Beech-Nut Packing Co. v. Federal Trade Commission

WARD, Circuit Judge. April 15, 1918, the Federal Trade Commission issued a complaint against the Beech-Nut Packing Company under section 5 of the Act of Congress of September 26, 1914 (Comp. St. § 8836e), entitled “An act to create a Federal Trade Commission, to define its powers and duties, and for other purposes,” charging the company with using an unfair method of competition in interstate commerce, viz. in selling its products to such purchasers, principally wholesalers and jobbers, as do not resell at a price lower than that fixed by the company and in refusing to sell to such as do, with the purpose of eliminating competition in the sale of the company’s products and that a proceeding by the commission in respect to this method would be to the interest of the public. The company appeared and answered, admitting these facts, but denying that it had entered into any agreement with purchasers requiring them to maintain its prices, or in any way qualifying their title to the articles purchased, or restricting their freedom to sell to any one and charge any price they choose. An agreed statement of facts was filed. June 30, 1919, the commission filed its report and findings. The respondent is engaged in interstate commerce in selling divers food products, such as sliced bacon, sliced beef, peanut butter, candies, chewing gum, etc., under the trade-name “Beech-Nut Brandi” The commission’s findings of fact are very long,, and it will be sufficient for the purposes of our decision to state the following: “Paragraph Four. That respondent customarily markets its products principally through jobbers and wholesalers in the grocery, drug, candy, and tobacco lines, who in turn resell to retailers in these lines, all of which wholesale and retail dealers are selected as desirable customers, for the reason that they are known or believed to be (a) of good credit standing; (b) willing to resell at the resale prices suggested by respondent and who do resell at such prices, as hereinafter set forth; (c) willing to refuse to sell and who do refuse to sell to jobbers, wholesalers and retailers who do not resell at the resale prices suggested by respondent, and who do not sell to such jobbers, wholesalers and retailers as also hereinafter set forth; (d) good and satisfactory merchandisers in other respects. Such jobbers, wholesalers, and retailers are designated by the respondent as ‘selected’ or ‘desirable’ dealers. Respondent also sells ‘direct’ in a few instances to certain large retailers, who are selected on the same basis as the aforesaid jobbers, wholesalers, and retailers. The total number of such dealers handling the products of respondent includes the greater proportion of the jobbers, wholesalers, and retailers, respectively, in the grocery trades and a large proportion of the jobbers, wholesalers, and retailers in the drug, candy, and tobacco trades, respectively, throughout the United States. “Paragraph Five. That respondent, in the sale and distribution of its products, has adopted and maintained, and still maintains, policy known as the ‘Beech-Nut Policy,’ and requests the co-operation therein of all dealers selling the products manufactured by it, dealing with each customer separately.” “Paragraph Seven. In order to carry out said Beech-Nut policy and to secure such co-operation, respondent “(a) Issues circulars, price lists and letters to the trade generally showing suggested uniform resale prices, both wholesale and retail, to be charged for Beech-Nut products. [887] “(b) Requests and insists tliat the aforesaid selected jobbers, wholesalers, and retailers resell only at the suggested resale prices. “(.c) Requests and insists that tlio aforesaid selected jobbers, wholesalers, and retailers sell only to such other jobbers, wholesalers, and retailers as have been and are willing to resell and do resell at the prices so suggested by the respondent, and requests and insists that such jobbers, wholesalers, and retailers discontinue selling to other jobbers, wholesalers, and retailers who fail to resell at the prices so suggested by respondent. “(d) Malees it known broadcast to such selected jobbers, wholesalers and retailers, whether sold ‘direct’ or not, that. If they, or any of them, fail to sou at the rédalo prices suggested by the respondent as aforesaid, respondent will a bsolutely refuse to sell further supplies ot its products to them, or any of them, and will also absolutely refuse to sell any jobbers, wholesalers, and retailers whatsoever who sell to other jobbers, wholesalers, or retailers failing to resell at the prices suggested by respondent. “Paragraph Might. That respondent, in the carrying out of said policy “(a) Has within the time aforementioned refused and does refuse to sell its products to practically all such jobbers, wholesalers, and retailers as do not resell at the prices so suggested by the respondent. “(b) Has within the lime aforementioned refused and does refuse to sell to practically all such jobbers, wholesalers, and retailors reselling to other jobbers, wholesalers, and retailers who have foiled to resell at the prices so suggested by the respondent. “(c) Has within the time aforementioned refused and does refuse to sell to practically all so-called mail-order houses engaged in interstate commerce, on the ground that such mail-order houses frequently sell at cut prices, and has within the time aforementioned refused and does refuse to sell to practically all jobbers, wholesalers, and retailers who sell its products to such mail-order houses. “(d) Has within the Ume aforementioned refused and does refuse to sell to practically all so-called price cutters. “(e) Has maintained within the time aforementioned and does maintain a large force of so-called specialty salesmen or representatives who call upon the retail trade and solicit orders therefrom to be tilled through jobbers and wholesalers, which orders are commonly known in the trade as ‘turnover 'orders’ ; that respondent’s salesmen, under its instructions, have within the time aforementioned refused and do refuse to accept any such turnover orders to be filled through jobbers and wholesalers who themselves sell or have sold at less than the suggested resale prices, or sell or have sold to jobbers, wholesalers, and retailers who sell or have sold at less than such suggested resale ■prices, and in such cases have requested such retailers to name other jobbers. “(f) Has within the time aforementioned reinstated and does reinstate as distributors of its products, jobbers, wholesalers, and retailers previously cut off or withdrawn from the list of selected jobbers, wholesalers, and retailers for failure to resell at the prices suggested by the respondent and/or for selling to distributors who do not maintain such suggested resale prices, upon the basis of declarations, assurances, statements, promises, and similar expressions, as the case may be, by said distributors, respectively, which satisfy the respondent that such distributors will thereafter resell at the prices suggested by the respondent and/or will refuse to sell to distributors who do not maintain such suggested resale prices. “(g) lias within the time aforementioned added and does add to its list of new distributors concerns reported by its representatives as declaring that they intend to and will resell at the prices suggested by the respondent, and/or will refuse to sell to distributors who do not maintain such suggested resale prices. “(h) Has within the lime aforementioned utilized a system of key numbers or symbols stamped or marked upon the eases containing ‘Beech-Nut Brand’ products, thus enabling the respondent, Cor any purpose whatsoever, to ascertain ihe identity of the distributors from whom such products were purchased, and that repeatedly, within the time aforementioned, when instances of price cutting have been reported to respondent by the selected wholesalers and retailers, or ascertained in other ways, its salesmen and representatives have [888] been instructed by respondent to investigate, and that in pursuance of these instructions salesmen and representatives of respondent have by means of these key numbers or symbols traced the price cutters from whom the goods have been obtained, and have thus ascertained the identity of such price cutters, and have also thus traced and ascertained the identity of distributors from whom price cutters have purchased ‘Beech-Nut Brand’ products, and have thereafter refused to supply all such' dealers with its products, whether such dealers were themselves cutting the suggested resale prices or were selling to dealers cutting the suggested resale prices. “(i) Has within the time aforementioned maintained and does maintain card records containing the names of thousands of jobbing, wholesale, and retail distributors, including the aforesaid selected distributors, and in furtherance of its refusals to sell goods either to distributors selling at less than the suggested resale price, or to distributors selling to other distributors selling at less than the suggested resale prices, has listed upon those cards bearing the names of such distributors, the words ‘Undesirable — Price Cutters,’ ‘Do Not Sell,’ or ‘D.N.'S.,’ the abbreviation for ‘Do Not Sell,’ or expressions of a like character, to indicate that the particular distributor was not, in the future, to be supplied with respondent’s goods, on account of failure to maintain the aforesaid suggested resale prices, or on account of failure to discontinue selling to dealers failing to maintain such suggested resale prices. When respondent has received declarations, assurances, statements, promises, and similar expressions, as the case may be, by said distributors, respectively, which satisfy the respondent that such distributors will resell at the prices suggested by the respondent, and/or discontinue selling to distributors failing to maintain the resale prices suggested by respondent, said respondent has issued instructions to ‘Clear the Record,’ or directions of similar import, notation of which is made on the cards, and has thereafter permitted shipments of its products to be made to such distributors, and such distributors to whom shipments are thus allowed to go forward constitute the respondent’s list of so-called ‘selected’ jobbers, wholesalers, and retailers, and no distributor is thus listed on such card records as one to whom goods are allowed to go forward who fails to maintain the resale prices suggested by respondent or sells to distributors failing to resell at such suggested prices; and when a jobber, wholesaler, or retailer is reported as failing to maintain the suggested resale prices, and/or as selling to distributors who fail to maintain such suggested resale prices, and has been entered in the card records as one to whom shipments should not go forward, respondent notifies those jobbers, wholesalers, and retailers who supply said distributor of this fact, and also notifies its specialty salesmen, and gives similar notices to said jobbers, wholesalers, and retailers, and to its specialty salesmen, .when reinstatements are made in its said list of ‘selected’ jobbers, wholesalers, and retailers.” The commission’s conclusion of law is: “That the methods of competition set forth in the foregoing findings are, under the circumstances therein set forth, unfair methods of competition in interstate commerce,, in violation of the provisions of an act of Congress approved September 26, 1914, entitled ‘An act to create a Federal Trade Commission, to define its powers and duties, and for other purposes.’ ” June 30, 1919, the order under review issued as follows: “Now, therefore, it is ordered that respondent, Beech-Nut Packing Company, its officers, directors, agents, servants, and employés, cease and desist from directly or indirectly recommending, requiring, or by' any means bringing about the resale of Beech-Nut products by distributors, whether at wholesale or retail, according to any system of prices fixed or established by respondent, and more particularly by any or all of the following means: “1. Refusing to sell to any such distributors because of their failure to adhere to any such system of resale prices. “2. Refusing to sell to any such distributors because of their having resold respondent’s said products to other distributors who have failed to adhere to any such system of resale prices. [889] “3. Securing or seeking to secure the co-operation of its distributors in maintaining or enforcing any such system of resale prices. “4. Carrying out or causing others to carry out a resale price maintenance policy by any other means.” The subject is one affecting the public generally, and plainly within the jurisdiction of the commission. The ground upon which the conclusion of law rests is that the method is unfair, because it stifles competition and so restrains trade. The obvious purpose of the respondent is to prevent any competition as to the resale price between purchasers of its products. Such a method, founded upon an agreement between a manufacturer and purchasers severally, was held to be a violation of the Sherman Act (Comp. St. §§ 8820-8823, 8827-8830) in Dr. Miles Medical Co. v. Park & Sons Co., 220 U. S. 373, 31 Sup. Ct. 376, 55 L. Ed. 502. It is difficult to say why a different conclusion should be reached, if the same result is atf&ined by acquiescence and co-operation without express agreement between the manufacturer and his purchasers severally. Eastern States Retail Lumber Association v. United States, 234 U. S. 600, 34 Sup. Ct. 951, 58 L. Ed. 1490, L. R. A. 1915A, 788. But we understand the Supreme Court to hold in United States v. Colgate & Co., 250 U. S. 300, 39 Sup. Ct. 465, 63 L. Ed. 992, that a similar, but less drastic, method of sale constitutes merely the exercise of a man’s right to do what he will with his own, and is not obnoxious to the Sherman Act. The facts as found by the commission, being supported by testimony, are conclusive; but the effect of them is a question of law, to be expressed in a conclusion of law, and the commission so describes it. We do not see how this conclusion can be sustained, in face of the decision in the Colgate Case. The order is reversed. Footnotes [1] <§=s>For other cases see sanio topic & FCRY-NUMUI3R in all Key-Numbered Digests & Indexes