Moog Industries, Inc. v. Federal Trade Commission – Oral Argument, FTC v. C. E. Niehoff & Co. – January 14, 1958 (110)

Media for Moog Industries, Inc. v. Federal Trade Commission

Audio Transcription for Oral Argument, Part 1: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission
Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Earl Warren:

Number 110, Federal Trade Commission versus C.E. Niehoff & Co.

Earl W. Kintner:

May it please —

Earl Warren:

You may proceed —

Earl W. Kintner:

— the Court.

Earl Warren:

— Mr. Kintner.

Earl W. Kintner:

The issue — the underlying principal issue in this case is almost identical nor identical to that in the case previously argued.

Tom C. Clark:

Mr. Kintner, there’s something you said (Inaudible)

Earl W. Kintner:

Yes, sir.

Tom C. Clark:

I’m not familiar with the details.

Does the Commission have the authority in which (Inaudible)

Earl W. Kintner:

The Commission has no statutory authority, as such, to issue Trade Practice Conference Rules.

It does so in its general administrative capacity.

It holds — it has established a purely voluntary procedure, whereby upon petition of industry, it will bring the industry together.

There will be a discussion of the applicable law to the practices of that industry and then on its final and only motion, the Commission will issue Trade Practice Rules which are only effective so long as they reflect the actual state of the law.

There is no penalty for the violation of these Trade Practice Rules.

The penalty is the violation of the statute itself.

Tom C. Clark:

Enforce the Company’s to — to join in the Trade Practice Rules?

Earl W. Kintner:

No, sir.

It is entirely voluntary.

They do not have to sign pledge cards.

Most of them do.

There are Trade Practice Conference Rules for I believe about 180 American industries covering merely the whole panorama of American Industry and yet, we still have our cases.

The rules, as I have said are only so effective as the involuntary statutory law enforcement power of the Commission, is effective in its day to day work in the issuance of complaints and in the holding of hearings.

And finally, the issuance of cease and desist orders and then in securing compliance with those cease and desist orders after they have been passed upon by the Court and approve.

That is the heart of the agency’s work and these voluntary procedures are purely are ancillary.

We hope effective and that we think they are in many instances, but only so effective as the Commission’s other law enforcement work or the involuntary nature in effect.

Tom C. Clark:

Did the courts raise it before the Commission?

Earl W. Kintner:

Yes, sir, it has in this instance, the — the respondent requested.

I think it is of interest to point out in its proposed finding which it offered to the hearing examiner from the Commission’s — and I quote, “from the Commission’s press release,” I am referring to a proposed finding of the respondent here, a record at page 975, 977.

“From the Commission’s press release issued at the time the complaint was filed herein, it is clearly evident that several complaints were filed at the same time, principally directed at certain buying groups,” and then so forth.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Earl W. Kintner:

It is submitted that before filing this complaint, the Commission should have first examined respondent’s quantity discounts as well as those of its competitors.

If the Commission had then been dissatisfied in any respect with any of those discount filings, it should have proposed discounts which it felt were reasonable for the industry in the light of competitive effects and the actual cost savings at various volume levels of sales, held hearings and by rule eventually, have promulgated fair and equitable quantity discount limits applicable to all competitors in the field.

William O. Douglas:

Well, that was something that he wanted to do before they initiate the proceeding.

Earl W. Kintner:

This was a suggested finding after the case had been tried for many, many months.

William O. Douglas:

But it said that the Commission’s failure to follow any procedures vested under before filing this complaint (Voice Overlap) —

Earl W. Kintner:

It was contended that this was an abuse of the Commission’s expression.

William O. Douglas:

We are considering here — we are considering here the remedy — the remedy to be acquired after the violation of law has been established.

Earl W. Kintner:

After — after there has — has been an establishment of the violation of the law and after the —

William O. Douglas:

Where did they raise that point before the Commission that the remedy should be deferred?

Earl W. Kintner:

That was raised, we think, in this particular proposed finding and the Commission rule on it.

I refer you to a language in the Commission’s opinion, which you will find that — at the record, page 1026.

The Commission stated, “Stating that an order requiring the respondent to terminate against unlawful discriminations will destroy the Niehoff business, when its competitors are not likewise enjoined, appellant request that this proceeding be held in advance until the Commission can place all industry members under identical restrictions.

The pricing practices used by the respondent, however, have been found to be in violation of the law since or continuance by the respondent is likewise unlawful.

“The Commission’s duty under the applicable statute is to require their termination forthwith that respondents business maybe at adversely affected by the requirement to cease its unlawful conduct, does not counterbalance the President which would beset by the requested action which it followed.

It would mean that Commission orders would be forever pending and unlawful practices rarely if ever corrected.”

On that language, the Commission bottomed its decision not to hold in advance issuance of its cease and desist order in this case.

William J. Brennan, Jr.:

Dealing with the company in the same industry is in the last statement?

Earl W. Kintner:

The same industry, the Automotive Replacement Parts Industry.

William J. Brennan, Jr.:

And were they competitors who moved in Niehoff?

Earl W. Kintner:

Yes, sir.

Oh, they were not competitors in their particular lines.

William J. Brennan, Jr.:

Meaning, what, different lines or different —

Earl W. Kintner:

In this instance, the — the industry covered the practices or the lines of ignition, testing equipment and hydraulic equipment.

William J. Brennan, Jr.:

So, it’s different in —

Earl W. Kintner:

The other industry was pistons and springs.

William J. Brennan, Jr.:

Difference in product, not necessarily difference in custody.

Earl W. Kintner:

Difference in product and in the case at bar, the respondent gave discounts of zero to 17% and sold to at least one buying group.

There was a breakdown of volume discounts in the record in this case in the findings and I believe it is referred to in the Court’s opinion below, as to the volume discounts of 10 of the competitors.

Two granted no volume discounts at all, one granted a maximum of 15%, five, 20%, one, 23% and one, 25%.

None of the 10 coincided with the maximum 17% of the respondent here and seven of the 10 had a higher maximum than the respondent here.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Earl W. Kintner:

There was an analysis of 522 comparative prices.

Among these 10 competitors, 226 were higher than those of the respondent.

152 were lower and 144 were the same.

Numerous complaints were issued in this industry.

I have mentioned that 16 covered the 2 (a) or price discrimination features alone and the buying groups have also been concurrently, preceded against.

There are I believe 24, total of 24 complaints in this industry and I pointed out that the Commission has committed over the nine-year period 25% or more of its price discrimination law enforcement dollar to this one industry.

Certainly, I think some indication of the fact that it had — it has used its administrative discretion enforcing a law to the fullest within the means that it’s disposable.

The court below pointed out that it was unwilling to participate in the economic death of a law violator.

However, the court below may well have ordered the execution of other innocent violators.

I have reference to these independent jobbers who have been forced to join the buying groups as a means of securing more favorable prices from these manufacturers.

Thus, setting in the motion, a ground of illegality, pattern of illegality which is never ending and respondent asked that this Court confirmed into the law, into the administrative process something which would constitute.

I say it advisably, a law enforcement’s nightmare were to become a part of any person or the administrative agency.

Felix Frankfurter:

In what other agency Mr. Kintner, what other agencies would be confronted by a cognate problem of a — assuming simplified uniform practice that they’re assuming, I’m putting to one side the assumption to falsify that fact, to which what other agency?

I’m thinking of the — the suggestion you made, you’ll hear your agencies like do (Inaudible) federal power commission et cetera.

I was wondering whether those agencies almost inherent that one can use of dangerous words and each cases has been individualized.

Earl W. Kintner:

Yes, sir.

And yet, one of the leading cases in this field involved the Federal Communications Commission.

And there, there was a complaint because the Federal Communications Commission had — unless this is the Pottsville Broadcasting case, had consolidated three cases.

And this Court, speaking through, Mr. Justice Frankfurter that the courts are not charged with general guardianship against all potential mischief in the complicated task of the Government.

Interference by the courts is not conducive to the development of habits of responsibility and administrative agencies.

And then, the Court went on to point out that what is the issue, is not the relationship of the federal courts and to say a relationship define largely by the courts themselves, but to do observance by the courts of the distribution of authority made by Congress as between its power to regulate commerce and the reviewing power which it has conferred upon courts, under Article 3 of the Constitution.

Felix Frankfurter:

I wrote that when I was young and I still believe it.

Earl W. Kintner:

Well, we believe that, Your Honor, spoke just as meaningfully in the case of Scripps-Howard Radio versus F.C.C. in 1942 case, when it — when Your Honor said generally speaking judicial review of administrative orders as limited to determining whether errors of law had been committed, because of historical differences between the administrative bodies and reviewing courts and that between upper and lower courts, a court of review exhaust its power when it lays bare a misconception of law and compels correction.

What Mr. — what Judge Parker was referring to in the American Chain & Cable case, when he sent back to the administrative agency, the question of whether or not it should hold in advance its order and said, “Without my full — without intermitting what action, if any, should be taken by the Commission on the motion of petitioners.”

In other words, it was a matter for the discretion of the administrative agency.

It should decide.

Felix Frankfurter:

Well but that — but I think without intermitting, if one wants to say, it’s not reviewable at all, I think one would phrase that the difference in this case, well I think, it’s none of our business.

In any event — in any event, I don’t think that the Court should do it.

Earl W. Kintner:

It’s so great — so great is —

Felix Frankfurter:

What’s the difference — it’s a very different thing if you have — simply a word dereliction where you shouldn’t go back — enter back to the Commission and say “You consider it those rules are out of hand.”

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Earl W. Kintner:

So great is the —

Felix Frankfurter:

I’m not saying either of these cases justify that.

Earl W. Kintner:

So great is the power of the Court under — of an Article 3 Court under the Constitution that I hesitate to flatly say that this question shall never be subject to review, because it is a part of the function of the courts to make sure that administrative agencies do exercise due process.

But it’s even more incumbent upon those agencies if the administration, if the administrative process means anything that they in the first instance and using that great discretion given to them by the Congress, do exercise a full measure of due process, do lean over backwards to a Court, fairness and equality of treatment to all, similarly circumstance.

I believe that and I believe also that the Commission in these instances has done so, has leaned over backwards to treat those similarly situated —

Felix Frankfurter:

Would you —

Earl W. Kintner:

To clean up the — the industry.

Felix Frankfurter:

Would you — would you agree that the Commission must exercise discretion and exercising discretion in power?

Earl W. Kintner:

I most certainly do, sir, in the same way that a court must do so.

In other words, justice cannot be weighed out pound by pound like potatoes or sugar.

William J. Brennan, Jr.:

No, but Mr. —

Earl W. Kintner:

Either in the courts or in the administrative agency.

William J. Brennan, Jr.:

Well, Mr. Kintner, in this case, as I understand the — the opinion of the Commission, the one you referred us to at 1026, the refusal to stay in that order is not on any grounds, as I understand it, that there was a difference which requires the individualization of these cases.

But solely, it stated at least that the Commission orders would be forever pending in an unlawful practice merely if it ever corrected.

Earl W. Kintner:

Yes, sir.

The Commission —

William J. Brennan, Jr.:

So, was that in — discretion wasn’t exercised here on any ground that whatever these practices are under the extent the practice by a competitors of Niehoff —

Earl W. Kintner:

In effect, the Commission —

William J. Brennan, Jr.:

— that they could not have been reached in the joint proceeding.

That was not the ground of determination was it?

Earl W. Kintner:

That is right.

The Commission in effect said that it would not exercise its discretion in this instance.

In fact, the case had been primarily, tried upon other issues.

Respondent attempted two principal defenses, a cost justification defense and a defense that its practices were made in good faith — in good faith to meet competition.

William J. Brennan, Jr.:

Well, now —

Earl W. Kintner:

It did (Voice Overlap) —

William J. Brennan, Jr.:

Are you suggesting that the application for a joint inquiry was not made when this proceeding started, but rather after it has been resolved against Niehoff, then Niehoff asked for a stay of the effectiveness of the cease and desist order, is that it?

Earl W. Kintner:

The — no, sir.

Not — not entirely.

While the case primarily was tried with respect to the question of these two defenses and then of course, collaterally with respect to the — and finally, with respect to the question of injury to competition, there was evidence submitted by the hearing examiner in the record, with respect to the pricing practices of some of respondent’s competitors.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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William J. Brennan, Jr.:

Well, at what point was the application made, to treat them all at the same time?

At what point in this proceeding?

Earl W. Kintner:

The — the application was made to the hearing examiner, in effect, in proposed findings and to the Commission during oral argument of this matter on the merits before the Commission and the Commission —

William J. Brennan, Jr.:

That is on the merit whether — whether or not it was a violation or on the merits to the form of order?

Earl W. Kintner:

All the merits with respect to whether an order would be proper in this instance and were it proper with respect to whether or not it should be held in advance until all similarly situated competitors were brought to book.

William J. Brennan, Jr.:

Well, and — and the Commission then finally turned their determination, not on any ground of dissimilarity among competitors and between the competitors and the Niehoff, but solely for the ground stated here, is that it?

Earl W. Kintner:

That is right.

Tom C. Clark:

Of course, some of its (Inaudible)

Earl W. Kintner:

Yes, sir.

The chronology in this case indicates that the Commission’s case was tried in 11 months.

The respondent’s case defense took two and half years.

The matter was in the administrative decisional process.

That is the briefing before the hearing examiner and the briefing before the Commission for one year and it has been before the courts for two and a half years.

Now again, this is not a typical case because it involved a — a practice that has — has been pointed was common at least superficially to certain parts of the industry, if not, a substantial part of the industry.

It involved a new industry which had not been previously examined by the Commission.

And necessarily, the — the first impression cases were long cases and the case was brought with respect to a statute which has provide certain defenses, which respondents are entitled to avail themselves of and not necessarily as time consuming.

Is this the whole record?

Earl W. Kintner:

Now this, I believe, is the whole record.

(Inaudible)

Earl W. Kintner:

There were many delays while accountants examined the cost accounting.

Cost justification is a very difficult and technical problem.

And the respondents were given every reasonable opportunity to adduce any evidence which might be favorable to their cause.

Perhaps, the Commission’s examiner was too lenient in that regard, but I for one would rather see more time elapsed and the ends of justice better served, if that does become necessary.

I would like to reserve the remaining portion of my time for rebuttal.

Earl Warren:

Yes.

Mr. Sprowl.

Charles R. Sprowl:

Mr. Chief Justice, Justices of the Supreme Court, Mr. Kintner.

I would first like to point out to the Court the specific language of the statute, which gives to the Federal Trade Commission the power to place for the time within which any order it entered goes into effect.

It appears in — in the Section 11 at page 4 of the Commission’s brief, stating the power of the Commission towards the end of the second paragraph that it accurately finds a violation that shall issue in cause to be served on such portion, an order referring such person to cease and desist from such violations and then taking up at the end in the manner and within the time fixed by said order.

So the Commission does have the power to fix the time within which cease and desist order will become effective.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Charles R. Sprowl:

And by the same token, the Court of Appeals under the Eastman Kodak case would have a like power since the Commission is in turn vested with that power.

In this particular case, Niehoff Company manufactured primarily a line of ignition parts, replacement parts for automobiles.

It has 19 competitors, three of whom are the big three in the automotive industry, Ford, General Motors and Chrysler and 16 other competitors of the aftermarket variety like Niehoff.

Proof was made of the identity of all of those competitors at a hearing held May 15, 1952.

William J. Brennan, Jr.:

Now, what stage of the proceeding?

Charles R. Sprowl:

That was at the very outset of the respondent’s case.

Immediately thereafter, that was the beginning of our defense that we had much competition in this field that we were perhaps meeting there equally low prices in good faith, but that also, we would be seriously hurt if we were placed under an injunction while our competitors were free of a similar restraint.

After that, the Commission did see fit to file complaints against two of our competitors, but it is not seen fit to act as to any other competitors in the meantime.

I think the record makes it clear what really happened here.

The Commission started it out in the first instance to bring test cases against buying groups in the automotive industry.

The job for buying groups, it was bond together to build up volume and qualify for a higher quantity discounts.

It’s — at the time the complaint was issued against the Niehoff Company, it primarily issued its complaint against members of a buying group called Cotton States.

And its publicity release show that the time that those complaints were issued including one against the Niehoff Company, it was clear that they then issued two or three complaints against, I believe, Niehoff and a company named Edelmann in an unrelated line of automotive replacement parts and perhaps one other to round out the picture.

Obviously, the manufacturers at that point were the caboose on this train of enforcement.

At a little later in this proceeding, about the same time this evidence was being put in as to the nature of Niehoff’s competition, we made proof of the fact that while the Commission had in the meantime proceeded vigorously against Niehoff, it started to show that it had done nothing in the Cotton States matter.

That stirred up the tempest and they shortly started to turn their wheels in Cotton States, but the point is that the reason the whole proceeding in this ignition field is so poorly conceived by the Commission is what they started out to do, was to police group buying and they ended up merely trying to get the Niehoff Company which sells ignition parts under a cease and desist order.

At every stage of this proceeding, we not only made proof of our competition of the fact that they used substantially similar discounts.

We gave them the copies of their contracts that were being used.

We put them in evidence.

We gave them dates, names and places.

We may prove to the fact that if we were under such an injunction, while our competitors were not similarly enjoined in this highly competitive field, we would be put out of business by the order and they all fell on deaf ears.

When we got down to the conclusion of the evidence and I wish to say that I don’t recall the reasons for the delay in this case why did Mr. Kintner explained this.

I recall one substantial delay because the Commission made it clear that they’ve run out money at that point for the current year for travelling and what we put over the hearings for several months until their next physical budget came into effect which we did.

The — there was extensive time taken in this matter in cross-examination, in our case by the Commission attorneys which explained some part of the delay and the printed book is not the complete record of the Commission in bringing this case up.

It does not see fit to bring up the exhibits, which were filed as exhibits unprinted in the court below.

When we came before the — to the point where we have to make request for findings of fact of the trial examiner, we made two requests.

One was really, merely a conclusion of fact that the Commission’s action was an abusive discretion.

I believe that’s our last request of finding 75.

And then, we have 141, which detailed the fact that Niehoff — the evidence would show that Niehoff would be put out of business.

It will replace under this order while its competition was not similarly treated.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Charles R. Sprowl:

As to one of those, the hearing examiner found it was beyond his jurisdiction and as to other he refused to make a finding.

And then, before the Federal Trade Commission as such on appeal from the hearing examiner’s decision and a brief which we filed or dated November 15th, 1954.

We devoted an extensive portion of that brief to this particular request, all the matter in advance or to further order or do something while they took action against our competition and that Section set forth the evidence which showed that Niehoff would be financially ruined by the order if its competition were free of the order in the meantime and that is the portion of our brief and the argument that related to an oral argument which prompted the comment, which appears in the opinion of the Commission.

Felix Frankfurter:

Is the — Mr. Sprowl, may I ask this?

It’s the record of a thousand pages, what portion of that record (Inaudible) opinion?

What portion of that record to your point of view is relevant to what you conceive to be the issue before this Court?

Charles R. Sprowl:

On the issue before this Court, I would — I would doubt that more than 50 or 100 pages.

Felix Frankfurter:

If you’ve got a record of a thousand.

Charles R. Sprowl:

That’s because it was printed out in full in the court below.

Felix Frankfurter:

Oh, this is just —

Charles R. Sprowl:

That’s right.

Felix Frankfurter:

Treatment (Inaudible)

Charles R. Sprowl:

I think it’s just a — that was the record as we printed it for the Court of Appeals in the Seventh Circuit.

And then, they — then they added to it the proceedings in the Court of Appeals and put a new cover on it, and that — and that was filed at the time the petition for certiorari was —

Felix Frankfurter:

I thought — I thought it wasn’t visible.

A thousand page is relevant (Voice Overlap) —

Charles R. Sprowl:

You’re — you’re absolutely right.

William J. Brennan, Jr.:

I take that the brief —

Earl Warren:

Mr. Sprowl, when — when the examiner stated that this was beyond his jurisdiction, was he speaking only beyond the scope of his authority as an examiner or is he speaking about the jurisdiction of the Commission?

Charles R. Sprowl:

I think he was speaking of his own jurisdiction.

Here, we were asking the hearing examiner to find that the Commission, the Federal Trade Commission has been guilty of an abuse of discretion.

And perhaps through sensibility of his own part, he preferred not to make such a finding.

I don’t really know what was in his mind but I think he meant beyond his own personal jurisdiction, but we did make the point at every stage of this proceeding.

And we — when we took the matter before the United States Court of Appeal, that was one of our assignments of error and it was on that basis that the Court acted.

Now, there’s no —

William J. Brennan, Jr.:

Is this question argued orally before the Commission?

Charles R. Sprowl:

Yes.

Yes, it was and I was asked questions concerning that way.

William J. Brennan, Jr.:

Any other grounds which Mr. Kintner has based the propriety of the Commission’s action argued their?

Charles R. Sprowl:

I only argued it to the — I think, I’m the only that argued it, as I recall it and I merely made a statement of fact but I probably would like — I repeated the evidence as it showed that Niehoff would be put out of business.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Charles R. Sprowl:

I don’t —

William J. Brennan, Jr.:

What I’m trying to get at was it suggested at all that there were any practical reasons why competitors also, if so, were so guilty of this practice, could not have enjoined?

Charles R. Sprowl:

None — none whatsoever.

William J. Brennan, Jr.:

It was not suggested at any time?

Charles R. Sprowl:

Never suggested, no, except for what might appear in the opinion of the Commission.

That’s the only —

William J. Brennan, Jr.:

Well, I don’t find anything in the opinion of the Commission if I —

Charles R. Sprowl:

It’s just what you read, Your Honor.

William J. Brennan, Jr.:

— one paragraph.

Charles R. Sprowl:

That’s all.

Felix Frankfurter:

Mr. Sprowl, am I right to put — I gather from Mr. Kintner’s argument the diversion of this case is that the Commission was entitled to have reasonable grounds if there’s an expert party to say that there were such differences among the competitors (Inaudible) but you couldn’t that it was entitled to say that they couldn’t all be brought into a single proceeding.That’s the burden of the (Inaudible).

Charles R. Sprowl:

I gather that’s what he said, Your Honor.

Felix Frankfurter:

Well, that’s what he said.

Now, if you will address yourself to that in particular, would you — because if it’s true, you could hardly deny it, I suppose Mr. Sprowl, that the Commission, an agency must be given discretion of the Commission (Inaudible) and say we can’t bring them all in one proceeding, have a counsel table over 20 lawyers and different witnesses (Inaudible) that it must be successive — progressive.

Charles R. Sprowl:

It might well be and they have done it that way in the past.

My point is simply this.

Have they seen fit at the time they filed a complaint against Niehoff to understood the Automotive and Ignition Parts Replacement Industry or have they — when we made the proof of the nature of it or just a year or so later.

It seemed fit through then filed a complaint separately if you wish against these 16 or 17 competitors.

We would not be in this position where one company to which the Niehoff Company is out of step and everyone else is free to use this volume discount methods of sale.

Felix Frankfurter:

Between the filing of the petitioner’s complaint and the order in this case, how much time is left?

Charles R. Sprowl:

The order of the Commission?

Felix Frankfurter:

Yes.

Charles R. Sprowl:

I believe the Commission’s order was entered late in 50 — middle of 1954.

So, that was over four years.

Felix Frankfurter:

So, that —

Charles R. Sprowl:

About four years.

Felix Frankfurter:

— do I gather — do I gather that you wouldn’t — you wouldn’t be here if it actually filed a complaint against the competitors, each taking successively four years (Inaudible)

Charles R. Sprowl:

I’m satisfied we wouldn’t be here for this reason and I have an experience with the Commission on a similar matter not too many years ago.

It brought a multiple complaint against a group called the Fashion Originators’ Guild that they had to do with this handling and keeping of piracy out of dressmaking in New York.

They included in that many retail stores.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Charles R. Sprowl:

It was adjudicated to be an improper practice, the principles of manufacturers decided to appeal at the Second Circuit.

Such door is out in our way, Marshall Field and Company in Chicago and a company.

I know a store in Detroit.

It was then faced with a proposition.

If we don’t appeal, the order will be final as to us and it might be reversed as to the manufacturers.

So, we filed the skeleton appeal.

I recall one from Marshall Field in the Seventh Circuit and one for Hudson in Detroit in the Sixth Circuit and stipulated over the Commission that we would abide the result of the decision of the Second Circuit and it worked beautifully.

And there is no reason why in this proceeding against the 16 people at the similar complaints being filed.

We would have been more than happy to stipulate it to abide the result anyone of those cases on the fundamental proposition of the legality of quantity discounts of the nature that are used in the industry and I think it would have greatly simplify it.

That was the very thing we have urged.

We were urging and talking about throughout this proceeding, because certainly the Niehoff Company is — is not anxious to spend its money and pioneer in the law.

It only finds itself at an impossible position and that it’s compelled to do what it is now trying to do to keep itself from being put out of business.

Tom C. Clark:

When did you first ask the Commission itself (Inaudible)

Charles R. Sprowl:

The first time we asked the Commission, and I’m speaking of the members of the Commission, was at the time we filed our brief with the Commission, which was our — actually, our first appearance before them and the day to that brief is November 15, 1954 and I don’t recall when the arguments were that followed their filling of that brief that it was within 30 or 60 days thereafter that it was repeated in oral argument.

Tom C. Clark:

He’s been saying about 4 years.

Charles R. Sprowl:

About 4 years.

But we had in the meantime made it known to the hearing examiner and to the counsel supporting the complaint to our Federal Trade Commission attorney in the course of the hearing.

Tom C. Clark:

I understand you to say that the examiner is indicating (Inaudible)

Charles R. Sprowl:

When we asked for a finding that the Commission was guilty of an abuse of discretion in bringing the proceeding, he refused to make the finding and with probably some propriety.

He felt it was beyond his jurisdiction to make such a finding.

However, he admitted the evidence in the record into the — he admitted into the record the evidence which we offered, which showed that Niehoff would be put out of business if it were placed under this restraint while its competitors were not similarly enjoined.

Tom C. Clark:

You filed — I’m asking you this for information.

You filed a petition before the Commission itself, calling all their attention and saying exactly (Inaudible)

Charles R. Sprowl:

Well, the methods in which the Commission operates are a little mysterious to me and I think properly so they shouldn’t tell the source of the basis of the people who are asked to give them information which might lead to complaint that I assume many of them are secret, but we did nothing other than make the proof in this record and then argue it orally to the Commission.

We did not write any separate letter or separate complaint to the Commission or file any separate motion.

William J. Brennan, Jr.:

Well, I gather your — those brief in oral argument, preceded the determination that you were guilty of the violation.

Charles R. Sprowl:

Absolutely.

William J. Brennan, Jr.:

So that it was — the Commission has the opportunity, do I get it, before handing down a finding at all of violation to have proceeded with these other complaints to the same point as yours.

Charles R. Sprowl:

That is correct.

That is correct and that’s all we were asking the Commission to do.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Earl Warren:

Mr. Sprowl, I — in the — in the last case, I understood Mr. Kintner to say that the Commission was already spending 25% of its promulgation in enforcing in this particular field, you folks are again (Inaudible) percentage and I just wonder if — if that fact bears on the least submissive — the Commission not undertaking to bring suits against everyone in this — in this field because you said before you have helped the Commission out in their money gram, how can he come and continue it [Laughs] in a few months.

I wonder if a few industries couldn’t tie them up in that matter until they couldn’t — couldn’t possibly proceed.

Charles R. Sprowl:

Well, I can’t believe it would be so here, because my whole thesis in this case has been that never before, until this case and the one or two cases in the automotive industry somewhere until it were filed were the quantity discounts as such attacked.

As this court stated in the Bruce’s Juices cases, it would be a far cry to just say that all quantity discounts were just illegal per se and they — they haven’t been determined to be illegal.

It was in a sense a — a landmark case.

Now, I say that the Commission, when they are out to attack a brand new, for the first time an established method of pricing, they shouldn’t go around the barn and first start out in a humbling way against some group of buyers and decide that’s maybe more than they want to buzz with at the moment and then proceed against the — one of the manufacturers without making some more critical study of the — of the industry.

And it was a prior to us that they hadn’t made it, so that’s why we made the proof of the fact that this wasn’t a big industry.

There are only 18 competitors, 16 of which are the small ones and the ones that we’re interested in.

It isn’t a big job for you to file 16 complaints.

It’s just a matter of merely grabbing what you have against us and putting a different name on it because the issue is the same.

Now, as to the question of the — of the further defenses, I — I take issue with Mr. Kintner on that.

Admittedly, every respondent has the defense of after — in a case involving whether or not he’s guilty of illegal pricing of showing that he either did it in good faith and made an unequally low price with a competitor or the cost justification offense.

Your Honors pointed out in the Ruberoid case even after they issue a cease and desist order.

Those two defenses are inherent in the order whether it’s — well, to have those exceptions or not.

So actually, once you get to the point of a cease and desist order — to get to a point of a cease and desist order, really, all you need is to establish that the general pricing system they’re using is illegal, that they may have defenses as — as to certain sales within their surprising policy because at one point they met the equally low price of a competitor or that some part maybe or is or might in the future be cost justified.

Those exceptions are inherent in the cease and desist order as Your Honors pointed out properly in the Ruberoid case.

So it wasn’t.

It — it could have been once you’re over the hurry that this type of — of discount is an illegal pricing method under the Federal Trade Commission under Section 2.

It isn’t a serious problem.

That’s the big issue in the case and I — I just can’t believe that it would take all of the time and effort that Mr. Kintner would indicate or in an ordinary law of this you think nothing of making 18 suits instead of one and — and carrying them along together, it — as to where the portion of their budget goes in the automotive industry.

I think Mr. Kintner is referring not to the ignition field of the automotive replacement parts industry which Niehoff was in but perhaps the entire automotive industry which is so vast, I couldn’t begin to describe its limits.

Felix Frankfurter:

Mr. Sprowl, your interest — in stating your name (Inaudible) I think that’s what you call it.

I don’t think the Court could respond and subscribe or rather underwrite it could subscribe to your thesis which I underwrite it.

If I understood you, you said that the Commission should have had a general investigation and form itself as it were regarding all the particularities (Inaudible) that you have this interest and it has done in other (Voice Overlap) —

Charles R. Sprowl:

That’s right.

Felix Frankfurter:

(Inaudible)

Charles R. Sprowl:

The candy industry?

Felix Frankfurter:

Yes, but surely, we can’t possibly remotely suggest there to do that.

Charles R. Sprowl:

No, but when the respondent himself suggest it and makes it clear that to do what they are doing will put the respondent out of business.

It was entered — it amounts to an abuse of the Commission’s discretion and failing to take some other action against its competitors and I think it is abuse and abuse of the Commission’s discretion failed to act and there is no question that the Court of Appeals has the power to correct an abuse of — of discretion by the Commission.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Hugo L. Black:

May I ask you?

I have no doubt if you say it correctly.

You would declare (Inaudible) and I’m thinking about the serious problems that they can (Inaudible), do you think (Inaudible) that time they’re actually one place to another then said —

Charles R. Sprowl:

Well, I — I don’t —

Hugo L. Black:

— in that case.

Charles R. Sprowl:

— alter any question about it.

They would want to make their defenses, but my point is that have they — have the Commission acted with any reasonable dispatch, even insofar as 1954 after we not only made the proof with the competitors were in the nature of their pricing with the decision that they had in the Niehoff case that they held in advance a year or two or three which would have been long passed.

Now, they could have had complaints and proceeded to a point where there wouldn’t have been any problem, but they just sought it not to act.

Hugo L. Black:

Do you think it’s really practical or can be practiced to which (Inaudible)

Charles R. Sprowl:

I do (Inaudible)

Hugo L. Black:

Interminable delays that they should bring in all of the (Voice Overlap) —

Charles R. Sprowl:

I think where the industry is no greater than these 16 or 18 that were concerned with here.

There — there — the evidence shows that they are not in violation.

The point is that they are the dominant factors and these other people have to place their merchandise under it.

It’s the — it’s the 15 little ones or 16 little ones that have the discount that (Inaudible) and Ford do not.

They’re just merely in there as competitors.

Hugo L. Black:

You argued that when there was a small number (Inaudible) one party raises the objection that other than — all of it that’s engaged in this activity that the Commission should have discretion before.

Now, if it has a discretion (Inaudible) bring all of them in so that whoever (Inaudible)

Charles R. Sprowl:

That is exactly what I say and I would say that would not be the case had 10 years ago, had there been an adjudication that this type of pricing was illegal, then — then we’re unnoticed.

We’ve known all this time that it’s illegal, but here where they are attacking it for the first time.

I think that it’s only fair in the break and take handy cases and all the other types of cases where they knew how to do it.

They have done it that way.

They bring in all the people under complaints and one way or another, in the building around that goes into that type of a proceeding against an established practice in an industry, you end up with one specimen case going on up finally for the ultimate determination of the issue.

It’s been done.

Hugo L. Black:

You brought in one initial (Inaudible) I haven’t thought of, but have there been any cases before that was given new reason for this particular time of discount?

Charles R. Sprowl:

None at all.

The only language in it was — that I was able to find was we know that — that there are certain types of discounts, there have been questions such as in the Salt cases where there was a discount.

It was available only to the one limited type of very large purchase.

But as your — this Court pointed out in Bruce’s Juices.

We aren’t saying that so far from saying that all quantity discounts are just rendered illegal per se and it was the feeling of the industry that they were not illegal and when they were reasonable and available to every customer within reasonable interest and of course the Court of Appeals have held otherwise.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Tom C. Clark:

Of course (Inaudible) would not be illegal if the cost justification (Inaudible) —

Charles R. Sprowl:

That’s right, but I’m not permitted to discuss that here.

Tom C. Clark:

That would mean that you have (Inaudible)

Charles R. Sprowl:

16.

Tom C. Clark:

— operators at least 16 — 16 men from 16 different countries to prove that there was no violation because of the falsity of the decision.

Charles R. Sprowl:

That’s right, but it wouldn’t take it on a terminable language and not a few proceeding against them all at once.

I — I think that had we done that here, we — we would have no problem and even if they issued cease and desist order, that problem is always present even after a cease and desist order has been acted.

You’re then brought into a proceeding charged with violation.

You are still entitled to show that no I’m not violating because although I did deviate the price, I did it either (a) because I met an equally low price with a competitor or (b) I can cost justify the discount.

Tom C. Clark:

Who said that it should (Inaudible)

Charles R. Sprowl:

That’s true even after the orders are rendered.

That’s right.

Tom C. Clark:

Suppose your — suppose your (Inaudible)

Charles R. Sprowl:

No, I don’t think the Commission could curtail their right to make their defenses.

My point is that they should have started this long ago when we first suggested that it isn’t — the fault doesn’t lie in our door.

We — we are —

Tom C. Clark:

I understand that.

Charles R. Sprowl:

Now.

Tom C. Clark:

I understood you have submitted.

Charles R. Sprowl:

I say this that it — it this is affirmed, that it’s a simple enough matter for the Commission to show on — on affidavit or motion to the Court of Appeals for the Seventh Circuit that we now have the cease and desist orders against this competitor and that competitor and the next competitor and — and it certainly doesn’t have to be against 18, because I can sit down with Mr. Kintner drawing the 10 principle, small competitors that were concerned with and that showing would be sufficient, I’m sure, to get the entry of the order.

Felix Frankfurter:

Mr. Sprowl, 16 or 17 as you see it, the Commission would issue a complaint against the 16 or 17, is that right?

Charles R. Sprowl:

Yes sir.

That’s right.

Felix Frankfurter:

Bring them in as you see it, making it (Inaudible), how long do you think it would take the Commission to get the kind of prima facie order, presumptive illegality against which there would be individualize defenses.

You said they would — it wouldn’t take the Court — it wouldn’t ask the court to hold up enforcement against you until everyone of the 17 respondents or whatever they’re called before the Commission, make their individual defenses, a generalize order which would take care of it.

Charles R. Sprowl:

No, because (Voice Overlap).

Yes, there are some of those that are admittedly small.

Felix Frankfurter:

How long from your point — just on experience on these matters, how long do you think before the Commission could administratively sure an order that would take care of the unfairness that you are —

Charles R. Sprowl:

Well, it seemed to me, Your Honor that they would — should be able to issue the complaint and carry it through their own evidence and the evidence of the respondent and get a commission order within 24 months, with the — with the question of the general legality of the pricing system now settled by the decision.

Felix Frankfurter:

And in that estimate, you include that the Commission has a lot of things to do.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Charles R. Sprowl:

That’s right.

William O. Douglas:

(Inaudible)

Charles R. Sprowl:

That is correct.

Well, I won’t — I won’t put it that way of — that we are not as you have established to anybody’s satisfaction.

There are only two defenses they can make, either that they meet an equally low price.

William O. Douglas:

And yet you can’t sue (Inaudible)

Charles R. Sprowl:

Well, I’m certain to this that they are using an illegal pricing method and I can’t assume that everyone of their sales is illegal, but I — I am sure that there — they would susceptible of a cease and desist order.

Tom C. Clark:

Of course it would be different — it could be different in this case, isn’t it, with reference to the cost justification and with reference to meeting the (Inaudible) —

Charles R. Sprowl:

Well, if the decisions in our case are correct.

There is very little they can do in the way of cost justification.

Tom C. Clark:

(Inaudible)

Charles R. Sprowl:

That’s right, but we’re — we’re about the smallest in the group.

William J. Brennan, Jr.:

You are the smallest?

Charles R. Sprowl:

One of the smallest in the group.

$2 million is our annual gross sale.

William J. Brennan, Jr.:

Who’s smaller than that?

One company is smaller than that?

Charles R. Sprowl:

I say that there — no, there are some that are larger and some that are about the same size.

There aren’t any money that can be much smaller because you can’t manufacture and sell in this business with much less volume than that.

Tom C. Clark:

Can I ask you just one other question?

Charles R. Sprowl:

Yes.

Tom C. Clark:

You said that (Inaudible)

Charles R. Sprowl:

Oh, no.

I think they first have to permit all the evidence to be adduced in the way of defense.

They have to make their proof, but my point is they have decided that this type of pricing method is illegal now.

Felix Frankfurter:

What individualize the term that’s then left under the cease and desist order?

Charles R. Sprowl:

Once you have a cease — whether before after the cease and desist order is entered as Your Honors stated in the Ruberoid case, the statutory defense is that they’re always inherently available, even though if you’re charged of violating that order.

You can still show that the reason you reduced your price was to meet the equally low price the competitors would pay or you can show that you did it on a cost justification basis and that is inherently read into every cease and desist order.

Hugo L. Black:

Did you do that now?

Charles R. Sprowl:

Yes.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Hugo L. Black:

Well, suppose this order would not (Inaudible) these people are using discounts?

Charles R. Sprowl:

Not on the very same thing.

Let’s say we went to a uniform price after the order is affirmed which we would have to do, but that to keep one customer, we cut our price 10% in the Dallas area.

That would be in my mind defensible even though we were under a cease and desist order.We did it in good faith to keep a customer we already have.

Hugo L. Black:

It couldn’t defend the system but you defend the individual case?

Charles R. Sprowl:

That’s right, after the entry of the order.

Earl Warren:

Mr. Sprowl, your time has expired, but we thank you so much for your time in question for the — if in rebuttal we would like to ask a few more minutes —

Charles R. Sprowl:

Thank you.

Earl Warren:

— to summarize your argument (Inaudible)

Charles R. Sprowl:

Thank you, Mr. Chief Justice.

Earl Warren:

Mr. Kintner.

Earl W. Kintner:

— please the Court.

Mr. Sprowl has mentioned the smallness of his concern.

In the eyes of the Commission, it is a principal factor in the industry.

The two principal competitors of this concerned are Sorensen and P.& D., both of whom have outstanding cease and desist orders entered against them affirmed by Courts of Appeal.

The respondent herein has a volume — annual volume of about $2 million, Sorensen and P.& D., $1,685,000 and $1,300,000 respectively.

William J. Brennan, Jr.:

When — when did you obtain those orders?

Earl W. Kintner:

Within the past few months, there have been six orders, three of them — four have been either or have been before this Court.

The two cases — two instant cases, the Edelmann case which is here on writ of certiorari, request for a writ of certiorari, the Whittaker case where the — this Court denied writ of certiorari and the Sorensen and P.& D. cases affirmed by the courts below.

William J. Brennan, Jr.:

Now, are they all names of — they’re quoted in the 16 or 18 to make a —

Earl W. Kintner:

No, sir, two of them.

Sorensen and P.& D. are included upon —

William J. Brennan, Jr.:

In this industry.

Earl W. Kintner:

— of the Niehoff competitors.

That’s the difficulty and Niehoff refers to 16 or 18 competitors, but it’s the same situation I mentioned.

A and B compete with C.

C competes with A and B, but also competes with D and E, those that you have a never ending situation.

Each competitor and each person in the industry has — has different competitors.

They — it is not a — an industry and a margin of this industry where each competes with the other, but it is an industry of 75 lines where some factors such as Niehoff here handle only three lines and are preempted in one ignition as our P.& D. and Sorensen.

Hugo L. Black:

But you hold against (Inaudible)

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Earl W. Kintner:

No, sir.

We expect to move to secure compliance against them as well as others, against whom the Commission has —

William J. Brennan, Jr.:

Well, didn’t you say that the orders against them had been sustained in the Courts of Appeal?

Earl W. Kintner:

That is correct, the Sorensen case sustained by the District of Columbia Court of Appeals and the P.& D. sustained by the Seventh Circuit.

William J. Brennan, Jr.:

Well, why — why do they have to move the compliance?

Are they still in disobedience?

Earl W. Kintner:

They have the 60-day period in which they may comply with the order and then they may ask us on a staff level for an additional 60 days and then we start negotiations, serious negotiations to bring — adjust their business practices and that as I pointed out earlier is a long arduous process.

Hugo L. Black:

(Inaudible)

Earl W. Kintner:

Before we go back to the courts for assistance.

Hugo L. Black:

I just thought to ask you a question (Inaudible)

Earl W. Kintner:

It would certainly be a matter which you should bring to the Commission’s attention.

The — the — at the compliance stage.

Hugo L. Black:

(Inaudible) to meet that equally low price brought on by that discount —

Earl W. Kintner:

Well, that would be a — it could be a defense under certain circumstances in the original proceeding, the meeting of an equally low price of a competitor.

Actually, there are various defenses other than the two mentioned.

Hugo L. Black:

But I’m —

Earl W. Kintner:

It —

Hugo L. Black:

— talking about now after the order was entered.

You decide — you accused them of violating and that he gave that discount to somebody (Inaudible).

The company then said, “Yes, we gave that discount with our competitor.”

(Inaudible)

Earl W. Kintner:

He — he can raise that defense of meeting competition at the second and the third stages of the proceeding.

He can raise it when the Commission proves the second violation and goes to a Court of Appeals for a decree of enforcement and then he can bite his time and after the Commission has proved to its satisfaction a third violation and goes to the Court of Appeals and ask for contempt.

He can still tell the Court, “Well after all, all I was doing was meeting competition.”

Hugo L. Black:

Meaning he can do that on this particular order into his name?

Earl W. Kintner:

He can do it at anyone of the three stages, if Your Honor please.

Felix Frankfurter:

Do I understand —

Earl W. Kintner:

That’s what makes that law so difficult to enforce.

We’re doing the best we can.

Felix Frankfurter:

Do I understand that Mr. Sprowl (Inaudible).

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Felix Frankfurter:

He then say, “Oh, I’ve done nothing illegal because I was merely (Inaudible) my illegality between another illegality.

Is that what you’re talking about?

Earl W. Kintner:

As I understand it, Mr. Sprowl was referring to the so-called 2 (b) defense under the Robinson-Patman Act, which is really another lawsuit and a very difficult subject as — subject matter as Your Honor appreciates.

But there is such a defense and as I understand it, Mr. Sprowl says that under certain circumstances, he — he would use that defense and could use it and the fact is that in this instance, the — his — his client did vigorously contend to use a defense and it (Voice Overlap) —

Felix Frankfurter:

But he — but he lost that defense.

Earl W. Kintner:

He certainly did, sir, and lost on the other defense that he used.

Felix Frankfurter:

And it — is his lost going to be a victory if you were to order the illegality against the competitors?

Earl W. Kintner:

The same time that he was making this defense —

Felix Frankfurter:

That was sophisticated for an argument.

Earl W. Kintner:

He was piously saying, “Well, we — we think you’re wrong here.

We — we — we’re going to defend ourselves.

We’re vigorously defending ourselves, but at the same time we want you to bear in mind that there are certain of our competitors you haven’t proceeded against.

You’ve got to get them too, regardless of whether our defense wins or loses in this case.”

Felix Frankfurter:

Have you exposed that (Inaudible) in your brief?

Earl W. Kintner:

I hope so, but if I haven’t, Judge Finnegan has in his dissent in the lower court.

He says that it appears that the majority’s modification compels the Commission to investigate or complete examination of Niehoff competitors at the risk of (Inaudible) and otherwise approved order, whether this entails all 19 competitors or a baker’s dozen is unrevealed.

My grave doubts that our statutory power to modify Federal Trade Commission orders can be converted into policing and supervision — supervising, though perhaps obliquely, the length and breadth and sequence of Commission investigations brings me to the position I now take.

Certainly, we would refuse to activate the Commission upon a bare petition for mandamus to investigate the automotive ignition industry, responsibility of achieving enforcement of the statutes Congress assigned to the Commission lies elsewhere.

Felix Frankfurter:

That’s a very different thing from saying that if you bring the law under the heel of the law, they’d all scot-free.

Earl W. Kintner:

The practical effect if the Commission were forced to this — to these depths would be that all would go scot-free because in effect, the Commission would never complete an administrative procedure.

Felix Frankfurter:

It’s not because what was the illegal shall become legal by modification.

Earl W. Kintner:

No, sir.

Tom C. Clark:

Suppose that you’re condemned to say that they (Inaudible)

Niehoff have a right to raise that (Inaudible)?

Earl W. Kintner:

Oh, yes, sir.

This would be another set of facts.

Tom C. Clark:

Why wouldn’t it be protected here if its competitors continued to allow the discount if it was in cease and desist (Inaudible)

Earl W. Kintner:

If I were advising his client.

I advised his client to look into that situation meeting competition.

I don’t think they’re obliged to sell at one price.

Audio Transcription for Oral Argument, Part 2: Moog Industries, Inc. v. FTC – January 14, 1958 (77) in Moog Industries, Inc. v. Federal Trade Commission

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Earl W. Kintner:

I don’t think they’re obliged to sell at their maximum price.

I don’t know what price they’ll have to adopt or what prices to comply with the order here, but it is incumbent on them to reexamine their business practices just as it is this entire industry to reexamine its business practices.

Counsel says he hasn’t had any notice.

He should have read the Morton Salt case.

He should have read the various decision of the Commission which cast grave doubt on the validity of these cumulative annual discount arrangements.

Typically, they have had no basis or relationship to cost.

It is not to say that per se illegal, but typically, I say they have had no — they — there were no relationship to cost and it was incumbent upon any counsel conversion with the law to examine such accumulative annual discount rebate system of pricing.

Thank you, Your Honors.

Earl Warren:

Mr. Sprowl.

Charles R. Sprowl:

I only like to say one thing, Mr. Chief Justice.

I think that perhaps I have misled the Court on the 2 (b) defense.

The type of 2 (b) defense that Niehoff was endeavoring to make in this case was that you aren’t required to meet a competitor’s price locally at the point of sale to keep a customer, but it’s — you come within the defense if you meet a nationwide pattern of price discounts established by your competition and that, the Court has held in this case that, “No, that is not a 2 (b) defense.”

It isn’t sufficient to show that in good faith, you granted these discounts which aren’t quite identical to any competitor discount but are substantially about the same of every competitor’s discount and you’ve done it nationwide as a consistent method of meeting their discount in competition that you are not really establishing a cost justification defense.

So, as far as this case is concerned, our cost justification then did accept for a very isolated situation where we might have lowered the price to keep an established customer which I’m sure the Commission would let us report and would never make a court case out of it because it’s so isolated in local situation.

Tom C. Clark:

What about meeting the price of the competitors.

Charles R. Sprowl:

That is — that is the point I am making.

In other words, if I have –if Niehoff should have a customer in Detroit at which it is selling at its least price, then a standard manufacturing company which is one of Niehoff’s principal competitor shows up and says, “Look, I can sell you this same product and it is the same at 10% lower.”

Then, Niehoff is entitled to lower its price to keep that customer, but that’s very — that’s a local situation.

I’m sure, even after a cease and desist order is entered, that’s the type of thing you would report to the Commission and I — there is no question.

Tom C. Clark:

I understand that, but assuming you did not get to say that (Inaudible)

Charles R. Sprowl:

It would be very difficult.

Tom C. Clark:

In a legal standpoint?

Charles R. Sprowl:

Perhaps, from a legal standpoint, sir.

Felix Frankfurter:

Although a cease and desist order is right against —

Charles R. Sprowl:

I don’t think — after the cease and desist order is out, I think that perhaps if we were — if we knew of it and we knew it was a bona fide attempt on standards to cut the price and — and we were satisfied to that then even though we’ve gone to a single price, I think 2 (b) would permit you to put the practicalities and you never know it until they both say it.

Tom C. Clark:

(Inaudible)

Charles R. Sprowl:

That’s right.

They’ve — they have taken the customer and then we know about it and we can’t get them back.

Thank you.