FTC v. TEXACO
Legal provision: Federal Trade Commission
Argument of Daniel M. Friedman
Chief Justice Earl Warren: Number 24, Federal Trade Commission, petitioner versus Texaco Incorporated et al.
Mr. Daniel M. Friedman: Mr. Chief Justice and may it please the Court.
The question in this case which is here on a writ of certiorari to the Court of Appeals for the District of Columbia Circuit is whether the Federal Trade Commission correctly held that a sales-commission plan by which the respondent, Texaco distributed, promoted -- not distributed, I'm sorry, promoted and sponsored the sale of tires, batteries and automotive accessories made by the respondent, Goodrich Tire and Rubber Company.
Promoted and sponsored the sale through the Texaco service stations in return for a commission paid to Texaco by Goodrich whether the commission properly held that this constituted an unfair method of competition in violation Section 5 of the Trade Commission Act.
The respondent Texaco or respondent Goodrich also had a similar sales commission plan with the Firestone Rubber and Tire Company but I will focus primarily in this case on their relationships with Goodrich.
This case is one of three companion cases that the commission instituted in 1956 challenging the sales-commission method of distributing tires, batteries and automotive accessories which are commonly referred to as TBA in the industry.
And each of these cases named as a respondent a major oil company and a major tire company.
In each case after protracted proceedings, the Trade Commission held that the sales-commission plan was an unfair method of competition and entered a broad cease and deceased order which prohibited each of these companies from engaging in this type of plan.
At the end of the 1964 term, this Court upheld the Commission’s order directed against the plan involving Atlantic Refining Company and the Goodyear Tire and Rubber Company.
Subsequent thereto, the Court of Appeals for the Fifth Circuit upheld the Commission's order directed against the plan involving the Shell Oil Company and Firestone.
Now, while those two cases were going through the courts, in the present case, the Texaco-Goodrich case, the Court of Appeals for the District of Columbia Circuit on a prior appeal set aside the Commission’s order.
The Commission filed a petition for certiorari in that case and a week after this Court decided the Atlantic case in favor of the Commission it vacated the judgment of the Court of Appeals and in effect remanded the case to the Commission with directions to reconsider it in the light of Atlantic.
Upon such reconsideration, the Commission issued a new opinion and which it again in the light of Atlantic concluded that this sales-commission system was an unfair method of competition and added a cease and deceased order the same as the order that had been upheld by this Court in Atlantic.
Once again, the Court of Appeals set aside the Commission’s order and directed the Commission to dismiss the complaint.
Now, the economic relationship that exists between the respondent Texaco and its retail gasoline service station dealers is basically the same as that was presented to this Court in the Atlantic case.
Justice Potter Stewart: Except in the Atlantic case there was coercion in here --
Mr. Daniel M. Friedman: Those -- I'm speaking Mr. Justice of just the economic relationship the first element, the power relationship between the company --
Justice Potter Stewart: I see.
Mr. Daniel M. Friedman: And the dealers.
I will come in a moment and --
Justice Potter Stewart: Right.
Mr. Daniel M. Friedman: Explain the differences in the way in which the power was exercised.
Justice Potter Stewart: Correct.
Mr. Daniel M. Friedman: Texaco is one of the largest petroleum dealers in the country.
It distributes its products to 30,000 service stations many more than involve in Atlantic.
In fact, this represents about one-sixth of all the service stations in the country.
These service stations operate on two bases as in Atlantic about 40% of them are so-called lessee dealers who lease their station from Atlantic, the remainder are so-called contract dealers who either lease their station from a third person or in fact on a station.
The way in which the stations are lease here is the same as basically as in Atlantic, the dealers hold the stations under short-term leases, one-year leases which permit termination by either side upon 10 days notice.
The leases have similar housekeeping clauses which permit immediate cancellation if the lessee fails to comply with these situations.
In a different -- in addition, in each instance of course the dealer is completely dependent upon Texaco for its supply of gasoline.
Thereto, they have a yearly contract which is terminable by the oil company on 30 days notice.
The sales commission plain in this case was originally entered into a 1940 and it was renewed in 1943.
And under the plan, Goodrich agrees to pay Texaco a 10% commission on all Goodrich TBA that is sold through the Texaco gasoline stations or through wholesale outlets and this payment it stated in the sales commission agreement is in consideration of the aid to be given and the services to be rendered by your sales organization in connection with promoting the sale of Goodrich products.
And as I've indicated to Mr. Justice Stewart, I will shortly come to what they did in carrying out this obligation to promote the sale of products.
Now, during the five year period for which date is in the record 1952 to 1956, Goodrich and Firestone together sold to Texaco, $245 million worth of TBA under this plan and these two companies paid to Texaco in this period approximately $22 million in commissions for the services that Texaco performed under the contract.
Now, in evaluating the Commission's decision in this case and in analyzing this Court's decision in Atlantic, the parties have agreed that it maybe appropriately broken down into three elements; three elements in necessary to sustain the Commission's determination of violation.
First, did Texaco have controlling economic power over its dealers?
Secondly, in the performance of the sales-commission contract, did Texaco exercise that power?
And third, was there an adverse effect upon competition?
Chief Justice Earl Warren: We'll recess.
Mr. Friedman, you may continue your argument.
Mr. Daniel M. Friedman: Mr. Chief Justice and may it please the Court.
The Court of Appeals in this case ruled that Texaco just as Atlantic did have dominant economic power over its dealers that the record shows that in this case the dealer is no less than Atlantic were completely depending upon the oil company for their economic survival.
And I just like to correct something that I said in my earlier announcement as to these leases which I apparently miss spoke myself.
The precise terms of the lease are that they run from year to year but they are automatically terminable 10 days before the end of the year.
And the gasoline contract similarly ran from year to year and a terminable 30 days before the end of the year.
I don't want to have any suggestion that they could be terminated within the period of the yearly term.
Justice Potter Stewart: And they're terminable by either party?
Mr. Daniel M. Friedman: By either party.
Justice Potter Stewart: And as I -- then the facts good many of these service station operators are lessees of Texaco.
Mr. Daniel M. Friedman: That is right.
Justice Potter Stewart: But a great many are or at least to some are also lessees of other people and some own their property.
Mr. Daniel M. Friedman: That's correct.
Roughly 60% are either owners of the property or lessees from third persons and roughly 40% about 13,000 up to 30,000 all lessees from Texaco.
But the -- in their fundamental characteristics, these agreements are the same, they are short term, they have the housekeeping provisions and of course as this Court has noted on several occasions these gasoline station people are small businessmen in every sense of the word.
They have what for then as a very substantial investment in their service station and the service station itself is a relatively expensive proposition and as this Court correctly pointed out we think in Atlantic as result of all these disparities these two people do not just bargain as equals.
There's a tremendous disparity in bargaining power and in these circumstances understandably the service station dealers are reluctant to do anything that might antagonize their relationship with the oil company dealers.
Now, since the Court of Appeals has found in this case and upheld the Commission's determination that the oil company has this economic power of its dealers, the two remaining issues in this case is whether the Trade Commission was wanted in concluding in the light of the Atlantic decision that what they did, what Texaco did in this case in performing the sales commission agreement constituted an exercise of that power and also that in the result of such exercise was to cause a serious impediment to competition.
And in approaching that problem, I think it's appropriate once again to stress the limited nature of judicial review of the Commission's determination that a particular practice is an unfair method of competition.
This Court in Atlantic pointed out that where the Congress has provided that an administrative agency initially apply a broad statutory term to a particular situation our function is limited to determining whether the Commission's decision has warned in the record and a reasonable basis in Loew, it went on to say that while the final word is left to the Court necessarily we give great discretion to the Commission's determinations.
Justice Abe Fortas: Mr. Friedman, may I ask you at this point, is there evidence in the record as to whether any of these stations and of TBA of other manufactures?
Mr. Daniel M. Friedman: Oh!
Yes and we --
Justice Abe Fortas: And as the evidence is to how substantial that was?
Mr. Daniel M. Friedman: It's difficult to say how -- there's no question that they did.
In fact, the examiner found that all of them handled some TBA that was so-called nonsponsored.
But the evidence indicates that much of this handling of the so-called nonsponsored product was in fact the so-called occasional pickup business that customer came in and wanted a couple of tires or needed some sparkplug or something that need to fill, fill it in.
There's no qualitative a data in this record as to precisely to what percentage of the dealers or what percentage of total TBA was sponsored.
But we do have the fact that over five-year period as I indicated they sold a total of $245 million worth of TBA through the Texaco outlets.
Now, I'd like at the very outset to point out and acknowledge that this case in a number of respect to significantly different than Atlantic insofar as the exercise of the power is concerned and insofar as what the effects upon competition were.
In the first case, we make no claim in this case now that there was any coercion by Texaco of its dealers.
That is dealers were not threatened that they would have their leases cancelled if they should handle competing products.
Secondly, we don't have here what we had in Atlantic the policing by the oil company of its dealers.
They did not for example receive information from the tire company as to dealers to whom the tire company couldn't sell and take steps to do that.
They didn't have the so-called phantom inspectors going around and checking in that sense on the company.
There's nothing here to show that Texaco would pull down signs advertising competing products.
And in addition to that unlike Atlantic, we don't have here a dramatic shift in business following the initiation of the sales-commission plan in Atlantic.
This Court will recall it as tremendous shift in business over a period of a year when the sales-commission plan was initiated.
We don't have that here.
Now, on the impact on competition, in Atlantic, there were an impact that three levels in this case, there's only an impact at one.
In Atlantic, what happened was Atlantic divided its operating territories between Goodyear on the one hand and Firestone on the other hand and thus eliminated all inter-brand competition between the two tire companies.
We did not have that here.
Secondly, in Atlantic, the arrangement was that each dealer was assigned to a special supply point, he had a purchase from one source of Goodyear or Firestone and that had the effect of course of eliminating all intrabrand competition between dealers in the particular rubber companies such as Goodyear in competing for the custom of a single dealer.
But what we do have here and what the Commission pitches its case on is the impact on competition upon the competing suppliers of TBA.
That is the people who were competing with Goodrich and Firestone to sell to the Texaco stations.
The Commission pointed ruled that the differences, the factual differences between this case in Atlantic were immaterial because it said that the Texaco sales-commission on agreement and the words that used were, in its fundamental operation and effect is indistinguishable from the one held unlawful in Atlantic.
The Commission interpreted this Court's Atlantic decision in effect is holding his files.
It said that this Court rule that while coercive practices aggravate the restraint imposed by the sales-commission plan.
It is the oil company's power over its dealers, derived from the contractual relationship between them and the utilization of that power through the performance of the promotional services required by the sales-commission agreement which renders the sales-commission plan unlawful.
In other words, the Commission held here is what this Court we think recognized in the Atlantic but the basic vice of the sales-commission plan was the utilization of economic power in one market the gasoline market to restrain competition in another market, the TBA market.
And we think that the Commission properly drew that conclusion here because Texaco no less than Atlantic we think, brought its economic power over its dealers to bear in a way that gave the Goodrich Company and Firestone Company a competitive advantage over other sellers of TBA and selling to the importance segment of the TBA market that was represented by the numerous Texaco service stations which were located basically throughout most of the country.
Now, the Commission summarized at considerable length how Texaco had used its economic power in the performance of the sales-commission contract.
It listed; I'll refer to six instances.
The first thing is that even before the dealer was signed up for as a dealer, the Texaco people stressed to him the importance of carrying adequate stock of TBA and also urged upon him to select either Goodrich or Firestone.
And if he does select one of these two sponsored brands, Texaco takes the initiative and introduces him to the representative of the rubber company.
Before the station is actually opened, Texaco frequently informs either or both of Goodrich and Firestone of the opening of such station although the record does also indicate that in many instances, the rubber companies were aware of this themselves and made the first sales pitch.
Texaco actively promote, participates in the promotion campaigns of Firestone and Goodrich.
At their various dealer meetings, they have training courses at those courses of the sponsored products are frequently used for the training and display purposes.
And in addition to that, representatives of the rubber companies frequently attend this meeting.
Chief Justice Earl Warren: What form does that advertising take you, Mr. Friedman?
Mr. Daniel M. Friedman: Well, it's advertising -- it varies again, they frequently do advertise the sponsored products and let me say Mr. Chief Justice, we don't claim that this is the only thing in the record.
There's evidence in the record of course that they do advertise nonsponsored products but we think as I shall develop that this is really immaterial at the critical thing is that they did play a very active role in promoting the sale of the sponsored products to their dealers.
And finally, the Commission said, perhaps most effective of all that Texaco salesman continually carries the message in his day to day contacts with the dealers.
In this regard is important to remember that these Texaco salesmen who were most directly involved in pushing the sponsored TBA products also play a critical role in the annual dealer evaluations and in determination of whether the dealer's list and contractual relations with Texaco are to be renewed.
And the Commission concluded that the consequence of these promotional efforts by Texaco was to impress upon Texaco dealers through constant repetition and in a variety of ways that Texaco whose favor the dealer must court has a strong interest in their purchase of the sponsored products.
Now, the record in this case indicates that although Texaco did inform its dealers that they are independent businessmen who had the freedom to select what other brand of TBA they wanted.
In fact, its performance to this contract, its recommendation, its promotion, its sponsorship of the Goodrich and Firestone products did put competing distributors of TBA at a very definite disadvantage in selling to Texaco outlets.
The Commission called 31 witnesses who are representatives of competing wholesale sellers of TBA.
These witnesses testified basically as to the difficulties they had in selling to Texaco outlets.
They testified that in some instances there were outlets to whom they couldn't sell at all.
They testified as to other Texaco outlets, they would sell them on occasional item that they couldn't get them to stock the products.
They testified as to numerous instances where they receive and stop calling upon the Texaco outlets because they just found it was a waste of time, they couldn't sell to them.
And then they testified into some instances not too many admittedly but a substantial number in which the Firestone -- I'm sorry which the Texaco dealers explain that they would unwilling to purchase the competing products because of the fact they were told they had to carry a sponsored brand.
And I think the Commission fairly summarized this evidence when it said page 91 of volume 6 of this little document that we have here which contains most of the things is that -- that as a result, many Texaco dealers as result of Texaco vigorous sales campaign to its dealers, many Texaco dealers were left with the impression that Texaco would look with disfavor upon their purchase of nonsponsored TBA products and that they were acquired to purchase the sponsored TBA.
Now, the practical effectiveness program I think is well brought out in the testimony of a man named Richard Tidwell which is set forth in volume 2 of the record.
Mr. Tidwell was an airline pilot who went into the service station business.
He was a lease dealer for two years and then left because he wanted to go back into flying.
And he testified that when he was interviewed they explained to him the advantages of TBA recommended Goodrich or Firestone and he selected Firestone.
At a later point, he considered the possibility of taking on a cheaper brand of tires.
And at page 1211 of the record at the top of the page he explained what happened.
He said, “I was thinking seriously about putting in a line of the second cheaper brand of tires.”
And I explain this to Mr. Fitz for authentically he was a Texaco representative there.
He told me at that time and I will say this much in his words as possibly said, “Dick, we cannot tell you not to handle these tires but we attempt to be more lenient or look with favor on our dealers who are more loyal to us.”
As a consequence, I told them that I would not handle the tires.
And then down at the bottom of the page, Mr. Tidwell was asked, “Mr. Tidwell, why didn't you ever carry any other brand of TBA in your station other than Firestone?”
The top of page 1212 he said, “When I found out that the Texas company desired me to carry only one line, I endeavored to work with them.”
And the same thought was repeated at the top the latter part of page 1217 when Mr. Tidwell was asked, “Why he had asked from Mr. Fitz' advice about handling these competing tires?”
He said, “I asked for two reasons.
One, I had confidence in this judgment.
The other is if he had any objections because I wanted to stay on good standing with the Texaco Company.”
Now, this is --
Justice Hugo L. Black: Who was that employee?
Mr. Daniel M. Friedman: Mr. Tidwell -- the employee was a Mr. Fitz who had the position of being manager of the Goodyear Bulk Refinery I'm sorry, Goodrich Bulk Refinery in the, I' sorry Texaco Bulk Refinery in the area where he was working.
He was a Texaco official with whom he had dealt in negotiating his lease.
Now, indeed, it's rather difficult to understand why these two large companies would pay $22 million to the Texaco Company if they didn't think that in return for this day the were getting some advantage that they could not have gotten for their own sales efforts.
This Court in Atlantic pointed this out when it's stated that it is difficult to escape the conclusion that there would have been little point in paying substantial commissions to oil companies were it not for their ability to exert power over their wholesalers and dealers and ability adequately demonstrated on this record.
The Court of Appeals however rejected the Commission's finding that Texaco had exercised its economic power basically on two grounds.
First, the Court said page 112 of this little sixth volume of the appendix, the Court of Appeals said, “A finding of coercion is the threshold requirement of a determination of exercise of dominant economic power.”
It read this Court's in Atlantic decision as so holding and since it's set aside the Commission's finding that there have been done -- that there have been coercion it concluded as the first ground that the finding of exercise economic power could not stand.
Justice John M. Harlan: Mr. Friedman, supposing the -- you had the same record but you have no commission (Inaudible)?
Mr. Daniel M. Friedman: Well, I would think that the Commission feature plays a critical role in this.
I don't know what the Commission -- the Trade Commission would do on this but it seems to me it's a very different case where the oil company makes an independent judgment and says to its dealers, we recommend one product rather than another or where this being paid to do this.
I think the -- Mr. Justice, the impact upon competition presumably would be the same but you don't have this other element and I want to say that the Commission of course has not undertaken to decide this question.
Justice Byron R. White: Do you think it could be a different case or wouldn't you be making the same argument?
Mr. Daniel M. Friedman: I might be Mr. Justice but I just don't know what the Commission --
Justice Byron R. White: Yes, but the only significance of the Commission is what?
Mr. Daniel M. Friedman: The significance of paying of this loss, --
Justice Byron R. White: It's just an inference from that you draw in first that they did something?
Mr. Daniel M. Friedman: No, that the -- well, there are two things about it.
Justice Byron R. White: Is it something to benefit the suppliers?
Mr. Daniel M. Friedman: Well, and I will put it the other way if I may that the fact -- that the suppliers were willing to pay the substantial amount.
It seems to us it's a pretty clear indication that the suppliers felt that in the performance of these agreements Texaco is giving something that they could not obtain themselves through its economic power.
Justice Byron R. White: You mean, you don't infer from the Commission that they actually did do something --
Mr. Daniel M. Friedman: Oh!
Justice Byron R. White: Only that the suppliers felt they did?
Mr. Daniel M. Friedman: No, no.
Of course they did.
They did all the things -- I'm sorry, they did all the things I've indicated in performing the contract which apparently was satisfactory to both Goodrich and Firestone.
Justice Potter Stewart: And you don't -- could you think the Atlantic decision -- opinion covers this case?
Mr. Daniel M. Friedman: We think that the basic rational of Atlantic, be the facts in this case are different we think.
Justice Potter Stewart: Do you think the position that you presented here in Atlantic covers this case?
Mr. Daniel M. Friedman: I think Mr. Justice --
Justice Potter Stewart: Which are really two different cases?
Mr. Daniel M. Friedman: These are different cases, I tried and I think I successfully urged upon the Court in Atlantic at least it was my submission that the Atlantic case involved only the facts of Atlantic.
It didn't have to go beyond the facts of Atlantic.
Justice Potter Stewart: Which involved coercion?
Mr. Daniel M. Friedman: That involved coercion, yes.
But we --
Justice Potter Stewart: Don't you think the opinion in Atlantic -- what further and covers this case?
Mr. Daniel M. Friedman: We think Mr. Justice the opinion in Atlantic said that without regard to coercion neither the coercion was not the essential element of the violation, coercion was merely a symptom, a form in which the oil company exercise its power.
Justice Potter Stewart: So, maybe Atlantic doesn't hold something that covers this case?
Mr. Daniel M. Friedman: No, I don't -- I'm not suggesting that Atlantic holds, that Atlantic covers this case in the sense that the decision in Atlantic controls this case.
What I do suggest is the basic reasoning and rational of Atlantic covers this case.
I'd like to also add Mr. Justice that in Firestone case the Fifth Circuit held that the absence of coercion was not fatal.
No, it's the Fifth Circuit did not read this opinion -- Court's opinion in Atlantic as holding that even without coercion nevertheless the Commission might condemn the system.
Justice Abe Fortas: Mr. Friedman, would you agree however that that shows something more than the existence -- mere existence of economic power?
Mr. Daniel M. Friedman: You have to show some exercise of the power.
Justice Abe Fortas: You have to show the use of economic power to favor Firestone and Goodyear --
Mr. Daniel M. Friedman: Yes.
Justice Abe Fortas: In this case.
Mr. Daniel M. Friedman: Yes.
Justice Abe Fortas: And you believe that that is evident in the findings below?
Mr. Daniel M. Friedman: Yes, the findings of the Commission, yes.
Justice Abe Fortas: Findings of the Commission.
Mr. Daniel M. Friedman: Yes, we think what they have done here while not as much as obviously as they did in Atlantic.
Nevertheless, is enough to warrant the Commission in concluding that this had a sufficiently significant impact on competition.
Justice Abe Fortas: Because certainly if you showed nothing more than the lease arrangement between Texaco and the stations the mere fact that Texaco receives a commission from the tire companies would not be enough, would it?
Mr. Daniel M. Friedman: That well -- they have --
Justice Abe Fortas: But that's all the record show?
Mr. Daniel M. Friedman: Well, if that maybe Mr. Justice if that were all the record show, do we think the record here shows it could been more had we think they did fully perform their obligation under the sales-commission contract to promote the sale of TBA and there as I say they performed the obligations insufficiently satisfactory manner to the oil companies that they're willing to pay substantial amount.
Justice Abe Fortas: Do you think that promotional activity with the stations standing alone would be enough to constitute the necessary use of down in economic power?
Mr. Daniel M. Friedman: Yes, the promotional activities would be and that's basically what the Commission held here.
Justice Byron R. White: And that's all there is in this case?
Mr. Daniel M. Friedman: Well, that's right, the promotional activities plus of course the effect on competition.
Justice Byron R. White: Well, I mean that's all the -- that's all Texaco did?
Mr. Daniel M. Friedman: That's right.
They promoted the contract in the context of their economic relationship --
Justice Byron R. White: Do you say that is the exercise of power?
Mr. Daniel M. Friedman: That's right.
Justice Byron R. White: What kind of power is it?
Mr. Daniel M. Friedman: It's the dominant economic power, the power that Texaco have.
Justice Byron R. White: So, if you exercise a dominant power, you've done what?
Mr. Daniel M. Friedman: I'm sorry.
I don't understand your question.
Justice Byron R. White: Well, you've affected some consequence apparently when you exercise this dominant power?
Mr. Daniel M. Friedman: Well, when you exercise the dominant power over the dealers and the result of which is -- the result of which is --
Justice Byron R. White: Do they have to do some thing that they can't help doing?
Mr. Daniel M. Friedman: Well, if they don't feel free -- they don't have a free choice when they come --
Justice Byron R. White: Was that coercion or not?
Mr. Daniel M. Friedman: Well, depending, it may depend on how you use the term.
It's not overt coercion, it's not coercion in the sense that the Court --
Justice Byron R. White: Well it's the use of a dominant economic power to make somebody do that he may something he doesn't want to, what's that?
Mr. Daniel M. Friedman: Well, it's not so much something like don't want to do.
I think there is and I think the reason --
Justice Byron R. White: They may not want to do.
Mr. Daniel M. Friedman: He has it -- doesn't have the --
Justice Byron R. White: What there going to do whether they wanted to do it or not.
Mr. Daniel M. Friedman: It's coercion in that sense but coercion has been used in this case I think primarily to refer to so-called overt coercion and that is if you might use the word, the real clubbing as distinguished from the gentler touch.
The -- now, there's another aspect of the Commission's decision of the Court of Appeals decision which is the Court of Appeals seem to think and we of course disagree that this Court in its Atlantic decision defined the precise limits of the Commission's power to condemn a sales-commission plan.
And then they review all of the acts that Texaco had done, line them up against the acts at Atlantic had done say this was significantly different and therefore concluded that the Commission could not treat this an exercise of the economic power of Texaco.
Again, we think that's not what Atlantic held.
Atlantic merely decided on the facts before it that the Commission was justified and we think the Court of Appeals here has approached the review of the Commission's order in the wrong way.
It seems to us what the Court of Appeals should've done has not looked and saying, is this case on all force with Atlantic?
It should've said is despite the differences between this case and Atlantic was the Commission justified in concluding that nevertheless this practice -- this sales-commission system did constitute a sufficient exercise of power and did have a significantly sufficient impact on competition to warrant condemning it.
And this brings me to the third element of the equation if you will.
The effect of this plan on competition, now, in the Atlantic case, this Court recognized that the basic impact of the sales-commission plan upon competition was comparable to a tie-in arrangement that is in each case the person who was doing the purchasing felt constrain to exercise, to make his choice not on a completely free basis but upon some feeling that he had to do, he had to satisfy the oil company.
And it therefore concluded that in determining the impact on competition, it was appropriate to apply in this area the standards that had been developed in the tie-in cases, that is it was enough to show that a not insubstantial amount of commerce was affected and it was unnecessary for the Commission to make a lengthy and protracted analysis of the market.
In the Atlantic case, the total amount of sponsored TBA that was sold over a five-year period under the sales-commission agreements between Atlantic and Goodyear and Firestone was slightly over $50 million over five-year period.
In this case, in one year, the last year 1956 the total sales were approximately $58 million and over the five-year period the total sales involved in this case were almost five times at Atlantic.
That is $245 million as against $50 million in Atlantic.
And of course when a not in substantial volume of commerce is tied up this way, the effect on competition is enough even though not all the dealers were tied up, even though many of the dealers handle competing products and even though many of them didn't handle sponsored product at all.
The critical thing we think from this record is that the effect of the Texaco sales-commission plan has been effectively defense off from a substantial segment of the TBA market represented by Texaco dealers competing sellers of TBA.
Now, there are two other factors involved in considering the impact on competition that I think it's appropriate to mention.
When the Commission decided this case on remand, it already had decided the two other TBA cases.
And in the course of studying these three cases it had learned a great deal about the TBA industry and one of the things that had been disclosed in the course of these three cases whether it's only the very large tire companies that are able to have these sales-commission plans.
It also it's clear that the service stations by their nature of becoming increasingly important outlets for the distribution of TBA.
And thus, it becomes more and more important to the competing manufactures of TBA, the smaller manufacturers who were not able to enjoy these sales-commission plans that we eliminate the restraints on access to the market that these plans represent.
In the Atlantic case, this Court referred to the destructive effect on commerce that would result from the widespread use of these contracts by major oil companies in supplies.
And this is not wholly theoretical because we do have in this case the evidence that a small battery manufacture in Texas had great difficulty in selling to the Texaco outlets.
In addition, there's a further anomaly in this situation if this sales-commission plan is permitted to go forward what would amounts to is that even though Texaco is two or three times larger than Atlantic, Texaco is permitted to engage in the basic kind of arrangement that is prohibited to Atlantic and some of the other companies.
And finally, I think it's important to stress the basic prophylactic role that Congress intended Section 5 of the Trade Commission Act promote.
I refer to Justice Brandeis' notable dissent in the Gratz case which this Court only two or three years ago recognized is now the proper approach.
That is under Section 5, it's not necessary to await until the point that a restraint of trade turns into a full blown violation of the Sherman Act or the Clayton Act.
The Commission can step in and even at a preliminary stage because of the dangerous tendencies which it practice has and we think that this practice -- this practice, there's a demonstrated anticompetitive effect but in any event, the possible potential dangers of these plans continue as this Court recognized in Atlantic for both (Inaudible) for both the competing smaller manufacturers of TBA and the wholesale distributors of those commodities.
Argument of Milton Handler
Mr. Milton Handler: Mr. Chief Justice and may it --
Chief Justice Earl Warren: Mr. Handler.
Mr. Milton Handler: Please the Court.
When the 1965 following the Court's decision in Atlantic, Your Honors remanded this case to the Commission for reconsideration in the light of the principles laid down in Atlantic, it was perfectly plain that as it is now that Texaco was a large company engaged in the sale of petroleum products to its dealers that Goodrich is a large tire company and the business of selling TBA items that Texaco's leases and sales agreements with its dealers are of short duration and that Texaco's dealers purchase substantial quantities of the sponsored Goodrich TBA.
If it had been Your Honors' intention therefore in Atlantic to hold that the sales-commission agreement and these circumstances as per se unlawful.
There would have been no point in remanding our case for application of Atlantic to the facts of record here.
All that was needed --
Justice Potter Stewart: Unless Mr. Handler, we thought the Commission had not articulated a sufficient basis for any such decision.
Mr. Milton Handler: That may be Your Honor, but the order of the courts says, remand for application of the principles of Atlantic.
And if there was per se illegality although it was necessary to -- was to enter a final order of reinstating the Commission's order.
We do not read Atlantic as adopting a rule of per se illegality.
This was not the ground upon which my good friend and former student Mr. Friedman argued Atlantic.
Justice Byron R. White: You can take it very well then.
Mr. Milton Handler: I think it took extremely well, Your Honor.
He's one of the most distinguished graduates of our school.
On oral argument, he emphatically declared and I quote “the Government does not suggest that there may not be commission sales agreements which would satisfy Section 5.”
He squarely recognized and again I quote, “That there may very well be situations where eliminating some of the things they namely, Atlantic and Goodyear did in this case would not have the same adverse effect on the competition as the plan, the Commission condemn.”
He repeatedly in response to the questions from the Court disclaimed a per se theory of the legality.
And no claim of per se unlawfulness was made in the Government's brief in Atlantic.
More importantly, Mr. Justice Clark's opinion does not hold that the mere existence of superior economic power in the oil company be with its dealers results in illegality.
The opinion makes clear that the gravamen of the violation consist of the misused of that power with concomitant anticompetitive results.
In a nutshell, the Commission's order in Atlantic was upheld because the oil company, and I'm quoting now from Mr. Justice Clark, “Marshaled its full economic power in a continuing campaign to force its dealers and wholesalers to buy Goodyear products.”
And that rational was precisely the one that the Government advanced in its brief to this Court and again, I quote, “In some, Atlantic marshaled the full measure of its economic power over its dealers to carryout a pressure campaign designed to get them to handle Goodyear and Firestone products and because of the extent of that power, the campaign was highly successful.”
Justice William J. Brennan: I don't know this -- what this argument approves or disapproves --
Mr. Milton Handler: What's that --
Justice William J. Brennan: It doesn't help the Court as I understand it to decide the merits of this case, what are the merits of this case?
Mr. Milton Handler: I'm going to go into that Your Honor.
I'd wanted to clear the way that Your Honors did not hold it sales-commission was per se unlawful.
Therefore, its validity depends upon the facts and I want to go into the facts to show that the facts here do not want the application of Atlantic because the facts are totally different.
Justice William J. Brennan: Well, maybe they weren't the applicant of some other rule, we're not captives of Atlantic, we didn't decide everything in Atlantic.
Mr. Milton Handler: Well, Your Honors say -- the --
Justice William J. Brennan: We're not a first year class in law school.
Mr. Milton Handler: What was that?
Your Honors remanded the case for the application of Atlantic to the facts of this case.
That's what your mandate said and Mr. Friedman has acknowledged in response to a question that Atlantic does not control and the Court of Appeals held that Atlantic was not controlling because the facts were different and that's why it's one of the reasons why it set aside the order of the Commission.
Now, why is this case Your Honors different from the other two?
This case is different because Texaco unlike Atlantic and Shell did not wilt its economic power to interfere with the freedom of choice of its dealers.
Twice has the Court of Appeals so found after careful review of this bulky sixth volume record applying the same principles as those established in Atlantic and enforced in Shell by the Fifth Circuit.
The Court below found that the Texaco dealers were entirely free to handle the TBA of their own choice without any interference whatsoever on the part of Texaco.
It found that it is been Texaco's policy to respect the independence of its dealers and that its practices have matched that policy.
This was the testimony of literality scores of witnesses.
Many call to the stand by the Commission itself.
It's our submission Your Honors that a plan which leaves dealers entirely free to accept or to reject sponsored products cannot produce any anticompetitive effect and unless the Court adopts a doctrine of per se illegality cannot be found to be unlawful and that was why I started my argument by trying to point out that the Court had not in the prior case to reach any conclusions as to per se illegality.
Justice Abe Fortas: Professor Handler, I asked Mr. Friedman some questions about the record with respect to evidence as to handling by the service stations of the products of others.
Mr. Milton Handler: I'm delighted to answer that Your Honor.
The Commission asked Texaco to compile certain information which it did.
The Commission offered this evidence itself.
This evidence showed that less than one-third of Texaco dealers handled any of the sponsored tires and only about one-fifth handled the sponsored batteries.
This means that 80% of the batteries that they handled were nonsponsored and about 70% of the tires were nonsponsored and they handled a great variety of other products.
This record as we pleat with the advertisements of 250 different TBA items which the Texaco dealers handled and advertised.
Now, the curious thing that we find about the Government's argument here is that it neither contends for a rule of per se illegality nor does it make a frontal attack on the findings of the Court of Appeals upholding the freedom of Texaco dealers to handle TBA of their own choice.
Instead, in its brief, the Solicitor General appears to be propounding a brand new theory of liability.
I might say this case has been before this Court twice, before the Court of Appeals twice, before the Commission three times and each time that I've appeared, I've been confronted with a new theory of the legality.
Before I address myself to the new theory, I'd like to with Your Honors permission underscore what is not involved in this case as Mr. Friedman pointed out, we're not confronted here with coercion that's out of the case nor does the case involved any claim of a tie-in.
That argument was made before the Court of Appeals on the first ground and it was rejected because it's unsupported by the facts and it has never been devoured.
Justice William O. Douglas: Professor Handler, I thought what Mr. Friedman.
Mr. Milton Handler: I'm sorry I don't hear you Mr. Justice.
Justice William O. Douglas: I thought what Mr. Friedman said was we are not involved here with a case of overt coercion not that we are not involved with the case of coercion, am I wrong?
Mr. Milton Handler: Well, I'll accept that Your Honor for purposes of the argument.
The coercion order, the two provisions of the coercion order have been stricken and the Government has agreed to have them stricken and I will point out that there is no nothing that resembles any kind of coercion whether it would overt or implied or covered.
There's just nothing in this record that will support any such conclusion.
Justice Potter Stewart: In the sense that -- I suppose you say then that Texaco didn't have any kind of dominant power of any kind.
Mr. Milton Handler: No, the Court of Appeals held that Texaco had dominant power.
We disagree but that issue is not before that court.
Justice Potter Stewart: Alright, let's assume that they have dominant power and now what is that mean?
Mr. Milton Handler: What was that?
Justice Potter Stewart: What is that mean to have dominant power?
Mr. Milton Handler: We think that dominant power means the power to force people to do something against their will.
Justice Potter Stewart: And did the -- but the Court of Appeals said that Texaco had not attempted to exercise that power?
Mr. Milton Handler: That is correct and this record establishes the correctness of that conclusion.
Justice Potter Stewart: Now, apparently though there were some promotion by Texaco?
Mr. Milton Handler: That is correct.
Justice Potter Stewart: And that in your book and apparently in the Court of Appeals' book is not exercise of dominant power?
Mr. Milton Handler: That is correct.
The nature of this agreement --
Justice Potter Stewart: And a man with dominant power can recommend TBA without exercising its dominant power?
Mr. Milton Handler: That is correct.
We say power --
Justice Potter Stewart: And otherwise you lose a case?
Mr. Milton Handler: That's our submission Your Honor that power plus salesmanship does not add up to illegality.
Justice Potter Stewart: Well, what should I've understood Mr. Friedman to say when he said, “Well, we may not have a club here but we have the gentler touch.”
Mr. Milton Handler: I would deny that we have any kind of a touch.
I deny empathically and I don't think this record will establish that we have any touch.
And I will now explain why.
I was trying to put aside the things that are not involved in the case.
There's no claim here that we agreed with Goodrich that we've require our dealers to handle their products.
Finally, there's no longer of any claim here that Texaco in fact required its dealers to handle the sponsored TBA.
That was the basis upon which all of the prior decisions rest the requirement.
Indeed, in this petition for certiorari, the Government said that the Court of Appeals conclusion that the Texaco dealers were free to charge nonsponsored -- to choose nonsponsored TBA is irrelevant.
Our submission is that that fact the dealer freedom of choice is not only irrelevant, it is decisive.
Justice Thurgood Marshall: Well, Mr. Handler, what about the one Mr. Friedman read to us where they went to the dealer and said -- dealer said, “I'd like to buy cheaper tire?”
And Texaco representative say, “You're free to do whatever you want to.
But we tend to be nicer to people who are loyal.”
How would you characterize that, as a little push?
Mr. Milton Handler: Your Honor, I will answer that specific incident and then I'm going to review other incidents in this record which led the Court of Appeals to say that this finding of the Commission with respect to the supplier testimony was not supported by the retroact.
In the case of Mr. --
Justice Thurgood Marshall: That you agree on --
Mr. Milton Handler: What's that?
Justice Thurgood Marshall: That witness did testify to that?
Mr. Milton Handler: Yes, I'm going to answer that.
Justice Thurgood Marshall: Oh!
Mr. Milton Handler: Mr. Tidwell as my good friend points out had the conversation with the dealer, with the salesmen which he asked for the salesmen advice.
Now, the record shows that Tidwell continued to sell these nonsponsored tires as well as nonsponsored batteries.
And he told the examiner that he was handling Firestone because he preferred to handle Firestone.
So we had dangling in the air a conversation which apparently has no effect because he continues to handle the other products just after the conversation exactly as he did before.
Now, what is left to this case?
The Government in its brief says that even if the dealers were not constrained they felt that they were constrained.
This, I think Your Honor is the velvet glove.
The argument is made that the Texaco dealer though not in fact required to buy a sponsored product.
Nevertheless, does not exercise the freedom that is his of selecting TBA brands solely on the basis of the comparative merits of the competing products.
The suggestion is that the dealer may be concerned albeit erroneously that Texaco would disapprove of his purchase of nonsponsored TBA so that in the absence of strong countervailing, the fact is the dealer is most likely to acquiesce in Texaco's recommendation to purchase the sponsored products.
Now, I believe we have the right to ask where in this record is the proof that the Texaco dealers do not purchase TBA on the basis of irrelative merits of the particular brand.
Where is the proof that there must be strong countervailing factors before Texaco dealers provide nonsponsored products?
Where is the proof that Texaco dealers fail constrain to acquiesce in Texaco's recommendations?
I should've thought, Your Honors, that since the Government's argument depends on psychoanalyzing a body of dealers, it would've favored us with some words from the patients themselves.
But the most amazing part of this new theory is that it is evoked in the case where the Government failed to call a single Texaco dealer and Texaco has 38,000 of them to testify as a witness not one.
Now, why should the Government on appeal after 13 years of litigation now speculate or make assumptions concerning the attitude or feelings of the dealers.
The dealers were at all times available as witnesses, they could've testified as to what animated their TBA purchases.
Texaco in fact produced many of these, such witnesses as part of its defense case.
And they made it perfectly plain.
Some 54 of them but they were not pressured and to anything by Texaco and that they felt no constrain.
The Government on the other hand avoided dealer witnesses like to play.
And we don't have to look too hard for the reason.
I refer Your Honors to volume 5 of the appendix and you will see there a form letter which counsel to the Commission sent to Texaco dealers.
The first paragraph of which reads, complaints including one on the above entitled matter currently pending before the Commission are intended to determine whether operators of major oil company petroleum outlets are independent businessmen with complete freedom of choice as to the products which they stopped for resale or are obliged to handle products chosen for them by the respective oil companies.
And then in connection with this issue, the questionnaire seeks information as to whether TBA has handled and what is the principle line that is handled when they took on the line and similar matters.
In short, in this questionnaire, the Government -- the Commission correctly stated the issue which was the issue which was tried whether the dealers have freedom of choice or whether they were obliged to buy the sponsored products.
Now, after getting the facts, elicited by this question there what the Commission do.
They decided not to call any Texaco dealers as witnesses.
The plain implication is that the responses to the question there did not support the charges against respondents.
Indeed, the one response which Texaco was able to obtain and which is set out as JAX 428 of the record at last page very clearly why the dealers were not put on the stand because the witness indicated that he was totally free.
Now, having in its possession facts which negates its theory and supported the defense, the Commission not only did not introduce these facts, it suppressed them.
It refused even to disclose to Texaco the names of the persons that had interviewed.
Now, after withholding evidence that the Texaco dealers do not feel constrain to buy the sponsored TBA I submit that the Government is highly in the position to ask this Court now to make the assumptions upon which its present argument rest.
Now, Mr. Justice Douglas in Brady against Maryland quotes from former Solicitor General Sobeloff, an addressed that he made and which he said, “My client's chief business is not to achieve victory but to establish justice.”
And I must regretfully state to this Court the model of the Commission is precisely the reversed as this sorted and supported record demonstrates and has -- as does the history of this litigation.
Now, certainly the hearsay testimony of a few wholesalers does not remedy the deficiency of the Government's case.
These wholesalers testified they were told by some particular Texaco dealer who decline to buy nonsponsored TBA from them but he couldn't do so because Texaco might disapprove.
Quite apart from the inherently unreliable nature of this hearsay, the wholesalers themselves on this record acknowledged their potential customers may convene excuses for not buying.
The testimony was overwhelmingly rebutted as the Court below found but the record as a whole.
Let me give you ---
Justice Abe Fortas: Professor Handler, would you tell us precisely what the contract between Texaco on the one hand and Goodyear and Firestone provides with respect to the promotional services to be performed by Texaco?
Mr. Milton Handler: The contract is very brief.
The record establishes that it cost Texaco 70% of the commissions that it receives.
It has 38,000 dealers.
It's acting as a sales representative.
Goodrich does not have enough salesmen to visit all of 38,000 accounts.
The dealers are versed in the art of pumping gasoline out of the pumps.
TBA is a difficult technical business, they have to be trained.
Inventory control was very difficult, there are all kinds of sizes, all kinds of products.
They have to be trained on installation.
Texaco had to build facilities to store the TBA.
Texaco permits its credit cards to be used guarantying payment and the dealer is not charge for any of these services.
Texaco was performing the service as a sales representative in exchange for receiving commissions.
Justice Abe Fortas: Well, let's retrace that a minute.
Do I gather from what you say that the same persons who sell Texaco gas in effect to the stations also act as salesman for the products of Goodyear and Firestone?
Mr. Milton Handler: They engaged in salesmanship and promotion of these products.
Justice Abe Fortas: Alright.
They sell to the stations.
They sell Goodyear and Firestone products to the stations.
Second, they instruct the service station operator with respect to the problems involved in the choice of TBA and customer service and that sort of thing, is that what you're telling us?
Mr. Milton Handler: There may be an ambiguity when Your Honors speaks of selling, they're not selling in a normal sense of taking the line and try to get the dealer.
They -- the selling is done by Goodrich but they will instruct the dealer on how to merchandise his product and there's no doubt about it that they recommend that the dealer handle the sponsored lines if he wants to.
Justice Abe Fortas: And but with respect to take another subject with respect to the use of the Texaco credit card that is available even if it's not a Goodyear or Firestone product, isn't that?
Mr. Milton Handler: It's available if any kind of TBA.
Justice Abe Fortas: But and the -- how about the distribution of promotional materials such as signs to be erected in the service station?
Mr. Milton Handler: The dealers have signs of all kinds and they have signs of TBA -- they have the signs of Firestone and Goodrich.
Justice Abe Fortas: Does the Texaco representative distribute to the service stations promotional materials such as signs of the -- of Goodyear and Firestone?
Mr. Milton Handler: No, that's done by Goodrich or Firestone itself.
Justice Abe Fortas: So that what this comes down to briefly and roughly is that Texaco you said, does these Texaco representatives do not actually sell in the sense of taking orders, is that right?
Mr. Milton Handler: That's correct.
Justice Abe Fortas: Well, what you're telling us is that the Texaco representatives do in fact promote the sale in the sense of suggesting that the dealer buy products of these two companies as he -- that the Texaco representative instructs the service station operator in the problems attendant upon the use, the inventory etcetera and sale techniques of TBA.
Mr. Milton Handler: That's correct.
Justice Abe Fortas: And I suppose to put this in the narrowest possible focus as your presenting in the case to us, the question is whether those activities which you say cost Texaco 70% of its total commissions that it receives.
Whether those activities coupled with its possession of dominant economic power over its stations constitute say violation of Section 5 or rather that the Commission could conclude, could properly conclude that they constituted violation Section 5, is that about it as you see it?
Mr. Milton Handler: With one amendment, you first stated the jugular issue Your Honor.
You got to add without any proof of any anticompetitive effects such as were found in Atlantic and in Shell.
Bear in mind that these three cases were decided by the Commission at the same time on the same day.
It's not only the Court of Appeals which is twice found that this record would not support an order.
The first commission simultaneously with the issuance of orders against Atlantic and Shell held that this record was not sufficient to warrant an order against Texaco and remanded the case to the Hearing Examiner to go into the question of anticompetitive effect a vital factor -- a critical factor which was lacking.
And the -- there was a sham remand we tried to enjoin in the courts because the very anticompetitive effects which the Commission found lacking we're allege in the complaint.
So that the counsel for the complainant for the Commission had had ample opportunity after several years of investigation, and several years of trial to prove these facts behind them.
We said, he didn't have them and we couldn't prove them.
We wanted the court to enjoin the hearing.
The Commission of Representative solemnly told the District Court and the Court of Appeals that it had new evidence.
We came back for a hearing, they offered nothing.
What they did was violative of the law of evidence.
They took judicial notice the facts were in the other records.
The Commission then said, this was improper and it has excluded all of the remand evidence as improper so that the record today as just as deficient now as it was the first time it came before the Commission.
Now, our submission Justice Fortas is that assuming we're a large company, assuming though anticompetitive effects, assuming that all that you have is that a large amount of TBA sponsored as so and assuming that we got a Commission 70% -- which adds up to a lot of money where a big company 70% of which represented our cost we say that this is not a violation of the Federal Trade Commission case.
That's our case in a nutshell.
Now if I may --
Chief Justice Earl Warren: May I ask you what is the principal service that Texaco renders for this Commission?
Mr. Milton Handler: I believe it's what I've told Justice Fortas it's a --
Chief Justice Earl Warren: Well, I know but you told him a lot of things.
What is the principal --
Mr. Milton Handler: Principal?
Chief Justice Earl Warren: Yes.
Mr. Milton Handler: I don't know what would be the principal item.
It's a variety as to help --
Chief Justice Earl Warren: Well, what is the dominant?
Isn't there some dominant service that they rendered for this?
Argument of Hillel Hoffman
Mr. Hillel Hoffman: I don't think so.
It's an entire ball of wax is to make a good merchant out of the dealer and the same aid is given to him with respect to nonsponsored as to sponsored.
There's no discrimination.
Now, if I may continue on this wholesaler's testimony --
Chief Justice Earl Warren: You mean that they rendered the same service or nothing.
Rebuttal of Milton Handler
Mr. Milton Handler: To the non --
Chief Justice Earl Warren: To the nonsponsored people --
Mr. Milton Handler: To that by this, that is correct.
They do everything on the nonsponsored, they do for the sponsored to help the dealer be a good merchant.
Chief Justice Earl Warren: Well, why did they pay you an enormous commission on this kind then?
Mr. Milton Handler: Well, because we are training the dealer to handle TBA and they're paying us for the recommendation.
Chief Justice Earl Warren: Well, if they can get it for gather nothing --
Mr. Milton Handler: And the services that we're rendering.
Chief Justice Earl Warren: If they can get it for nothing why did they pay you?
Mr. Milton Handler: Well, --
Justice Byron R. White: They don't get the recommendation.
Mr. Milton Handler: What's that?
Justice Byron R. White: They don't get the recommendation.
Chief Justice Earl Warren: That's the key word.
Mr. Milton Handler: They don't get -- they don't get the recommendation for nothing.
Justice Byron R. White: Yes.
Mr. Milton Handler: But the salesman is neutral and he helps the dealer in the purchase of any kind of TBA that he may desire and this record establishes the total freedom of choice of the dealer.
Now, could I take a few minutes to review this testimony of the competing suppliers and this is also cited -- these directed references cited in the Government's brief.
The salesman for a wholesaler testified that he was unable to sell none sponsored tires to a particular Texaco station and that the gist of the conversation was that he wouldn't dare to buy or display such tires.
The dealer himself was called to the stand and gave the light of these testimonies stating that he knew that he was free to buy nonsponsored TBA that most of the TBA that he buys is in fact nonsponsored.
He went on to testify that he sort out the very wholesaler in question to deal with them and that he has continued to purchase nonsponsored TBA from there.
The Government also in its brief refers to the testimony of a wholesaler who reported that he lost a particular Texaco dealer as a customer and that the dealer told him he was going to have to handle Goodrich products.
This ignores the reason for the ship which occurred incidentally some 14 years that the Texaco sales-commission plan went into effect.
The reason as the wholesaler admitted on cross-examination was that the dealer's brother had just become a Goodrich distributor at a location one and a half blocks from the dealer station.
In short, this Texaco dealer bought nonsponsored TBA continuously until his brother went into business.
The Court of Appeals we submit had the right on the Universal Camera to take the record as a whole and to find that this evidence was not worthy of belief.
It could've relied upon the fact that the witnesses who are representatives of one small battery manufacturer and 19 wholesalers out of the thousands have supplies in the country.
And Chicago alone where many of them came there were some 500 TBA distributors.
The bulk of these competing suppliers operated the competitive disadvantage wholly unrelated to Texaco sales-commission agreements.
Several conceded that they were unable to match the price brand or credit offered by competitors.
Most of them did not carry a full line of TBA which is necessary for effective competition.
Even so, virtually all of these witnesses had Texaco dealers among their customers and in each territory to which their testimony related there was overwhelming proof that the nonsponsored products handled by Texaco dealers were advertised and openly displayed at their stations.
In this context of open display and advertising of nonsponsored products by Texaco dealers was no basis for any dealer feeling constraint.
In fact, the very dealers who are quoted as having -- as supplied is the reason from not buying the supplier's products that they might be penalize by Texaco all handled and displayed none sponsored TBA.
Justice Thurgood Marshall: Mr. Handler, is it admitted that Texaco “urged” its dealers to handle these projects?
Mr. Milton Handler: I missed one word Your Honor.
Justice Thurgood Marshall: “Urged”
Mr. Milton Handler: I don't know what “urged” means, it recommended and I might say that --
Justice Thurgood Marshall: Well, when you have a one-year contract subject to cancellation on 10 days notice and a company the size of Texaco wouldn't its recommendation be a little more than just a recommendation?
Mr. Milton Handler: I don't think so Your Honor.
There is in any evidence in this record that anybody was ever cancelled for anything that remotely suggest --
Justice Thurgood Marshall: And that they cut -- that they cut two ways.
Mr. Milton Handler: Why?
Justice Thurgood Marshall: Maybe nobody disobeyed.
Mr. Milton Handler: Well, we know Your Honor it can't cut two ways because we know that the preponderance of the TBA handled was nonsponsored.
This is a fact in the record that cannot be denied.
Justice Thurgood Marshall: It cannot be denied but it's also the point that when the dominant economic factor is present.
Recommendation urging or whatever words you want to use can be that soft touch, could it not?
Mr. Milton Handler: I don't think so.
This -- you would then say that an employer might not recommend to his workers that they remain none union and this Court has held to the contrary or you might say that an employer who has dominant economic power could not recommend to his employees that they patronize an employee's owned and operated store.
Justice Thurgood Marshall: I would prefer stay with antitrust.
What did the independent dealer have equivalent to the recommendation of Texaco with his dominant economic power?
Mr. Milton Handler: He had the fact that dealers who are in very short supply that there's vague competition for good dealers and that there's great economic lost if they stationed as closed down because you can't get a dealer and this is perennial situation in this industry and the economic lost by having a station closed is much greater than any gain that you can get out of these commissions.
Bear in mind that Texaco, as this record indicates for selling a billion and a half dollars of petroleum products.
This is where it was -- this was its business.
And while these commissions loomed up large in relation to the magnitude of the business that was done by Texaco, this was a rather insignificant part of its business.
So, that there was tremendous broadening power in the part of the Texaco dealer and the fact of the matter is that able Court twice reviewing this record has been satisfied that this record establishes that there was no veil threat, no velvet glove but that the Texaco dealer was free and he did exercise his own choice and they exercised it to the extent of the preponderance of the selection that he made.
Justice Potter Stewart: Apparently then do you think that the Commission finding -- Commission's finding that just to the contrary, just as unsupportable and there has to be set aside?
Mr. Milton Handler: Under Universal Camera it was set aside by the Court of Appeals and imposing the grant of certiorari.
We argue that this was essentially a fact case.
The question was whether Court of Appeals was right or whether the Commission was right and we didn't think that Your Honors would want to take on that burden but this -- the Court of Appeals twice has assessed this record and we think properly.
In other words, we believe that illegality here must stand from a requirement that the dealer handled the sponsored TBA.
This requirement may be inferred from the surrounding circumstances that need not be expressed.
The Seventh Circuit in Atlantic found such a requirement.
The Fifth Circuit in Shell found such a requirement.
This record will not support any such findings --
Justice Potter Stewart: What are you searching for here?
Wasn't this held to be an unfair method of competition?
Isn't that what the Commission found that was under Section 5?
Mr. Milton Handler: The Commission said that sales-commission with dominant power plus recommendation is an unfair method of competition and we say that --
Justice Potter Stewart: Now that's all -- is that all they held?
They didn't purport to say that they needed anything else?
Mr. Milton Handler: That is correct.
Justice Potter Stewart: Just a recommendation and --
Mr. Milton Handler: We construe that as being a per se rule.
Justice Potter Stewart: Well, now, what are the standards for a none -- for the Federal Trade Commission has to follow in determining what's an unfair method of competition or unfair practice that --
Mr. Milton Handler: I'm delighted Your Honors asked that question.
I think I was one of the earliest commentators to criticize of the majority opinion in Gratz and to urge that the minority opinion become the law of the land.
The minority opinion permits the flexibility in the establishment of what is an unfair method of competition but the arrangement must partake of something which is restrictive and this is not a restrictive arrangement.
Because the finding of fact which has not been subverted is that the dealer is not restrained, he's free to do anything he pleases.
Justice Potter Stewart: But where did -- where -- what's the source of your requirement, there must be some restrictive effect on competition?
Mr. Milton Handler: I think the legislative history of the statute and the course of judicial construction.
Justice Byron R. White: What's the closest case in this Court setting some --
Mr. Milton Handler: What's that?
Justice Byron R. White: What's the closest case in this Court setting, describing the standards of the Federal Trade Commission has to follow in finding an unfair practice?
Mr. Milton Handler: I don't believe from them where I could, I can pinpoint the exact case but I am familiar with the line of cases.
It's never been suggested that the Commission had a blank check and that it's --
Justice Byron R. White: Well, that must be part of our problem in this case then, is made the Commission within the framework of this Act to find record power plus recommendation to be an unfair (Voice Overlap) --
Mr. Milton Handler: They may do if what Your Honor so hold.
In other words, whatever Your Honors say is unfair methods of competition represents unfair methods of competition but I think that you got to take --
Justice William J. Brennan: Well is that in or is it whether we can hold that the Federal Trade Commission should determine what is an unfair method competition?
Mr. Milton Handler: Well, I think --
Justice William J. Brennan: And that our review of that determination of what is an unfair method of competition is a very limited.
Mr. Milton Handler: Your Honors have held many times that whatever the Commission holds to be unlawful is in tackle to great weight but that in the final analysis what is unfair competition is a matter of law and Your Honors have the final word.
In other words, I don't that your scope of review is that if they found that it's an unfair method of competition that's the end of the --
Justice William J. Brennan: Well, then it's not exactly a factual question, is it?
Mr. Milton Handler: I'm sorry.
Justice William J. Brennan: It's not a factual question then, is it?
Mr. Milton Handler: No, no, it's a question of law as to what is an unfair method of competition and I think that as Justice Cardozo pointed out and already a case that if you simply gave a blank check is to what maybe held to be unfair without any standards that this would be --
Justice William J. Brennan: Well, what -- if it's not a factual question and what's Universal Camera got to do with this?
Mr. Milton Handler: Oh!
What is an unfair method of competition is illegal question.
Universal Camera has to do with the finding as to whether or not there was any foreclosure at the third level that's where Universal Camera comes in.
Justice Byron R. White: Yes but if it was a matter of law that foreclosure isn't essential in the -- to the unfair method of competition.
Mr. Milton Handler: If the foreclosure is not necessary, then you have a question of law and that was why I amended Justice Fortas' statement whether power plus recommendation is violative of the Federal Trade Commission Act absent anticompetitive effect and absent foreclosure.
Justice Byron R. White: Alright.
Mr. Milton Handler: Now, if I may conclude our proposition with respect to one of the points that was made by my good friend and also made by the Commission that having one company free of restraint and having two other companies under the order of the Commission is discriminatory.
We don't think so at all when two companies has misbehave and they violated the law and defer has not violated the law, we think that the shoes on the other foot that it would be unfair to make the one who hasn't violated the law subject put run but not violating the law subject to restrain.
And the Commission itself didn't think it was anything unfair in the first ground.
They didn't hold against us, they sent it back for evidence which was never forthcoming.
Now, finally, my good friend says that it wouldn't deal with the potentials that this may germinate into a full blown restraint.
Well, that assumes that there was anything restrictive about this but if you stop with the federal on the fact which is admitted here that that there was total freedom of choice in the part of the dealer.
We say there was no restraint and after all a practice that's been the fact since 1920 -- 1940 rather that 30 years has had ample time to germinate.
Now, the Court of Appeals did not hold that coercion is necessary.
It was a two-legged holding.
They held that if there was a misuse of the economic power apart from coercion that the law could be violated but they found no such misuse.
Thank you very much Your Honor.
Chief Justice Earl Warren: Mr. Barton.
Argument of Edgar E. Barton
Mr. Edgar E. Barton: Mr. Chief Justice and if Your Honors please.
I represent B.F. Goodrich Company who has sales arrangements with Texaco as well as with five other oil companies.
Now, all of these arrangements which were had were not only with Texaco but with also the other part of oil companies would be prohibited under this order which has been entered by the Commission.
This is despite the fact that the agreements which were made by B.F. Goodrich with these oil companies were made because this was the way that B.F. Goodrich thought that these products could be distributed the best.
In other words, the problem as Mr. Hoven who was the witness on the stand here described it was this, that there are and great number of dealers in the country who have to be contacted.
The method of distribution of this product is through supply point established by the tire company.
But, once the franchise is established by the tire company, there's a continuing relationship that exists in the way of getting promotional materials out to the dealers.
In a numerous mechanical means of this kind and Mr. Hoven said, it's a lot cheaper for us to hire Texaco who contact in those people day after day to get those materials out than for us who have a limited numbers of salesmen to get the materials out.
He said, that's what we're paying the Commission for.
Now, I would call Your Honors attention --
Justice William O. Douglas: Excuse me, Mr. Barton.
Mr. Edgar E. Barton: Yes, Your Honor.
Justice William O. Douglas: Is Goodrich involved and either Shell or Atlantic?
Mr. Edgar E. Barton: No, Your Honor.
Justice William O. Douglas: What was that?
Mr. Edgar E. Barton: No Your Honor they're not.
Justice Abe Fortas: Are these arrangements exclusive that is to say they're not exclusive.
Mr. Edgar E. Barton: They're not exclusive Your Honor as a matter of fact Texaco has similar arrangements at the time this case was tried 12 years ago although with the contrary and I think I'm the only one here within the case and this tried.
But they are at that time arrangements with Firestone and with US and knew most the oil companies had their arrangements with the number of tire companies.
There's nothing exclusive about this.
Justice Abe Fortas: Is that broken up on regional basis?
Mr. Edgar E. Barton: No, Your Honor it's not a broken up on any regional basis.
The matter -- in this case there's no similar situation that existed in the Atlantic Goodyear situation on the break up geographically.
Now, although counseled avoiced to state in so many words clear the basis of the Commission's order can only be that there's a per se rule to strike down all TBA sales-commission arrangements between all oil companies and all tire companies.
On the record here, I submit Your Honor that the Commission wants to say that merely because you have a larger oil company and a large tire company and that there has been quite a bit of money paid that that constitutes illegality.
Now, I submit to Your Honors that record is 2500 pages long.
We argue this case before the Court of Appeals and that the Court of Appeals took a year of full year before the case was decided by the Court of Appeals.
I submit Your Honor that that record was gone over thoroughly by the Court of Appeals when it decided this case the whole 2500 pages of it.
And they searched to see whether there was any evidence in that record to support the proposition that there had been a misuse of the power that the Texaco Company had in connection with these contracts.
It could not find, it did not find any misuse of that power.
Now, for --
Justice John M. Harlan: So that this case has been before the Court of Appeals in two different occasions?
Mr. Edgar E. Barton: Yes, Your Honor it has.
Justice John M. Harlan: The same panel?
Mr. Edgar E. Barton: No, Your Honor, the first -- the second panel Judge Bazelon was sitting as a Chief Judge.
He was not in the first panel and on the argument on the second time the decision was unanimous by the Court of Appeals.
Judge Bazelon and the other two judges held with this.
So, that there were -- in a total of Sixth Court of Appeals judges some of this case.
And five, -- and the Court of Appeals has both times, the first time by two the one and the second time three had not been held.
There was no evidence of misuse of economic power by Texaco.
Now, and in that --
Justice Hugo L. Black: May I ask you how?
Mr. Edgar E. Barton: Yes, Your Honor.
Justice Hugo L. Black: I haven't heard it yet but the Texaco Company station, who owns them?
Mr. Edgar E. Barton: I think the most of them are owned by people not connected by third parties and by the owners themselves, 60% of them as Mr. Friedman said.
Justice Hugo L. Black: Who owns the other 40%?
Mr. Edgar E. Barton: 40% are owned by Texaco or at leased by Texaco and leased them to the dealer.
Justice Hugo L. Black: Now, they have Texaco signs, they sell Texaco oil?
Mr. Edgar E. Barton: Yes, they do Your Honor.
Justice Hugo L. Black: And they -- the agent there of course is dependent on getting Texaco oil.
Mr. Edgar E. Barton: That's right Your Honor.
Justice Hugo L. Black: That's what he has to get to make his living?
Mr. Edgar E. Barton: That's true Your Honor but he also --
Justice Hugo L. Black: Well, then how do you discount the statement that was read from us by the Texaco agent of their big company has all the power, how do you discount that thing when you said, we prefer for you to get Texaco?
Mr. Edgar E. Barton: Your Honor I -- my answer --
Justice Hugo L. Black: Prefer you to do deal with this.
Mr. Edgar E. Barton: Your Honor my answer to you is this, that an experienced examiner sat on the trial of this case.
He heard the witnesses, all the witnesses testified.
He was also the examiner in the other cases that were here.
At the end of that case, he held in his first initial decision that there was nothing wrong done by the people in this case.
Justice Hugo L. Black: Well, then let me ask you in your view?
Mr. Edgar E. Barton: Yes, Your Honor.
Justice Hugo L. Black: I'm not asking of an experienced examiner.
Here's a company that has a life and death of this Texaco dealer on its hand, they came there without giving Texaco on.
A representative of the company comes to him and tells him, “I want you to buy and sell these things.”
Mr. Edgar E. Barton: Your Honor, may I --
Justice Hugo L. Black: What do you say about it as a person with a knowledge of what amounts to something to fight for everyday life?
Mr. Edgar E. Barton: If it was proved that the Texaco salesman went to the station and said, I want you -- I want you --
Justice Hugo L. Black: Well, did you hear that stipulation?
Mr. Edgar E. Barton: That would be a different case in we have here.
Justice Hugo L. Black: tBut did you get a statement read Mr. Friedman, is that in the record?
Mr. Edgar E. Barton: I submit to Your Honor that one dealer --
Justice Hugo L. Black: But is that -- is that in the record?
Mr. Edgar E. Barton: It is in the record but Your Honor we have to realize this, that there were 38,000 Texaco dealers.
Justice Hugo L. Black: And it's hard of course to get them to testify against the dominant company?
Mr. Edgar E. Barton: I don't know that it is because as Mr. Handler pointed out there was a questionnaire went out to these dealers and the Commission got back that questionnaire and then didn't call one dealer to stand and testify after they seen that questionnaire and they wouldn't show us the questionnaire which they sent out when we applied for it.
Justice Hugo L. Black: How did they get this dealer?
Mr. Edgar E. Barton: Because this dealer was an ex-dealer.
Justice Hugo L. Black: Oh!
He was an ex-dealer.
Mr. Edgar E. Barton: That's right.
Justice Hugo L. Black: But that's easiest way to get him to testify against the Texaco, isn't it?
Mr. Edgar E. Barton: That is true Your Honor but I submit to Your Honor that in this case where there has been a thorough review of the record by the Court of Appeals twice and they found that there was no proof of the Commission's charge that we have disprove the negative.
Now, I submit Your Honor it's difficult to disprove a negative but here that has been done.
I submit that on all of the bases, this case should after 12 long years be dismissed by this Court.
Justice Hugo L. Black: I noticed that the Court said something about the long years, who's responsible for the delay?
Mr. Edgar E. Barton: It's difficult to answer question in -- actually in --
Justice Hugo L. Black: Can that be held?
Mr. Edgar E. Barton: The basic responsibility is the Commission if you want a real answer because what they did when sent this case back to the examiner and sent the other two cases out to the courts they created the delay that it's existed here.
Justice Hugo L. Black: But the company has filed in the order, the company hasn't -- hadn't been wholly without any influence whatever in connection with the delay has it?
Mr. Edgar E. Barton: The companies have responded when they were attacked Your Honor.
Justice Hugo L. Black: Well, they were both vigorous as they should with --
Mr. Edgar E. Barton: But when you say why there has been a delay, I think I have to tell the truthfully it's because the Commission sent this case back or read to the examiner and held it up by that time.
I submit to Your Honors that on the basis of the facts in this record as distinguished from the facts of other records that this case should be finally dismissed.
Chief Justice Earl Warren: Mr. Friedman.
Rebuttal of Daniel M. Friedman
Mr. Daniel M. Friedman: Mr. Chief Justice, may it please the Court.
Of course it seems -- I'd like to answer with something Mr. Barton said, the basic question here isn't whether there's been misuse of economic power.
This -- no one has being punished here.
The Commission is performing the prophylactic function of freeing our economy from an improper restraints and the question is whether the use of this power whether the use of this power together with what a fencing law from part of the competitive area whether that's enough to justify the Commission in concluding that it's an unfair method of competition.
Now, there's been a lot of talk about some of the evidence in this case and I just like to go back to a couple of these items that my opponents have referred to.
For example, this man Mr. Tidwell whom they say felt perfectly free to carry these products nonetheless.
At page 1211, after the passage I previously referred to, he was asked, “Did you take on a cheaper line of tires?”
And his answer was, “Not in stock but I did sell some.”
And then three or four lines thereafter, he was asked, “Did you ever display those tires in your station?”
He says, “No, I never displayed any other product than Firestone.”
What it seem to us is very clear from this.
What he was saying was because he wanted to remain in the good graces of Texaco.
He would not take these products, these competing products on as a display product that will be generally available for the public to see.
Sure, he would occasionally buy some of these products and that's fully consistent with the testimony of these wholesalers that yes, they could sell, they could sell on occasional item to Texaco dealer, to many Texaco dealers.
They could sell a few things that the people wanted to stock up on but basically there were substantial testimony in this record that these people did not have the same opportunities when they tried to penetrate the Texaco market as when they tried to penetrate some other markets.
Now, what are these dealers do?
Justice Potter Stewart: Well, Mr. Friedman, I gather then that you feel that although the question maybe that the -- whether the Commission could say power plus promotion is nevertheless there's a really the question is whether the Commission could rationally decide that promotion by one with power really may have some substantial consequences?
Mr. Daniel M. Friedman: Yes and then we --
Justice Potter Stewart: And if that were wholly irrational why I -- is that what this case is about?
Mr. Daniel M. Friedman: I --We think so Mr. Justice consistent with the long line of cases in this Court which have reviewed Commission decisions under Section 5 is to what the Commission' authority.
Justice Potter Stewart: Well, what if there were no evidence whatsoever in the record that as to what consequence promotion by Texaco had, could the Commission just rear back and say, well, look that on our own expertise, we know that when somebody with Texaco's power says, this, it's going to have this kind of consequence.
Mr. Daniel M. Friedman: I think they have to have some basis for their expertise --
Justice Potter Stewart: In the record?
Mr. Daniel M. Friedman: I don't know Mr. Justice because they have --
Justice Potter Stewart: In the record if they have to have something there then I suppose we have to look at the evidence on the other side then.
Mr. Daniel M. Friedman: Well, but I think --
Justice Potter Stewart: And then it does become a factual matter, doesn't it?
Mr. Daniel M. Friedman: Well, it's a factual matter only in the sense that you've got to see what the Commission had but it seems to me the answer we think is that in this kind -- this is the area where the Commission has very great discretion as to evaluating the impact of this practice.
Justice Potter Stewart: Well, you think they could be -- they could just stand and said, we don't need any evidence?
Mr. Daniel M. Friedman: No, I don't think they could say --
Justice Potter Stewart: We don't need any evidence at all, we just know that when Texaco says something like they've been saying, please buy this that it's going to have this kind of a consequence.
Mr. Daniel M. Friedman: No, I think there has to be some of it.
Justice Potter Stewart: So, there has to be some proof?
Mr. Daniel M. Friedman: There have to be some proof as to what the impact upon --
Justice Potter Stewart: Well, what if it's in challenged by the other side which it has been?
Mr. Daniel M. Friedman: Well, if it challenge that --
Justice Potter Stewart: The other side says, there is no factual basis for that
Mr. Daniel M. Friedman: But the Court of Appeals did not say there's no factual basis for this.
The Court of Appeals said, as we read their opinion that the kind of --
Justice Potter Stewart: Well, they at least said it -- it wasn't enough evidence having even to make the rational choice, is it?
Mr. Daniel M. Friedman: No, they -- no, Mr. Justice. We don't think they said.
They would they said was as they interpret this Court's Atlantic decision.
Atlantic required the Commission to come up with a certain type of evidence with the certain quantum of evidence and then they said, "We don't think that what the Commission had before in this case was enough."
They did not attempt to say, the Court of Appeals did not attempt to say, we don't think there's any evidence here to show either that Texaco in performing this contract was engaging in these promotional activities or that there was not any competitive effect.
They said, looking on what the Commission were acted on, looking on what the Commission found happened here, what Texaco did, we don't think this is enough as a matter of law basically to constitute an unfair method of competition.
Justice Byron R. White: The Commission explained -- how does the Commission explained that only 30% -- was it 30% of the dealers or was it just 30% of the total volume that was sponsored?
Mr. Daniel M. Friedman: No, it was 30% -- let me explain it.
It was 30% of all the dealers who were service station dealers but the Commission explained that that figure was distorted because of significant number of those dealers with so-called contract dealers who would not handle TBA for example, the grocery store but had a couple of gasoline pump.
So, the Commission indicated the figure was higher than that.
Justice Byron R. White: Well, yes but does that make a big -- how do they explain now that apparently in all of lot of dealers who were promoted by Texaco exercise their choice to buy from someone else?
Mr. Daniel M. Friedman: I think the type of plan --
Justice Byron R. White: So every dealer understood he had a free choice?
Mr. Daniel M. Friedman: I don't -- I think the difference maybe Mr. Justice these plans are not always completely effective.
This was true in Atlantic too.
And Atlantic --
Justice Byron R. White: Yes, but why wouldn't that be effective if there was dominant power and exercise of the -- why wouldn't it be effective?
Mr. Daniel M. Friedman: Well, I suppose to some extent it may depend on the --
Justice Byron R. White: Do you -- I suppose you have to say that either wasn't dominant or wasn't exercise one or the other?
Mr. Daniel M. Friedman: Well, I take it again it may depend on what the reaction of the individual dealer is to the situation.
Justice Hugo L. Black: May it not also depend on the reaction of the customer who comes in and didn't like their kind of tires and he asked him to get him some somewhere else.
Would that have anything do?
Mr. Daniel M. Friedman: That would -- I have to say Mr. Justice in all candid that --
Justice Hugo L. Black: Maybe your record doesn't show it?
Mr. Daniel M. Friedman: No, I'd say in all candid Mr. Justice that the record does indicate that where a particular customer wanted a particular single tire, one customer generally speaking most of the dealers would go out and stock and buy this particular type of tire even though they didn't stock them.
Justice Hugo L. Black: That's what I meant.
What I meant by that to say why wouldn't then show that was what they did and that was why they were doing it because their customer want them to do it.
I will buy some tires for sale.
Mr. Daniel M. Friedman: Then maybe if the other thing I suppose Mr. Justice is of course Goodrich and Firestone are popular products.
ome of the dealers may have been well satisfied to take this.
Justice Byron R. White: Well, you don't think it would have made any difference in this case if that Firestone or Texaco were given good set of Miranda warnings to everybody that you really don't -- we really -- you got a free choice and you're not bound to do anything, we're not forcing you.
We just think these are good.
And 30% of the dealers bought some of this and 70% didn't buy any of them, you don't think it would make any difference that what the dealer felt?
Mr. Daniel M. Friedman: Well, no I don't Mr. Justice because it seems to us what we have here is one, the relationship and we can see they did tell many dealers that they were free to buy what they wanted but apparently the record strongly indicates that despite the statement many of the dealers did not feel they had a complete freedom.
The -- these 31 wholesalers that Mr. Handler tends to distinguish some of the incidents but some of them can be distinguished.
There were explanations but there are a lot of them.
There are a lot of them that just cannot be distinguished.
Justice Hugo L. Black: Does the record show whether the Texaco dealers knew the amount of profit that will go to the company if they sold a particular brand that they wanted to?
Mr. Daniel M. Friedman: No, the record does not show whether they had any knowledge of that.
Justice Hugo L. Black: Doesn't show that whether they had any knowledge that they did get anything?
Mr. Daniel M. Friedman: No, the record does not show that.
The record does not show that Mr. Justice.
I'd just like to read --
Justice Hugo L. Black: Well, wouldn't that be irrelevant piece of evidence?
Mr. Daniel M. Friedman: Well, that would make our case even stronger I think if in fact the dealers knew that Texaco was in fact getting a substantial amount on the sales.
I just -- the record does not show that Mr. Justice.
I just like to read to the Court that pages 552 to 553 of the record where the example of this wholesaler testimony.
One of the witnesses was being asked why he had stopped calling on the Texaco dealers and he said at the bottom of the page, when you make a hundred calls and they show no signs of business and then maybe continue to make calls another hundred and still are told from time to time that they can't buy your tires that they have to buy Goodrich, I think it is time to give up on it.
And he was questioned, by whom are you giving such information as you just related answered by the Texaco stations that we called on it.
It seems to us that this record fully supports the Commission's conclusion that a very large number of Texaco dealers felt constraint not to buy competing TBA products.
And I think the record fully supports the Commission and it seems to us that the Court of Appeals the appropriate for Court of Appeals should've put the inquiry whether the Commission was justified in the light of these facts shown by the record in concluding that this particular practice had a sufficiently pernicious effect actual and potential on competition to warrant condemning it not to try to line this thing up and saying they have done everything here that they did in Atlantic and the Court of Appeals said, "No, they haven't and that's the end of this.
This is not just a fact cases, it entails basically the question of what the scope of review of Commission determinations is an unfair methods in competition and the Commission's discretion to define those terms.
And so it seems to us that in this case the Commission was fully warranted in concluding that this situation no less than Atlantic was an unfair method of competition and that the same kind of order should be entered.
Justice Abe Fortas: Suppose Texaco had it some own line of tires, in your judgment could the Commission find that it was an unfair method of competition or for Texaco to make recommendations to its service stations that they buy the Texaco tire?
Mr. Daniel M. Friedman: I would think Mr. Justice the Commission could sell conclude.
I do want to make it very explicit.
The Commission has not passed upon that issue.
Justice Abe Fortas: Well, I know that but do you think that Texaco therefore could not even if you don't have a tie-in sale, in fact just as they are now except that it's Texaco product, do you think that would still an unfair method of competition?
Mr. Daniel M. Friedman: I would think the Commission could so conclude, yes.
Justice Abe Fortas: Why can't it so conclude with respect to motor oil.
Texaco sells gasoline and motor oil I suppose, doesn't it?
Mr. Daniel M. Friedman: It does.
Justice Abe Fortas: And I suppose that its dealers are at least encouraged to buy and stock Texaco motor oil.
I mean so what you're saying really is that three major products if Texaco is in the business of selling three major products that to something drastic is warranted just because the third product is added to the fundamental lines.
Mr. Daniel M. Friedman: Well, I don't know Mr. Justice.
I think as they approach and begin to require a greater and greater line you got into problems with it.
Justice Abe Fortas: You sure get into a problem alright but I think the answer is kind of difficult.
Mr. Daniel M. Friedman: Fortunately, the Commission has not yet had to face up to this problem.
Chief Justice Earl Warren: Very well.
Mr. Daniel M. Friedman: Thank you.