FORSTER MFG. CO.

16. Forster Mfg. Co., Inc. v. F.T.C., 335 F.2d 47 (1st Cir. 1964), cert. denied, 380 U.S. 906 (1965)

(a) Court Action: Order set aside and cause remanded for further proceedings. (b) Commission Action:

1. On October 15, 1964 Commission approved its opinion on remand. Vote: 3-1, Commissioner Elman dissenting, Mr. Reilly not participating.

2. On November 18, 1964 agreed that further action herein would be withheld pending disposition by the Supreme Court of respondent's petition for certiorari. Vote: 5-0.

3. On March 24, 1965 directed that respondents and Commission Counsel may file briefs on application of 2(b) and clarification and modification of order. Vote: 5-0.

OCTOBER 15, 1964.

(2) Forster Mfg. Co., Inc., et al. v. Federal Trade Commission, 1st Cir. No. 6134 (Docket 7207-Forster Mfg. Co., Inc., et al.)

Mr. Dixon presented memorandum of October 9, 1964, in which he reported his consideration of memoranda of August 25 and September 4, 1964, from the General Counsel's office regarding the opinion of July 29, 1964, of the United States Court of Appeals for the First Circuit setting aside the Commission's order in Docket 7207 and remanding the case to the Commission with the indicated directions and suggestion.

In the first of the above memoranda, the General Counsel expressed the opinion that certiorari not be sought, and that the Commission should attempt to comply with the directions of the Court; advised that the time for filing a petition for rehearing had been extended; and expressed the further opinion that it would be inappropriate for the Commission to act upon the remand until the court has acted on the resopndents' petition for rehearing.

The General Counsel's office, in its memorandum of September 4, 1964, stated that the Court had denied Forster's petition for rehearing.

Mr. Dixon recommended that the submitted drafts of opinion on remand and final order be issued.

After consideration, the Commission approved its opinion on remand and final order in Docket 7207.

Mr. Elman dissented from the foregoing action and stated that he would eirculate copies of a dissenting opinion to the other Commissioners.

Mr. Reilly did not participate in the foregoing action for the reason that oral argument herein was heard prior to his taking the oath of office.

NOVEMBER 18, 1964.

(1) Forster Mfg. Co., Inc., et al. v. Federal Trade Commission, 1st Cir., No. 6134 (Docket 7207-Forster Mfg. Co., Inc., et al.)

Pursuant to the action of October 15, 1964, the Commission considered this matter further and, after consideration, it was agreed that further action herein would be withheld pending disposition by the Supreme Court of the respondents' petition for certiorari.

MARCH 24, 1965.

(2) Forster Mfg. Co., Inc., et al. v. Federal Trade Commission, 1st Cir., No. 6134 (Docket 7207-Forster Mfg. Co., Inc., et al.)

Mr. Dixon presented memorandum of March 23, 1965, in which he reported his consideration of this matter in the light of (1) opinion of July 29, 1964, by the United States Court of Appeals for the First Circuit remanding Docket 7207 to the Commission for application of the requirements of Section 2(b) of the amended Clayton Act to the evidence of certain of the discriminatory transactions found unlawful by the Commission, and for possible clarification and modification of the order to cease and desist issued by the Commission; and (2) petition by counsel for the respondents, filed March 15, 1965, for leave to file a brief presenting their views as to the proper disposition of the Section 2(b) question remanded to the Commission by the Court.

Mr. Dixon recommended that the submitted draft of order granting leave to file be issued.

The action of October 15, 1964, approving an opinion and final order on remand was rescinded.

After consideration, the order was amended.

The Commission (1) directed that the respondents and Commission counsel may, within forty-five days after service upon them of appropriate order, file with the Commission a brief presenting their views as to the proper disposition of both questions remanded by the Court, namely, the application to the evidence of the requirements of Section 2(b) of the amended Clayton Act to the transaction referred to by the Court, and the possible clarification and modification of the order in Docket 7207 referred to by the Court; and (2) approved the revised order to the above effect.

Miss Jones was recorded as in favor of the foregoing action.

BORDEN CO.

17. Borden Co. v. F.T.C., 339 F.2d 133 (5th Cir. 1964), rev'd and remanded, 383 U.S. 637 (1966).

(a) Court Action: Order set aside.

(b) Commission Action:

1. On January 25, 1965, ordered General Counsel to request Solicitor General to file petition for certiorari. Vote: 4-1, Commissioner Elman not concurring.

2. On April 1, 1965 staff directed to prepare letter to Solicitor General transmitting memorandum prepared by Bureau of Economics. Vote: 5-0. 3. On April 7, 1965 ordered meeting with Solicitor General. Vote: 5-0.

JANUARY 25, 1965.

The Borden Company v. Federal Trade Commission, 5th Cir., No. 20,463 (Docket 7129-Borden Company)

Mr. Dixon presented memorandum of January 22, 1965, from J. B. Truly, Assistant General Counsel, approved by the General Counsel, expressing the opinion that it is of great importance to obtain a Supreme Court decision resolving the question of "like grade and quality" decided by the Court of Appeals in the instant Borden case, and recommending approval of the submitted draft of letter to Hon. Archibald Cox, Solicitor General, Department of Justice, transmitting pertinent papers and requesting Mr. Cox to file a petition for a writ of certiorari to review the opinion and judgment of December 4, 1964, of the United States Court of Appeals for the Fifth Circuit in this case.

Interested staff members from the Office of the General Counsel were present during the consideration of this matter.

After consideration, the letter to Mr. Cox, as submitted by Mr. Truly, was revised (1) to delete indication of the transmittal therewith of the following memoranda December 9, 1964, from Mr. Elman to J. V. Buffington, Assistant to the Chairman; December 29, 1964, from the Director of the Bureau of Economies to Mr. Buffington; and January 18, 1965, from the Director of the Bureau of Restraint of Trade to Mr. Buffington; and (2) to indicate the transmittal therewith. in place of the above memoranda, memorandum of January 13, 1965, from the Chief of the Division of Discriminatory Practices, Bureau of Restraint of Trade, to the General Counsel, which memorandum listed 15 cases that may be affected by the above Court decision.

On motion of Mr. Brown, the Commission directed that the Solicitor General be requested to petition the Supreme Court for a writ of certiorari to review the opinion and judgment in question, and the revised letter to Mr. Cox, making such request and transmitting pertinent material, was approved and ordered forwarded after signature by the Chairman.

Mr. Elman did not concur in the foregoing action, and it was directed that the following language be added to the letter to Mr. Cox: "Commissioner Elman does not concur, and will shortly prepare and forward to the Solicitor General a statement of his views."

It was agreed that Mr. Elman would circulate his statement, when prepared, to the other Commissioners.

APRIL 1, 1965.

(5) The Borden Company v. Federal Trade Commission, 5th Cir., No. 20, 463 (Docket 7129-Borden Company)

Mr. Dixon presented letter of March 11, 1965, from Archibald Cox, Solicitor General, Department of Justice, regarding the above matter, in which Mr. Cox, pursuant to the action of January 25, 1965, was requested to petition the Supreme Court for a writ of certiorari to review the December 4, 1964, opinion and judgment of the United States Court of Appeals for the Fifth Circuit with respect to the Commission's order in Docket 7129.

Mr. Cox (1) stated that he has obtained an extension of time for filing a petition for certiorari because he is very dubious about the wisdom of pressing the Commission's 2 to 1 decision in Docket 7129 upon the Supreme Court, (2) enclosed a memorandum dated March 11, 1965, stating informally the sources of his doubt and suggesting questions for further examination, and (3) expressed the hope that the Office of the Solicitor General may have some discussion of the problem with the Department's Antitrust Division, as well as the Commission.

With his circulation of March 31, 1965, Mr. Dixon submitted a draft of memorandum prepared by Dr. Willard F. Mueller, Director, Bureau of Economics. as a proposed reply to the memorandum of March 11, 1965, from Mr. Cox.

After consideration, the staff was directed to prepare a letter to Mr. Cox transmitting the memorandum prepared by Dr. Mueller and advising that the individual Commissioners may transmit their comments regarding the matter to the Department of Justice within the next few days.

It was agreed that the letter to Mr. Cox would be forwarded after signature by the Chairman.

APRIL 7, 1965.

(1) The Borden Company v. Federal Trade Commission, 5th Cir., No. 20,463 (Docket 7129-Borden Company)

Reference was made to the action herein of April 1, 1965, and after consideration, April 14, 1965, at 2:30 p.m., was agreed upon as the time for a meeting between the Commission and the Office of the Solicitor General for a discussion of this case.

JANUARY 25, 1965.

Re The Borden Company v. Federal Trade Commission, 5th Cir, No. 20,463-FTC Docket 7129.

Hon. ARCHIBALD COX,

Solicitor General, Department of Justice, Washington, D.C.

DEAR Mr. SOLICITOR GENERAL: On December 4, 1964, the United States Court of Appeals for the Fifth Circuit issued its opinion and judgment setting aside the Commission's order to cease and desist against the Borden Company. For reasons stated below, the Commission believes that certiorari should be requested. After a hearing on a complaint charging violation of Section 2(a) of the Clayton Act, the Commission, with one Commissioner noting his dissent and two Commissioners not participating, found that Borden had discriminated in price between competing purchasers of Borden brand evaporated milk and Borden's private label evaporated milk, that Borden brand milk and its private label milk were of like grade and quality, that the statutory criteria of injury to competition had been met as to both the primary and secondary lines of competition, and that Borden had failed in its effort to cost justify the discriminations. Accordingly, the Commission issued an order to cease and desist.

On appeal the court found that Borden always sold its private label at lower prices than its Borden Brand milk, but held that Borden brand and Borden's private label milk are not "of like grade and quality" within the meaning of Section 2(a). The court set aside the Commission's order for this reason, and thus did not reach the questions of injury and cost justification.

In reaching its decision the court recognized that the facts on the question of like grade and quality are undisputed and that the question is purely one of law, turning on the proper construction of the statutory phrase "of like grade and quality." It also recognized the "undisputed fact" that the chemical content of the products is identical and that they are packed exactly the same except that private label milk bears the private labels of purchasers and Borden brand milk

bears the Borden label (slip op. 4-5). The court held that because Borden brand milk is a premium product, having a public acceptance not enjoyed by private label milk, the two products are not "of like grade and quality." In short, it held that because of a preference on the part of consumers for Borden brand milk and because that milk commands higher prices than private label milk, the "grade and quality" of the milk are not the same.

The ruling of the court is important to the Commission in the future administration of the Clayton Act and to the antitrust bar in the litigation of treble damage actions. We believe Supreme Court review is warranted.

1. The court's disposition of the case is, we believe, contrary to the legislative history of the Act, contrary to the majority views expressed in the Report of the Attorney General's National Committee to Study the Antitrust Laws, 158 (1955), and contrary to the views of two prominent writers in the antitrust field (Patman and Austin). These authorities are discussed in the Commission's opinion (R. 100-105) and in its brief in the court of appeals (pp. 10-16), to which reference is made.

2. The Commission in reaching its decision relied in part (R. 101) on its prior decisions in Page Dairy Co., 50 F.T.C. Dec. 395 (1953), United States Rubber Co., 28 F.T.C. Dec. 1489 (1939), The Goodyear Tire & Rubber Company, 22 F.T.C. Dec. 232 (1936), reversed on other grounds, 101 F. 2d 620 (6th Cir. 1939), and United States Rubber Co., 46 F.T.C. Dec. 998 (1950), where it held that products identical in all respects except labels are of like grade and quality under Section 2(a). The court held that these cases are "clearly distinguishable" because in none of them "was there any showing that the purchasers paying the higher prices had received brand-name products which readily commanded a premium price in the market, while the purchasers paying the lower prices did not" (slip op. 9).

It is clear that in three of the cases it could have been shown that "the purchasers paying the higher prices had received brand-name products which readily commanded a premium price in the market, while the purchasers paying the lower prices did not." Each of the cases except Page Dairy involved a comparison between highly advertised brand-name products-U.S. Royal tires, Goodyear tires and U.S. Keds (canvas shoes)-and identical products sold under unadvertised private labels. Unless the entire theory of advertising is in error, there must have been a consumer preference for the well-known advertised products, and we believe the cases support the Commission's decision here.

But if the court's opinion correctly states the law, the Commission in similar price discrimination cases in the future will be unable to establish "like grade and quality," because plainly the consuming public prefers highly advertised brands over unknown private brands. The court's construction of the statute will permit any seller of a well-known advertised product to escape the prohibitions of Section 2(a) by selling the identical product at a lower price to favored purchasers under private labels.

3. The court stated (slip op. 11): "The Commission precedents which are more analogous to this case are those involving the closely related 'meeting competition' defense under Section 2(b)," citing prior Commission decisions in Anheuser-Busch, Inc., 54 F.T.C. Dec. 277 (1957), Standard Oil Co., 49 F.T.C. Dec. 923 (1953), Minneapolis-Honeywell Regulator Co., 44 F.T.C. Dec. 351 (1948), and Callaway Mills col., 3 Trade Reg. Rep. ¶ 16800 (1964). The court said: “We cannot approve of the Commission's construing the Act inconsistently from one case to the next, as appears most advantageous to its position in a particular case" (slip op. 12).

While the Commission in the cited cases did take consumer preference into account in determining whether there had been a good faith meeting of competition, it did not unqualifiedly carry over the 'like grade and quality' concept into Section 2(b). These cases stand for the principle, often applied by the Commission, that where the price of a premium product is reduced to the price of an unadvertised non-premium competitive product, there cannot be a "good faith" meeting of competition. It seems clear that consumers will prefer and will purchase a well-known advertised product if there is no price differential between it and an unknown brand. Thus in such cases prices are not met in any true sense they are undercut.

This is all the Commission held in the cited cases. For example, in AnheuserBusch the Commission held that "respondent cannot justly claim that it was meeting competition" (54 F.T.C. Dec. at 302). And in Standard Oil the Commission held that "public acceptance is determined in large measure by factors other than actual grade and quality" (49 F.T.C. Dec. at 952).

The court gave particular attention (slip op. 11-12) to the Commission's recent