FTC v. UNIVERSAL-RUNDLE CORP.
Argument of Robert S. Rifkind
Chief Justice Earl Warren: Number 101, Federal Trade Commission, petitioner versus Universal-Rundle Corporation.
Mr. Robert S. Rifkind: Mr. Chief Justice, may it please the Court.
This case is here on writ of certiorari to the Seventh Circuit upon the petition of the Federal Trade Commission.
It presents for decision the question of whether the enforcement policy of the Federal Trade Commission is to be determined by the Commission or by the several Courts of Appeals.
More particularly, the question presented is whether the court below exceeded the proper bounds of its authority, in staying the Commission's order that Universal-Rundle cease-and-desist from violations of the Robinson-Patman Act until the Commission makes an industry-wide investigation of the pricing practices of Universal-Rundle's competitors.
It is recognized on all sides I believe, that the issue here is governed by this Courts decision in Moog Industries which held that the Commission's determination whether or not to withhold the cease-and-desist order until competitors are proceeded against, is not to be overturned by the Court of Appeals in the absence of a patent abuse of discretion.
Universal-Rundle is a manufacturer of plumbing fixtures.
In 1957, it enjoyed net sales of approximately $24 million.
It sells it wares to some 8000 dealers under its UR brand name.
In addition, it sells plumbing fixtures to Sears, Roebuck and Company, which are retailed under Sears' private brand Homart.
Sears is of course a very large retailer.
Its annual sales volume exceeds $3 billion and Sears, Roebuck owned some 60% of Universal-Rundle's capital stock and I should say it was this intimate relationship between Sears and Rundle that led initially to the focusing of attention on Rundle.
Justice Abe Fortas: Does the Trade Commission order cover the Homart products or just the U.R. Products?
Mr. Robert S. Rifkind: It does not because it was eventually determined after very lengthy hearings, most of which had been deleted from this record that the Homart and the UR lines were not of like grade and quality.
On August 4, 1960, the Trade Commission issued two complaints charging Sears and Rundle respectively with violations of the Robinson-Patman Act.
The complaint against Rundle alleged that Rundle was violating Section 2 (a), in two ways; first, by selling fixtures to Sears under the Homart brand at lower prices than it sold its UR line of fixtures to competitors of Sears and second, by selling its own UR line at different prices to purchasers competing in the resale of the UR line.
A motion by Commission's counsel to consolidate the two cases was denied by the hearing examiner and hearings were then commences the Rundle case in October 1962.
Following the close of those hearings, the examiner found as I've just indicated to Mr. Justice Fortas that the Homart and UR lines were not of like grade and quality, and he therefore dismissed so much of the complaint as charged -- as charged Rundle with discriminating in favor of Sears.
With respect to the remainder of the complaint, the hearing examiner found that Rundle sold UR brand plumbing fixtures to some purchasers in the Philadelphia-Camden area at prices substantially below those charged by respondent for products of like grade and quality to other competing purchasers in the same market area.
He also found that in the competitive circumstances prevailing, the disfavored dealers were likely to suffer competitive injury if Rundle's discriminatory practices were to continue and he therefore ordered Rundle to cease-and-desist from discriminating in price between customers who compete in fact with each other in the resale of Rundle's fixtures other than the Homart line.
On cross-appeals to the Commission, the hearing examiner's initial decision was affirmed in all respects that are relevant here.
The Commission rejected Rundle's contention that the requisite injury to competition had not been shown.
In particular, the Commission held that the fact that price differential was -- were attributable to truckload discounts which were offered to all customers did not negate competitive injury because it has been shown that truckload discounts were beyond -- the truckload quantities were beyond the buying capabilities of some of the customers.
The Commission's final order was issued on June 12, 1964 and on July 20, 1964 Rundle petitioned the Commission to withdraw that order.
The petition also prayed that reentry of the order be stayed for 18 months that it be reentered only on 30 days notice to Rundle, and that an immediate temporary stay issue pending a decision on the petition.
The petition alleged that the stay was sought to afford the Commission sufficient time to investigate and institute whatever proceedings are deemed appropriate by the Commission to correct the industry-wide practice of granting discounts on truckload shippings.
The petition further alleged that if the cease-and-desist order was not stayed pending corrective action of industry-wide practices, Rundle would suffer competitive disadvantage and extreme hardship.
In support of these contentions, Rundle attached exhibits indicating that its six principal competitors, all offered truckload discounts.
It also urged that Rundle's market share exclusive of its sales to Sears was 5.75% ranking sixth in the industry and that Rundle suffered losses in the proceeding three and a half years whereas its six major competitors had enjoyed profits.
An affidavit of Rundle's marketing vice-president stated that the company may suffer further substantial financial losses if it must be the sole plumbing fixture manufacturer under an order to cease-and-desist.
The Commission denied the petition.
In doing so, it's stated that the fact that respondent may have incurred losses prior to the issuance of the order, does not support the contention that enforcement of the order will cause a financial hardship.
It also stated that the general allegation by respondent that its competitors are granting truckload discounts is not a sufficient basis for -- instituting industry-wide proceedings to condemn this practice nor is it a valid reason for withholding enforcement of the cease-and-desist order.
Rundle then sought review in the Court of Appeals of both the cease-and-desist order and that an order denying the stay.
The Court of Appeals reserved decision on the cease-and-desist order.
Accordingly, the merits of that order are not now before this Court.
On the other hand, the Court of Appeals set aside the Commission's order denying Rundle's petition for a stay.
The Court found that the Commission had directed its attack against a general practice which is prevalent in the industry, but that in doing so, it had selected one who share in the market is less than 60% whose discounts were lower on the average than its competitors'.
It also held that the Commission --
Justice Tom C. Clark: Would you say that the Commission -- that the Court of Appeals not reached the Commission's order on the merits?
Mr. Robert S. Rifkind: That is right, Your Honor, which puts us in a -- puts the Commission in a particularly awkward position as I'm sure you realize because we may have to --
Justice Tom C. Clark: If you -- if you prevail here, the case ought to go back to the Court of Appeals, does it?
Mr. Robert S. Rifkind: So we pray.
It held that the --
Chief Justice Earl Warren: Out -- out of the Court, how the Court of Appeals, they found these precise factors which followed in throughout the industry without reaching the merits?
Mr. Robert S. Rifkind: That is one of the great mysteries of this case Your Honor.
As I'm trying to point out in the minute, the Court of Appeals found that Rundle's competitors were guilty, more guilty than Rundle, but it declined to determine whether Rundle was guilty and I'm sure Mr. McAleer has very substantial criticisms of the order on the merits which he was urging also before the court and which hadn't been reached or which have to be decided at some point.
Under the -- I should just add at this point that under the decision, the Commission conceivably could launch an industry-wide investigation occupying it for good many years, and come back to find that its original order against Rundle is in some respect defective.
Furthermore, the -- the Court of Appeals held that the order of the Commission involved the sacrifice of a comparatively small manufacture when, as I suggest, when as I have suggested it's larger and more guilty competitors “are not prosecuted.”
Finally, it held that the Commission had a duty to conduct an industry-wide investigation and that Rundle's showing was sufficient to require the Commission to make Rundle's competitors parties to the proceeding against Rundle.
We submit that the Court of Appeals started from mistaken premises, applied an unsound legal standard and produced an entirely unworkable result.
First is we've just alluded too, it started with a premise that Rundle's competitors were guilty.
There is no basis in the record as far as we can see, as far as the Commission could see for reaching that as a definitive matter.
There are defenses.
There are individual circumstances that have to be shown in each case, a violation of 2 (a), a truckload discount is not a per se violation of 2 (a).
Second, the Court accepted at face value Rundle's assertion that it might lose business if the Commission's order is not stayed.
Indeed, the Court -- the Court apparently concluded sub selentio or perhaps ignored the question that the harm the Rundle would suffer from the order out weighs the harm its competitors would suffer -- I'm sorry, its customers would suffer from staying the order.
After all, the Commission had determined the people were su -- were suffering from these discriminatory practices.
In doing so, the Court of Appeals ignored evidence that Rundle's prediction of significant injury in implausible.
Thus, there was testimony in the record that Rundle had already ceased to deal with the smaller customers who had been unable to purchase in truckload quantities.
Nor, did the Court consider that under the Commission's order, Rundle remained free to grant discounts that are justified by lower costs, free to grant discounts to meet the prices -- prices of competitors in good faith and free to grant discounts that do not operate to discriminate between competing customers.
And I'd particularly like to stress the availability even under the order of the good faith meeting the competition defense because the Court of Appeals doesn't seem to have focused on the fact that Rundle pleaded as part of its own case, good faith meeting competition and then for reasons which it alone knows, failed to prove a good faith meeting a competition.
Justice Abe Fortas: Well, are you -- you're not suggesting to us are you that Rundle's just as well off with the order as it would be without the order?
Mr. Robert S. Rifkind: I'm certainly not suggesting that, but I am suggesting that there is an element here of bringing in through the backdoor what one couldn't prove or didn't prove when one had an opportunity to --
Justice Abe Fortas: But is that -- is that important?
Suppose the record showed beyond any possibility of argument, that Rundle's competitors were worse than Rundle was and all of the relevant respects and the Commission's order was -- was going to put Rundle out of business in the interest of its competitors.
Dose that make any difference in your theory of the case?
Mr. Robert S. Rifkind: No, I think that -- I think it is true that I -- that even if we assume that Rundle's competitors were all violating the law, much more egregiously than Rundle, the Commission has to be free to order its own business and take up affairs, make investigations when as in if it gets around to if it wants to.
Justice Abe Fortas: And this is not a unique situation in which the Commission has selected a smaller person in the industry which they have standard practices and -- for the proceeding against that personal -- that company and left its larger competitors happily doing their own business in the same old stance, is it?
Mr. Robert S. Rifkind: I suppose that has happened.
I do think that it's relevant, that Rundle is not without remedy if the facts or such, although I don't know whether they are or not.
Rundle is perfectly free assuming its competitors are injuring it to bring treble damage actions, to bring injunctive actions to stop that sort of activity.
And I believe that the Commission is entitled to rely in some measure on Rundle's determination to do precisely that.
That's one method of enforcing the law.
Justice Abe Fortas: Does Rundle have a remedy against its competitors in the 2 (a) of the Robinson-Patman Act?
Is that what you're suggesting?
This is -- this is a 2 (a) case, isn't it?
Mr. Robert S. Rifkind: This is a 2 (a) case.
Justice Abe Fortas: Now, you're telling us now that Rundle has a remedy against its horizontal competitors in the 2 (a) of the Robinson-Patman Act and allow price cutting sales or discriminatory sales to third persons?
Mr. Robert S. Rifkind: I think that's right.
I think if Rundle is, as it suggested, will be injured by those practices.
I don't see why there isn't a treble damage action and an injunctive action.
Justice Byron R. White: So it's a primary line case, that's --
Mr. Robert S. Rifkind: That's right.
Justice Byron R. White: Well, in the -- I take it you say that -- that the -- it's just irrelevant in the FTC proceedings what the Commission is doing -- these are the competitors and it may properly refuse to even listen to the arguments?
Mr. Robert S. Rifkind: I think the Commission under this Court's decision in Moog has some serious responsibilities which are its responsibilities, but which are not essentially reviewable, that is if it proceeds on a -- as long as it proceeds without reference to consideration that have no rational relation to a legitimate enforcement policy, I know --
Justice Byron R. White: But what if this sentence is -- what if -- what if this sentence brief can -- we just aren't interested in finding out what your competitors are doing.
You claim that your competitors are worse than you are, but even if we found that they were, we would still order you alone, it's just irrelevant.
We have to be able to order our own proceedings and we're proceeding against you now.
Don't -- don't mention your competitors to us.
Now couldn't -- is that an abuse of discretion?
Mr. Robert S. Rifkind: I should think that the Commission is entitled to decide that it will proceed against a few firms in many industries or many firms in the few industries or lone firm, in each industry that that's a legitimate policy that it could --
Justice Byron R. White: So there is that -- there isn't anything than this -- very little that anything it could do with respect to this question it would be an abuse of discretion.
Mr. Robert S. Rifkind: I -- I believe that the sorts of allegations that Rundle has made are on their face not the sort of allegation that can constitute a patent abuse of discretion --
Justice Byron R. White: Such as mentioned in Moog?
Mr. Robert S. Rifkind: That's right.
I -- I suppose that if the Commission were to say, “We're proceeding against firms whose stockholders are of Italian ancestry or whose directors made contributions to the Republican Party,” that would be I think an abuse of discretion.
Justice Abe Fortas: So now you think that Moog, from its words in Moog, industry is meant?
Mr. Robert S. Rifkind: Well, I think there are probably more -- there are probably other examples that could be found, but I do think that the words in Moog were a sort of saving clause dropped in the -- in the opinion against the possibilities that someday a very outrageous case would arise.
Justice Abe Fortas: Or some members of this Court may phrase it a little different?
Mr. Robert S. Rifkind: Yes.
I want to advert to two more premises that the Court proceeded on because I think they are also illustrative of the difficulties that this sort of review gets run into, because after all this comes up not on the record in the normal sense.
This isn't a review to see whether there is substantial evidence supporting that Commission determination.
The Court assumed that the Commission has wantonly proceeded against one of the smallest of a group of violators.
Indeed, the court found that “the industry is according to the record limited to a few.
Nothing in the record indicates how many firms there are in this industry.
The record does, on the other hand, indicate how many competitors Rundle has and they are more than a few.”
On page 112 of the record, Rundle's vice president, Mr. Backner named 17 firms with which Rundle was in competition.
And at page 171, Mr. Backner added an 18th and indicated that there were perhaps 20, 25 or more such firms.
Yet, the court below apparently focused only on Rundle's six largest competitors.
It failed to note that while Rundle is one of the smaller of the largest firms, it is nonetheless larger than most of its competitors.
But the court adverted to the fact not in the record that nearly a year after the Commission's denial of the stay, the Commission's counsel informed Rundle's counsel that an investigation could not then be undertaken because it would conflict within an industry, within an investigation of the industry being conducted by the antitrust division.
The Court of Appeals dismissed this latter investigation as somehow not qualifying as one by the Commission.
It thus leaves the Commission in the unhappy -- with the unhappy choice between letting Rundle continue with unlawful discriminations or launching in an investigation which is likely to immunize defendants and thus forwarded two pending criminal price-fixing cases, against leading members of the plumbing fixture industry.
Justice Abe Fortas: How do you get that immunity?
Mr. Robert S. Rifkind: Well --
Justice Abe Fortas: What do you mean when you said it's likely to immunizing?
Mr. Robert S. Rifkind: If pursuant to the instructions to conduct an investigation, the Commission called to testify any officer who is a defendant in this proceeding, in these criminal proceedings, he may well under Section 9 of the Federal Trade Commission Act obtain immunity.
Justice Abe Fortas: I don't know that the Commission usually precedes with this?
Mr. Robert S. Rifkind: Well, all I know --
Justice Abe Fortas: And why -- why would they have to call these people for re-trial and the examination?
Mr. Robert S. Rifkind: Somewhat to the antitrust divisions should win perhaps, they didn't call in the Rundle case -- Rundle's vice president who has now moved to dismiss the --
Justice Abe Fortas: Or --
Mr. Robert S. Rifkind: -- the indictment (Voice Overlap)
Justice Abe Fortas: -- when they exchanged to the proceeding?
Mr. Robert S. Rifkind: Well, but -- presumably, the investigation of the interest only is to culminates in a proceeding.
They are not just going to investigate this industry to inform themselves about it.
They're going to investigate it so that they could put Rundle and its competitors under like orders, at least that's the relief that I understand Rundle wishes.
Even if the Commission were to undertake, the investigation required by the Court of Appeals, it is faced with a whole series of quandaries.
If it is required to investigate the whole industry, however, many firms that maybe or only those 20 or 30 firms that compete with Rundle, or only those six or seven firms that Rundle has referred to in its petition, how thorough must an investigation be to satisfy the Court of Appeals?
Must it be nationwide in the scope or limited to a few markets?
And what is the Commission to do if after investigating this industry or some part of it, it concludes that there is no basis for issuing the complaints against Rundle's competitors.
The Court of Appeals apparently has found that the other firms are violating the law and has directed that the cease-and-desist order against Rundle be stayed pending corrective action.
These dilemmas, we submit are merely indicative of the fundamental difficulty with the decision below.
The Court of Appeals, we suggest, misunderstood this Court's holding in Moog Industries, that the Commission's determination to stay or not to stay, a remedial order, may not be overturned to the absence of a patent abuse of discretion.
We suggest that a Court of Appeals can properly hold that an administrative agency has people who abused with this discretion only if it finds that the agency has based its decision on consideration having no rational relationship to the relevant statutory policy to be enforced.
No such finding has been or could be made here.
As I have suggested in our judgment within the scope of discretion left by Moog, affirmed by Moog, a Commission -- the Commission is free to decide to proceed intensively or extensively against many firms in a few industries or a few firms in many industries, is free to decide that it could be most effective by proceeding against the largest firm in an industry or the most typical firm in an industry.
And it can elect, I submit, to make an example of one violator in an industry in the hope of the others will be brought around, if not by altruism, then by the in terrorem effect of the order or the threat of reality of private treble damage actions and injunction actions.
And again, the Commission may certainly act in the light of information that is received in confidence as to the enforcement plans of other agencies of the government.
All of these choices, whatever their wisdom or unwisdom fall well within the area of discretion committed by Congress to the Commission and may not be overturned by the Courts.
Chief Justice Earl Warren: Mr. McAleer.
Argument of Frank C. Mcaleer
Mr. Frank C. Mcaleer: Mr. Chief Justice, may it please the Court.
In a decision rendered on June 12th 1964, the Federal Trade Commission found that Universal-Rundle Corporation, a manufacturer of cast-iron and victor's China fixtures had violated Section 2 (a) of the Robinson-Patman Act by granting a discount averaging 10% on plumbing fixtures sold under respondent's brand name in truckload quantities.
The Commission ruled that such discounts may adversely affect competition on the buyer level since the truckload quantities were deemed by the Commission to be beyond the buying capabilities of certain of respondent's customers who competed with a customer buying in truckload quantities.
On July 20th, 1964, Universal-Rundle requested the Commission to stay the effective date of the order for at least 18 months and within that period of time for the Commission to undertake an investigation of the truckload discount practices of respondent's six principal competitors.
In requesting this stay, Universal-Rundle brought the following matters to the attention of the Federal Trade Commission.
First; the Commission was furnished with each of respondents six major competitor's price-list and price bulletins showing that plumbing fixtures purchased in truckload quantities were priced not 10% but approximately 18% below the price paid for identical fixtures by those competitor's customers in less than truckload quantity.
The Commission was advised if the company sale with Universal-Rundle branded fixtures accounted for approximately 5% or precisely 5.75% of the total industry sales.
With this market share being one of the smallest in the industry, while four of respondent's competitors' sales accounted for 66% of the total industry sales.
The leading manufacturer's share and a manufacturer who were shown to be granting a truckload discount of 18%, his -- that company's share of the market was 32% and the second breaking manufacturer's share of the market was 15%.
The Commission was informed by Universal-Rundle that it had incurred substantial losses during each of three years immediately preceding the entry of the Commission's order to cease-and-desist.
These losses amounted to over one-half million dollars, during each of the three years.
The FTC's attention was invited to publish by native data showing the substantial profits of its six principal competitors.
In an affidavit by its vice-president in charged of marketing, the company predicted that an immediate entry of the cease-and-desist order against Universal-Rundle for engaging in an industry-wide practice without the FTC taking some action to correct this industry-wide practice of granting truckload discounts would have the direct result of substantially decreasing its sales volume which would then be taken over by its large competitors who were free to continue to engage in the same practice of granting truckload discounts.
Chief Justice Earl Warren: May I ask if -- if the procedures of all six of those competitors that you speak of in regard to less than truckload quantities were identically to those or that of Rundle?
Mr. Frank C. Mcaleer: We alleged Mr. Justice Warren that the -- that the discounts that the competitors granted were done in the same manner as Universal-Rundle granted its discounts.
Chief Justice Earl Warren: Then your answer – your answer is that they weren't identical?
Mr. Frank C. Mcaleer: That is our contention, yes sir.
On August 4th, the Federal Trade Commission refused to stay the effective date of the cease-and-desist order holding that our showing was insufficient to warrant any such action.
Furthermore, the Commission in denying the stay took the position that our showing concerning its competitor's truckload discounts was not sufficient for the Commission to undertake any investigation of any of the competitors.
In short, the FTC refused to take any action in the plumbing fixture industry except to insist that an immediate order be entered against Universal-Rundle Corporation for granting a 10% truckload discount while its competitors were not even to be subjected to an FTC investigation for offering truckload discounts averaging 18%.
Following a series of correspondence --
Justice John M. Harlan: Do you -- do you claim that the Commission acted in bad faith?
Mr. Frank C. Mcaleer: I -- we claim sir and the Court of Appeals Mr. Justice Harlan agreed with this that the Commission abused its discretion --
Justice John M. Harlan: Yes, but that -- that wasn't --
Mr. Frank C. Mcaleer: -- when it refused --
Justice John M. Harlan: -- that wasn't my question.
Do you ever charge them with bad faith?
Mr. Frank C. Mcaleer: No sir, I don't say that they -- I will not charge them with bad faith, no Mr. Harlan.
Following a series of correspondence between complaint counsel for the Commission and Universal-Rundle's counsel which appears as Appendix D to the governments brief, and after names of customers for two of the largest manufacturers had been furnished to the Federal Trade Commission, the Commission in April of 1965, advised respondents counsel that it would not then undertake an investigation of Universal-Rundle's two largest competitor because such an investigation might conflict with the pending investigation by the antitrust division of the Department of Justice.
By the time this case reached the Court of Appeals, the FTC acknowledged in its brief, filed in that Court, that the customer information which we had furnished to the Commission tended to show current violations of Section 2 (a) by the two largest competitors, namely American Radiator and Kohler Company.
The Court of Appeals in setting aside the Commission's order held that Universal-Rundle had made a strong showing that its competitors were engaged in the same practice as found to be illegal when done by respondent.
The Court held that under the circumstances of this case, the FTC's refusal to even make an investigation and that is the significant ruling of the Court of Appeals, the Commission's refusal to even undertake an investigation of our relatively few competitors who were granting higher discounts was a patent abuse of the Commission's administrative discretion.
Chief Justice Earl Warren: Do you agree with counsel of the government that the Court of Appeals did not reach the merits of your case?
Mr. Frank C. Mcaleer: That's correct Mr. Warren, they did not.
Chief Justice Earl Warren: But how could they -- how could they have decided then that the -- that the practices in all of the industry were identical with that of company Rundle and that it was on the gross abuse of discretion for them to treat one differently from the other?
Mr. Frank C. Mcaleer: The Court of Appeals merely held Mr. Warren that we had made a sufficient showing to the point that the Commission should have undertaken an investigation of our competitors to see whether or not the Commission should issue a complaint or take some action with respect to its competitors.
Chief Justice Earl Warren: But -- but didn't it base that – didn't they base that opinion on the fact that the conditions throughout the industry were identical and that -- that the Commission had selected this one company to move against and therefore it was wrong?
Mr. Frank C. Mcaleer: Yes, Mr. Warren, they did it.
Chief Justice Earl Warren: Or did they not -- did they not go to the merits then?
Mr. Frank C. Mcaleer: They -- they did not go to the merits Mr. Justice Warren.
They -- they merely held that we had furnished sufficient showings so that the Commission should have undertaken some type of investigation.
If you assert, it's -- it's similarly to when the Federal Trade Commission decides in any industry-wide investigation.
When the Commission undertakes an industry-wide investigation, the Commission does not first pick out a guinea pig and issue a complaint and an order to cease-and-desist against that company before proceeding on an industry-wide basis.
What the Court held was in essence if you would Mr. Chief Justice, the Court held that we had shown the Commission or given the Commission sufficient information so that the Commission should have been followed its announced enforcement policies and undertaken an industry-wide investigation of the plumbing fixture industry.
Justice Abe Fortas: Well, as I understand it, perhaps this is wrong, in effect what the Court did was to say that that the Commission erred in denying your petition that it undertake an industry-wide investigation and that meanwhile, the Commission's order should not be effective against it?
The Court held that the Commission erred, but the Court said we will not decide whether the cease-and-desist order against Universal-Rundle was justified until after the completion of the industry-wide investigation and from the completion of the industry-wide investigation presumably, the Commission could have broaden the Universal-Rundle case to include the other respondents or I suppose the Court might have thought that upon the completion of the industry-wide investigation the Commission could show the Court that nobody else should have been joined.
Is that about the way you make it out?
Mr. Frank C. Mcaleer: Mr. Justice Fortas, certainly the Court left the Commission free to decide how they wanted to undertake an investigation and what the Commission wanted to do after they did conduct that investigation in the plumbing fixture industry.
The Commission was free to do anything it sought that after a conducted --
Justice Abe Fortas: I don't think there is anything like this in the books?
Mr. Frank C. Mcaleer: No sir.
Justice Abe Fortas: The Court of Appeals never done anything --
Mr. Frank C. Mcaleer: No, sir.
Justice Potter Stewart: -- with this, is it?
Mr. Frank C. Mcaleer: No sir.
I -- I have -- I have been unable Mr. Justice Fortas to find a precedent or a case on what the Court of Appeals did in this case.
It was the view of the Court of Appeals that the Commission's refusal to either stay the order or undertake an investigation of the industry-wide practice of grating truckload discounts was inconsistent with the overriding policy of the amended Clayton Act.
And the Court ruled that the pendency of the Department of Justice proceeding did not serve to excuse the Commission's refusal to investigate.
The basic question as I see it presented to this Court for decision is whether the Federal Trade Commission, the agency charged by the Congress with the primary responsibility for enforcement of the Robinson-Patman Act acted arbitrarily in an abuse of its discretion when it chose to ignore the pricing practices of Universal-Rundle's competitors yet insisted that an immediate order be entered against that company and that company alone for engaging in the same pricing practice.
We have set forth three reasons in our brief why we think the Commission committed a patent abuse of discretion in this industry.
Briefly summarized they are as follows.
The court below was unable to detect how enforcement of this order against Universal-Rundle Corporation coupled with an FTC flat refusal to investigate any other plumbing fixture manufacturer would be in conformity with the statutory objectives of Congress in enacting to the Robinson-Patman Act.
That Congress was placing its trust in the FTC that it would not enforce the statute in such a way as to lessen or impair competition at any distributional level.
It is our position that the FTC in taking the action it did in this case, failed to consider how it's refusal to investigate any the other manufacturer's truckload discounts could only contribute to a further increase in the high degree of concentration shown to exist in this industry.
Yet, entry of an order against Universal-Rundle would not benefit any of Universal-Rundle's customers.
Justice John M. Harlan: Well, the Commission didn't refuse to ever do, to investigate, did it?
They just said they wouldn't hold up this order?
Mr. Frank C. Mcaleer: I interpret the Commission's statement of August 4th, 1964 Mr. Justice Harlan as they may refuse, they would refuse --
Justice John M. Harlan: Then why would they have undertaken an investigation?
Mr. Frank C. Mcaleer: I construed the Commission is saying that in its statement of August 4th, 1964, yes Mr. Harlan.
And I think if there was any doubt as to whether or not the Commission would undertake an investigation, I point the Court's attention to the series of correspondence that I had with the complaint counsel following the Commisi -- Commission's denial of our stay.
Justice John M. Harlan: Is that in the record?
Mr. Frank C. Mcaleer: It appears at -- as Appendix C to the government's brief.
To comply with --
Chief Justice Earl Warren: Where would we find the language that you rely on to say that the Commission refused to --
Mr. Frank C. Mcaleer: Page 62 and 63 of the --
Chief Justice Earl Warren: The record?
Mr. Frank C. Mcaleer: -- transcript of the record, yes sir.
To comply with the order, Universal-Rundle has only two practical choices.
The company could eliminate truckload discounts or it could terminate those customers the FTC deems incapable of buying in such quantities.
If it made the first choice that is if it eliminated truckload discounts, the company's smaller customers would still be competing in the marketplace with other manufacturer's customers who continue to receive the price concessions on truckload quantities.
Since it is obvious I submit that a company who's share of the market is a small as Universal-Rundle's is in no position to be a setter of marketing business, be a setter of policy with effective prices in this industry.
And for this reason, elimination of truckload discounts would not affect the pricing practices of the large manufacturers such as American Standard, Kohler and the other companies mentioned in our petition for a stay.
Universal-Rundle's smaller customers, under these circumstances would be in no better competitive position as a result of the FTC's order.
If Universal-Rundle chose the second method and terminated customers unable to buy in truckload quantity, these customers undoubtedly would continue to purchase plumbing fixtures at the higher discriminatory price from one or more of respondent's competitors.
Under these circumstances, it is quite apparent we submit that immediate entry of the order against Universal-Rundle would not make the adverse effect on the buyer level of competition since the terminating customers would still be buying in less than truckload quantity from a competitor of UR -- Universal-Rundle and at a higher discriminatory price.
On the other hand, regardless of which of the two methods are taken by Universal-Rundle to comply with the FTC's cease-and-desist order, it's market share could only be decreased and it's last buyers would shift from Un -- was last buyers would shift from Universal-Rundle to the competitors who have larger market shares and who are free to continue to engage in the industry's wide practice.
The second reason we contend as to why the FTC abused its discretion in this proceeding is that it failed to heed the ruling of this Court in Moog Industries Inc. versus the FTC reported at 355 U.S. 411.
On page 413 of the Moog decision, this Court stated as follows.
“Although an allegedly illegal practice may appear to be operative throughout an industry, whether such appearances reflect facts and whether all firms in an industry should be dealt with in a single proceeding or should receive individualized treatment, our questions that call for discretionary determinations by the administrative agency,” end of the statement from the Moog decision.
We submit that in Moog, this Court concluded that before the FTC exercised its discretion in determining whether it's a cease and des -- enter an order to cease-and-desist against one company, the Commission should have made some effort to find out whether the alleged -- allegedly illegal practice is in fact industry-wide in scope.
Here, when the FTC was confronted with document showing that respondent's competitors were granting truckload discounts of approximately 18%, here where in this very record that we've shown, five of the seven non-truckload customers of respondent also purchased from one or more of the other manufacturers, here, where the FTC found that a discount averaging 10% may lessen the competition in an industry in which price competition was intense.
The FTC flatly refused to take any action to obtain the very type of information which this Court in Moog has held it should have had to make an informed decision as to the most efficacious method of enforcing the law.
The issue presented to this Court in Moog was whether an order to cease-and-desist should go into effect against one company before the time other competitors who were already being prosecuted or investigated were brought under similar orders.
This Court in effect held that the Commission was the master of its own timetable insofar as entry of an order to cease-and-desist was concerned.
It is readily apparent that this Court in Moog did not condone or sanctioned a flat refusal by the FTC to ignore industry-wide violations as it has done in the plumbing fixture industries.
Universal-Rundle has not asked that its order be stayed until similar orders are entered against one or more of its competitors.
All the company ask is the FTC to investigate its competitors and after such an investigation for it then can determine whether the best enforcement policy is to invoke its adjudicatory processes to obtain compliance in this industry.
And if so, whether an order should be entered against Universal-Rundle immediately or whether other methods such as the issuance of guides, trade regulation rules, assurances of voluntary compliance from each one of the manufacturers, would be the most expeditious and effective meth -- effective method of obtaining industry-wide compliance.
The third reason why the FTC's action in this proceeding was an abuse of discretion is that in issuing an order against respondent and refusing to even investigate its competitors that Commission departed from its own announced enforcement policy.
The Federal Trade Commission has officially reported to the Congress in its annual report for 1964 and I quote from page 1 of that report, “Whenever a law violation was identified, the Commission instead of applying the simple and superficially vigorous method of hoping individual violators undertook to find out if their competitors were doing likewise.
If they were, the Commission then decided how best this competitively generated evil could be eliminated with the least delay” of what the Commission has told the Congress is its enforcement policy.
The Commission has elaborated on this policy in testimony before the house appropriations subcommittee which is reported at 408 and 409 of hearings before Subcommittee App -- Appropriations of the Independent Offices 89th Congress first session and I quote from the chairman's testimony of the Commission to the Subcommittee on Appropriations of the Congress.
“We have given a mandate to our enforcement bureaus, instead of taking these cases at as they come, one by one, the first thing they are to determine is whether or not this is an isolated situation that has come to our attention or whether it is something that is engaged in competitively by all competitors.
If so, to step back and then with our resources, engage in what I would hope to be some basic planning and determine what would be the best tool and approach for us to take.”
I'm still quoting from the testimony of the chairman of the Federal Trade Commission.
“Historically, the Commission was wedded to the procedure of taking our customers or their cases as they came.
The Commission had hoped that with the tools that Congress had afforded the Commission to work with that even on a case by case method that proceeding against one, the others if it affected them, would take notice and follow suit, it just didn't worked that way.”
It could be said,” said the chairman of the Federal Trade Commission, “In all fairness to these people that if there were 50 engaged in the same practice, what certainty would a party have that if they stopped, the other 49 would stop.
In our country, very rarely can a man be his 'brother's keeper.
I think this is the basis of the law.
We are trying to enforce our law in the American way equitably and fairly.”
That is the end of the quotation of the testimony by the chairman of the Federal Trade Commission before the House Appropriation Committee.
We submit, if the Court please, that the Commission's action in this proceeding is diametrically opposed to and in conflict with the above quoted enforcement policy of this agency.
Here, the chairman of the Federal Trade Commission has told a Congressional committee that at every instance when it identified the law of violation, its staff is under specific instructions to find out if competitors are engaged in the same practice.
Now, once it is determined that the practice is industry-wide, then and only then according to the Commission statements to the Congress does the Commission decides the best important method to eliminate the illegality.
Justice John M. Harlan: What was the occasion at that stage?
Mr. Frank C. Mcaleer: This was a justification of Commission's Appropriations for the fiscal year 1965.
In short, this announced enforcement policy which the Commission refuses to follow in this proceeding suggests that the FTC has interpreted the Moog decision in precisely the same manner in which respondent has urged in its arguments before this Court.
The chairman of the Federal Trade Commission has candidly stated on several occasions why this enforcement policy has been undertaken by the Commission.
He stated in a speech on June 16th, 1965, that may add for the benefit of the Court, copies of all of the speeches that we have referred to in our briefs had been filed with the clerk, that the policy according to the chairman, that the policy reported by the Commission to the Congress quotes, “gives all violators an opportunity to rid themselves of the illegalities simultaneously without suffering competitive injury in the process.”
The chairman has summed up in a few precise words the rational of the lower court's relief in the instant case.
Mr. Dickson who astutely observed “The man who is willing to comply with the law simply can't afford to if the competitor is allowed to go on violating it.”
No explanation was given by the Federal Trade Commission for deviating from its announced enforcement policy in the proceeding against the Universal-Rundle at the time the agency refused to grant the stay of its order.
In this Court, the FTC claims that an industry-wide approach was not appropriate because the truckload discount practices of respondents were and I quote from page 12 of the reply brief “Ancillary to the main case involving discriminations in favor of Sears, Roebuck and Company.
The FTC however ruled that that company's prices to Sears, Roebuck were not in violation of the Act.”
I submit that the FTC's characterization of the truckload discount practices as inquiry to its main case is in effect an admission that no complaint would have been issued if the company's prices to Sears had not been challenged.
If this is correct, there would appear to be no reason for the Commission to have entered an order against the company unless it was at that time ready to undertake an industry-wide investigation of the truckload discount practices of other manufacturers in the industry which of course it refused to do.
In denying the stay in August of 1964 and refusing to take any action with respect to the other manufacturer's discount, the Commission, I submit, has done exactly and precisely what the Federal Trade Commission and its chairman have labeled as both “On bear to the sole company who is prosecuted and is,” and I quote again, “a superficial method of enforcing the law.”
This Court, we respectfully submit, should not reverse the lower court's decision in the instant case since the decision is in conformity with the announced enforcement policies of the Commission.
I submit a reversal would be tantamount to this Court encouraging the FTC to proceed, to enforce the law in a manner which that very agency has and no in certain terms described as unfair and in conflict with the original purpose of the Commission of guiding the business without bringing down upon it the menace of the law.
Chief Justice Earl Warren: Mr. McAleer, I -- I've read pages 62 and 63 of the transcript.
Would you read me the language please that you rely on saying that they refused to consider the -- consider at any time the -- the like conduct on the part of others in the industry?
Mr. Frank C. Mcaleer: Yes sir, Mr. Chief Justice, at page 62?
Chief Justice Earl Warren: 62.
Mr. Frank C. Mcaleer: They go on on page 63, and they set forth the type of information which they say is necessary before they would undertake an investigation of the manufacturer's truckload discounts.
They state there that while the practice of granting a discount may under certain circumstances such as --
Chief Justice Earl Warren: Where -- where is that – oh --
Mr. Frank C. Mcaleer: At page 63.
I'm sorry --
Chief Justice Earl Warren: -- it's at the top -- at the top of the page --
Mr. Frank C. Mcaleer: -- Mr. Chief Justice.
Chief Justice Earl Warren: -- I've --
Mr. Frank C. Mcaleer: The second -- the second line is while the practice of granting such discount may under certain circumstances such as -- such as those shown in this record of this proceeding result in price discriminations having prescribed competitive effect, the practice is not necessarily illegal as indicated in respondent's petition.
Then they go on to add all of the various elements that they think would be necessary in order for the Commission to undertake an investigation.
Chief Justice Earl Warren: Yes.
Justice Byron R. White: Do you think that's all abusive?
Mr. Frank C. Mcaleer: I beg your pardon sir?
Justice Byron R. White: Is that all is abusive?
Mr. Frank C. Mcaleer: I think it -- I think it is an abuse of the Commission's discretion for it to refuse to undertake the investigation of the respondent's competitor.
Justice Byron R. White: But how could it prevent these past views for a preliminary information?
Mr. Frank C. Mcaleer: Sir, we gave -- sir we gave them all of the information that we had in our possession with respect to the competitor's truckload discounts.
Justice Byron R. White: But would that affect the Commission enforced the matter of investigation [Inaudible] and then make that their allegation that all of the competitors would already think that?
Mr. Frank C. Mcaleer: I think, Mr. White, Mr. Justice White that certainly based on the information that we showed to the Commission, the Commission should have undertaken an investigation.
I don't think Mr. Justice White that just merely to come in and say it is an industry-wide practice that therefore, the Commission should go ahead and undertake an investigation of the whole industry, but we did bring to the attention of the Commission aback that these six manufacturers, competing manufacturers of the Universal-Rundle were in fact granting a higher truckload discount if you would please, and was involved in a proceeding against Universal-Rundle Corporation.
Justice Byron R. White: What if the Commission says [Inaudible] investigate as well as you surrender you older dispute?
Mr. Frank C. Mcaleer: If Mr. Justice White, the Commission had said that and in doing that, the Commission had decided that we would not have been competitively injured, I could not quarrel with the --
Justice Byron R. White: Or do you think they could have met it very well and -- to be competitively injured if you have to stop this and the others who are really doing it, we're going to investigate cease-and-desist that this [Inaudible]?
Mr. Frank C. Mcaleer: I would think Mr. Justice White that if the Commission is going to follow his announced enforcement policy that it would not knowingly take any step which would place Universal-Rundle Corporation at a competitive disadvantage because the chairman of the Commission and the Commission itself has now recognized that we would have an industry-wide practice that in order to avoid unfair treatment, they should take every step they possibly can to avoid placing one company under an order before the remaining companies in the industry are similarly under and order.
Chief Justice Earl Warren: And Mr. McAleer, I am -- I -- I have read this document, page 62 and 63, and I understood it to say in the beginning that -- that all differential between truckloads and less than truckload amounts are not illegal and that their cease-and-desist order against you does not prevent you from having some differentials between them provided you have not been -- they're not in anti -- anticompetitive, and then they go on to say after that consequently, the general allegation by respondent that its competitors are granting truckload discounts is not a sufficient basis for in this -- instituting industry-wide proceedings to condemn this practice nor is it a valid reason for -- for withholding enforcement of the order against the respondent in this matter?
The premise that -- they premise such statement on the fact that, that all differentials are not not bad and that those differentials are open to you.
Mr. Frank C. Mcaleer: Mr. Justice Warren --
Chief Justice Earl Warren: Is -- am I -- am I incorrect in that?
Mr. Frank C. Mcaleer: No sir, but Mr. -- Mr. Justice Warren, what -- what we were wanted the Commission to do was to undertake an investigation of our competing -- the competitors truckload discount because how could the Commission insist on entering an order against Universal-Rundle Corporation for a truckload discount which average but 10% and the Commission refused to even undertake an investigation of the other manufacturers of the industry.
Chief Justice Earl Warren: Well, let's just assume for the moment that you were the only one who in the industry who -- who used these differentials for anticompetitive purposes.
But still the others had had differentiated -- differentials that were not anticompetitive, would that prohibit the FTC from proceeding against you until they investigate the whole industry to decide if anybody else was -- was committing the same violations that you are?
Mr. Frank C. Mcaleer: You are assuming Mr. Justice Warren that our differentials --
Chief Justice Earl Warren: With what?
Mr. Frank C. Mcaleer: You are assuming Mr. Justice Warren that that our differentials are the only ones that have a substantial adverse effect on competition.
Chief Justice Earl Warren: Yes, but they say that it's only your general allegation that is insufficient.
In other words, that you haven't -- you haven't established that the thing -- that the practices of the other -- other companies are the same that therefore, they are -- you assume equitable for them to proceed against you, that's the way I read this.
Mr. Frank C. Mcaleer: If you would Mr. Chief Justice, I believe that we have established that each of the six other manufacturers granted truckload discounts of 18% in a precise same manner as we did.
The Commission went on to rule that certain of our customers were unable to buy in truckload quantities and because these truckload quantities were beyond the buying capabilities of certain of our customers, the customers buying in less than truckload quantities were paying a higher price at a 10% price differential was sufficient to cause an adverse effect on the competition.
All the Commission had to do was to undertake an investigation of the other manufacturers and find out whether or not there was any co -- any other -- any customers of those manufacturers who would likewise unable to buy in truckload quantities.
The Commission then could have applied the same rational at -- that it did applied it in this case and that is certainly in an industry where price was so significant and so important that where you had a price differential of 18% and you had some customers in a trading area who were unable to buy in truckload quantities that that was sufficient for the problem -- before the Commission to conclude that injury to competition maybe adversely affected.
Chief Justice Earl Warren: Thank you.
Mr. Rifkind, will you address yourself to that particular point please?
Rebuttal of Robert S. Rifkind
Mr. Robert S. Rifkind: I'm not sure, I'm --
Chief Justice Earl Warren: Would you address yourself to that particular point just for a moment?
Mr. Robert S. Rifkind: I'm not sure -- I'm -- if I have exactly which point it was.
Chief Justice Earl Warren: Well, alright.
Mr. Robert S. Rifkind: I'm sorry.
Chief Justice Earl Warren: Proceed on your own, then.
Mr. Robert S. Rifkind: I did want to address myself to one question they raise and that is the I -- the question of the identity of the systems that these six or seven companies were using.
I submit that you cannot tell from the record, the material submitted to the Commission whether those systems are identical.
You can't tell to what the -- the discount is applied and therefore you can't tell where you come out at the other end.
And with -- with which products are identical with which, so it's very hard to appraise the relative sides of these discounts.
Justice Abe Fortas: Mr. Rifkind, is there any provision in the statute that requires the Federal Trade Commission to conduct an investigation upon petition with or without any showing?
Is there any provision in the statute that requires Federal Trade Commission to conduct an investigation?
The answer to that is no, isn't it?
Mr. Robert S. Rifkind: I think that's right, Mr. Justice Fortas.
Justice Abe Fortas: But there is a provision in the statute, Section 11 under which this proceeding was brought.
It says whenever the Commission has reason to believe that somebody is violating the statute, the Commission shall issue a complaint, am I right?
Mr. Robert S. Rifkind: Correct.
Justice Abe Fortas: And it talks about a complaint against a person and that is to say an individual complaint, is that right?
Mr. Robert S. Rifkind: That's right.
But the -- the -- the critical question here is whether it has to launch an investigation in order to decide whether or not it has reason to believe.
And it obviously receives complaints a great -- a great -- against the great many people continuously and it's continuously in the position of having to appraise which of these deserves its attention.
I don't know of how you could tell just from the face of the allegations made by Rundle which – that it is the most meritorious of claims presented to the Commission.
Secondly, it's -- it is also I think quite clear in response to the question Mr. Justice Harlan put, I think also the Chief Justice that the Commission has not precluded itself forever from investigating this industry.
Indeed, in the very correspondence to which Mr. McAleer referred, at page 54 of our principal brief, the Commission's counsel wrote to McAleer, “In the meantime, it would be of considerable assistance to us and would contribute substantially to any investigation which we do undertake if you would advise me if the reasons they then have used which your client has for believing that some of the accounts listed in the exhibits to your letter buy fixtures from such and such firm.
Finally, all of the things that the Court indicated in Moog which might prompt the Commission to investigate this matter or not come down essentially to the critical factor that the Commission alone is empowered to develop its enforcement policy and to allocate its resources.
This -- the court below ignored that teaching.