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Grand Union Co. v. Federal Trade Commission.

decided: February 7, 1962.

THE GRAND UNION CO.
v.
FEDERAL TRADE COMMISSION.



Author: Clark

Before CLARK, WATERMAN and MOORE, Circuit Judges.

CLARK, Circuit Judge: This is a petition to review an order of the Federal Trade Commission, ordering petitioner, The Grand Union Company, operator of a large chain of retail grocery stores and supermarkets, to cease and desist from engaging in certain business practices held to violate § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. The order was entered upon a stipulation of facts with annexed exhibits submitted to the hearing examiner.

The proceeding arises out of a co-operative advertising arrangement, entered into jointly by Grand Union and a group of its suppliers, with Douglas Leigh, Inc., an advertising firm which owns and operates a "spectacular" advertising sign located on Broadway in the Times Square area of New York City. This sign, which covered two sides of a building, combined several large panels for stationary displays with one which contained a so-called "Epok Panel" - a bank of timed electric lamps against a black background which were used for the projection and display of animated advertisements.

On August 6, 1952, Grand Union accepted a proposal submitted to it by Douglas Leigh, Inc. By the terms of this agreement Leigh was to lease the 3625-square-foot sign to Grand Union for $50 per annum. The bulk of the sign area would be devoted to stationary displays to be designed by Leigh for Grand Union. In return, Grand Union was to solicit fifteen "participating advertisers" to buy time on the Epok Panel. Each participating advertiser would enter into a separate agreement with Leigh to rent space on the panel at a rate of $1,000 per month for one minute out of each twenty minutes in which the panel operated; thus the participating advertisers were to sign for 75 per cent of the panel's time. Grand Union received the other 25 per cent of the time on the panel, which it could use for its own advertisements, or exchange for radio or TV time. No design, layout, or copy could be used on any portion of the sign without approval by Grand Union in writing. The contract ran for one year, and Grand Union was given the option to renew it for two additional one-year periods. Leigh had the right to cancel the contract if Grand Union failed to secure fifteen contracts from participating advertisers.

A year later this contract was renewed, with modifications. Under the new terms there were to be twenty participating advertisers, each having one minute out of every twenty on the Epok Panel. Instead of receiving 25 per cent of the time on the panel, Grand Union would receive 5 per cent of the monthly rentals paid Leigh by the first fifteen participating advertisers and all of the rental paid by the remaining five. In substance this agreement continued until December 31, 1956, when the entire "co-operative" venture ended.

In the four-year period during which this spectacular sign was in operation on Times Square, thirty firms became participating advertisers. Most were solicited by Grand Union; others were brought into the project by Leigh. All, or almost all, were suppliers of Grand Union. None of the advertisers knew the terms of Grand Union's contract with Leigh: either that Grand Union paid little or nothing for its space on the sign or that Grand Union received substantial payments from Leigh by virtue of their participation. Grand Union knew and approved of all the agreements between the participating advertisers and Leigh.

Many of the participating advertisers had co-operative advertising and promotional allowance programs publicly announced and made available to all customers. Generally, however, these firms did not consider their participation in the Broadway spectacular part of those widespread promotion programs. In some instances suppliers paid Grand Union under these general programs, in addition to participating in the co-operative spectacular project. On December 5, 1957, the Federal Trade Commission issued a complaint, which charged that Grand Union, by "knowingly inducing or receiving * * * special payments and benefits from suppliers which were not made available on proportionally equal terms to its competitors," committed "unfair methods of competition and unfair acts and practices" in violation of § 5 of the Federal Trade Commission Act.

These transactions were before this court recently in Swanee Paper Corp. v. F.T.C., 2 Cir., 291 F.2d 833. In that case we held that Swanee, one of the participating advertisers in this Broadway spectacular sign, had, by participating in the program, violated § 2(d) of the Clayton Act, as amended, 15 U.S.C. § 13(d). This section, part of the Robinson-Patman Act amendments to the Clayton Act, makes it unlawful for a seller to pay anything of value "to or for the benefit of" his customers for services or facilities furnished "by or through" the customer in connection with the sale of seller's product "unless such payment or consideration is available on proportionally equal terms to all other" competing customers of the seller. In Swanee we found that payments by the seller (Swanee) to Douglas Leigh, Inc., were made for the benefit of the buyer (Grand Union) and that the services or facilities were rendered "by or through" the buyer. There being no dispute in Swanee that the payments were not available on a "proportionally equal" basis, we therefore upheld the decision of the Commission that Swanee had violated § 2(d). In the instant case the Commission is proceeding against the buyer in the same transactions, but not under this provision of the Act.

Section 2(d), as most of the Robinson-Patman Act, is aimed only at sellers; it makes no mention of buyers, even though it is difficult to conceive of a transaction violating § 2(d) which did not involve a buyer as well as a seller. Two provisions of the Robinson-Patman Act, however, apply by their terms to buyers: (1) § 2(c), 15 U.S.C. § 13(c), which outlaws payment and receipt of certain brokerage allowances, and (2) § 2(f), 15 U.S.C. § 13(f), which provides that "it shall be unlawful for any person * * * knowingly to induce or receive a discrimination in price which is prohibited by this section." The Commission does not maintain that the payments made for the benefit of Grand Union are price discriminations within the meaning of § 2(f), and thus is not proceeding against the buyer (Grand Union) under the Robinson-Patman Act. Rather, it has here determined that a buyer who knowingly solicits and receives payments which are unlawful under § 2(d) is, notwithstanding that section's silence as to buyers, nevertheless engaged in unfair methods of competition or unfair trade practices. The Commission claims that the very purpose of § 5 is to permit it to make such a determination and to bolster other antitrust statutes by outlawing acts which violate their "spirit," but not their letter.*fn1 Petitioner contests this determination, claiming that because Congress left buyers free of liability for their part in transactions outlawed under § 2(d), the Commission is powerless to impose such liability under § 5. Neither party discusses the possibility that § 2(f) might be held to apply here.

We need not determine whether the payments made by the participating advertisers to or for the benefit of Grand Union are "a discrimination in price" within the meaning of § 2(f). The question whether or not that section outlaws activity such as petitioner's was left open in Automatic Canteen Co. of America v. F.T.C. 346 U.S. 61, 73 n. 14. There the Court, construing it, explicitly declined "to pass on the question whether a 'discrimination in price' includes the prohibitions in such other sections of the Act as §§ 2(d) and 2(e)." This issue was not raised in the proceedings below.

If the Commission were proceeding against petitioner under § 5 solely because its activities contravened § 2(f), there might be a question of the propriety of utilizing the vague language of § 5 rather than the precise standards of the Clayton Act. It has been suggested that § 5 "should not be invoked whenever the transaction in question is governed by specific provisions in the Clayton Act."*fn2 Since the Commission has explicit authority to enforce the Clayton Act, § 11, 15 U.S.C. § 21, the chief reason for such a requirement would seem to be a fear that complaints issued in the imprecise language of § 5 will not give parties adequate notice of the offenses charged and relevant defenses thereto.*fn3 This fear seems misplaced. Proceedings are frequently brought under this section against Sherman Act violations. F.T.C. v. Cement Institute, Inc., 333 U.S. 683, 693; F.T.C. v. Beech-Nut Packing Co., 257 U.S. 441, 19 A.L.R. 882. Litigants are not prejudiced thereby; complaints are so drafted that the particular Sherman Act offense is indicated. F.T.C. v. Cement Institute, Inc., supra. There is no reason why this cannot be done under the Clayton Act. The complaint in the instant case gives adequate notice of the nature of the offense charged, and has certainly given petitioner ample opportunity to raise defenses.

Moreover, in Fashion Originators' Guild of America v. F.T.C., 312 U.S. 457, the Supreme Court affirmed a holding by the Commission that a group boycott which violated § 3 of the Clayton Act, 15 U.S.C. § 14, constituted an unfair method of competition. For this case, however, we need not decide whether activity which violates the Clayton Act should ipso facto be a violation of § 5. The Commission here contends that petitioner's activity violates § 5 regardless of whether or not it may be a violation of the Clayton Act; we see no objection to consideration of this contention without an examination of § 2(f). We may turn, therefore, to the question originally presented: Does § 5 extend to petitioner's activity which, while an integral part of a transaction outlawed by § 2(d) of the Clayton Act, nevertheless is not expressly proscribed by that statute or indeed by any other antitrust statute?*fn4

This case has been widely mooted in the law reviews.*fn5 Distinguished commentators have suggested that the Commission here asserts legislative powers which if sustained will permit it to reformulate anti-trust law in disregard of specific acts of Congress, and to use the vague concept "unfair methods of competition" to "supply what Congress has studiously omitted" from specific antitrust statutes.*fn6 Fear is expressed that the "spirit" of the Clayton Act will haunt the antitrust laws, emerging wraithlike when the Commission utters the incantation "section 5."*fn7 It has been adumbrated that under the Commission's rule in this case it could supply omissions in the Clayton Act left by Congress for a specific purpose; for example, in an earlier day it might have "plugged the assets loophole in the original Section 7 of the Clayton Act without any amendatory legislation."*fn8 While we are sympathetic to this concern over possible misuse of § 5, we feel it is misplaced in the instant case.

In the first place there seems to be no specific reason why Congress omitted buyers from the coverage of § 2(d), while including them under § 2(c) and (f); the omission was more "inadvertent"*fn9 than "studious." Certainly buyers were not left out because Congress favored them or wished to permit them to engage in activity proscribed to sellers. The Robinson-Patman Act was enacted in 1936, following an investigation of large chain-store buyers, to "curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power." F.T.C. v. Henry Broch & Co., 363 U.S. 166, 168.*fn10 The Act outlaws several specific practices connected with the sale of commodities which had been utilized by large buyers to secure from their suppliers preferences not generally available; among these were "dummy" brokerage payments*fn11 and disproportionate advertising and similar allowances.*fn12 Despite the evident purpose of the Act, and for reasons not apparent in the Congressional history, many of these practices were made specifically unlawful for only one of the participants in the underlying economic transaction. The practices themselves, however, were ...


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