently in the Simplicity Pattern opinion and also previously in the Morton Salt case was to promote and foster open price reductions based on cost economies for the benefit of the customer and ultimately the consumer.

And moreover, that the contention -- that the policy of this case was in favor of the small merchant was rather paradox in view of the fact that the respondent here was a small brokerage partnership against which the Commission has proceeded rather than invoking the pertinent provisions of the statute against either the buyer or the seller.

And moreover, in view of the fact that a brokerage institution survey and study prepared by the Federal Trade Commission Chief Economist after the main briefs in this case were filed and which we have referred to in our supplemental brief has come to the conclusion that the Commission's application of this particular provision, the so-called brokerage clause has been more prejudicial and detrimental to the small independent distributor than it has been to the Chain-Store against which purportedly the Commission's objectives in enforcing this section or directive.

Earl Warren:

Mr. Rowe, while you're on the position of the Commission, Thursday, you made some statement as to the position of the Solicitor General, as I understood you, but I -- I didn't understand quite what it was, would you mind repeating that?

Frederick M. Rowe:

Yes, sir.

I stated on Thursday that the Antitrust Division of the Department of Justice in -- in this case had not signed the brief of the Federal Trade Commission although it customarily does so in cases involving one of the antitrust laws and moreover that the --

Earl Warren:

(Voice Overlap) sufficient that the Solicitor General himself does send an assistant here, isn't it?

Frederick M. Rowe:

Mr. Chief Justice, in this case, I also pointed out that the petition filed by the Solicitor General in this case carried a special and -- as I consider, unusual notation, at page 12 in the petition for certiorari which states, if I may read it quickly, “That in appearing herein as legal representative of the Commission, the Department of Justice intimates no views of its own as to the underlying policy consideration that maybe involved,” that is on page 12 in the footnote of the Solicitor General's petition.

We deem as particularly significant, Mr. Chief Justice, in view of the fact that we had urged from the outset of this proceeding that the net effect of the Commission's application of the statute would be in effect to prevent brokerage commissions from being reduced in the course of competitive price bargaining and we felt would interpolate into the Robinson-Patman Act in effect, the principle of fair trade or resale price maintenance even though there was no such objective by the Congress and even though similar arrangements where by in other industries such as among real estate brokers where brokerage commission had been stabilized that such mechanism for stabilizing brokerage commission had been outlawed as unlawful and unreasonable restraints of trade in suits brought by the Antitrust Division by the Department of Justice and of course, the case of the real estate brokers was affirmed here by this Court in 1950.

In short, we attempted to point out in our argument on Thursday that this case, by virtue of its unprecedented and unique interpretation of the Robinson-Patman Act, which was not authorized by the text and of the cases as I shall hope to develop in my argument here also, produced a collision and a conflict between the Robinson-Patman Act as construed here by the Federal Trade Commission and the overall policy of the antitrust laws incorporated in the Sherman Act not withstanding the admonitions by this Court to the Federal Trade Commission most recently in the Automatic Canteen case to avoid such collisions and to reconcile the Robinson-Patman Act insofar as the text of that statute permitted with a broader antitrust policies laid down by the Congress in the antitrust laws as a whole.

Before I proceed --

Hugo L. Black:

(Voice Overlap) what do you understand the -- the methods -- policies involved by the Solicitor General here and I would suppose that this is -- the Government tried to -- tried to follow whatever policy Congress had said?

Frederick M. Rowe:

That would be my view of the matter, Mr. Justice Black that we are dealing here with the matter of statutory interpretation exclusively.

But certainly, as the Court's opinion pointed out in the Automatic Canteen case in resolving matters of statutory interpretation, as I would understand the Solicitor's footnote, the policies of the antitrust laws as a whole of which the Robinson-Patman Act is a part should be taken into consideration so that they should be a harmonious whole rather than conflicting parts which at are at odds with each other.

Before proceeding to the text of the statute as interpreted in the past two decades, I would like to briefly summarized the salient facts which highlight what the issue presented by this case is and perhaps also with the issue presented by this case is not.

First, we have here, and it was, I believe, agreed to by Mr. Friedman on Thursday, an honest commercial transaction.

There was no subterfuge or connivance, but rather an open price reduction by the seller to the buyer in circumstances where there were cost economies available to the seller and in circumstances where the seller had to meet competitive offers on pain of losing the sale to the particular buyer here in question.

From the seller's viewpoint therefore, the price, which he gave, had the earmarks of legality under the basic provisions of the Robinson-Patman Act because related to cost economies and because related to competitive circumstances.