Mr. SHUMAN. That is correct.

Mr. CHUMBRIS. So, it is to the interests of both to see that they carry what might be their best foot forward in order to get the best out of the deal.

Mr. SHUMAN. That is true, but I keep thinking that the contracts are generally drawn up by the franchisors. It is almost like me looking for an insurance contract. If I go out to sign an insurance contract, I can buy with one insurance company or with another but the terms are not going to be very much different, even though the insurance companies are competing with each other. I think the same thing is true in the case of the automobile manufacturers and their franchise contracts. They may compete with each other but I do not think the terms offered to their respective franchisees will vary sufficiently to give the franchisees very much bargaining power. Mr. CHUMBRIS. Well, my main point, and perhaps we have gone about it in the round about fashion, is that I do not think that the franchisor who is trying to be overbearing in his franchise agreement with the franchisee is going to be able to get the best distribution of his product. He is going to have problems with his franchisees and if he has too many problems with his franchisees, it is going to get around, as has been indicated in the record. He is going to have trouble getting good franchisees and the more trouble he has in getting good franchisees, the more trouble he is going to have in distributing his product. And the main point is, especially if 95 percent of his product is being distributed through franchisees, as we define it here, he would have a heck of a problem if he is constantly fighting with his franchisees to get his product to the consumer. So, it has got to be almost axiomatic that he has to be able to have an agreement with his franchisees that both of them can live with and live well. Of course, we have had instances of where they have not done well and in some instances the courts have taken care of it without even a Day-in-Court legislation. So we have the automobile cases in which the man did not succeed under the Automobile-Day-in-Court law because he allowed the statute to run against him but he was able to win under general principles of law. And that case was cited yesterday.

I have no further questions. Thank you very much for coming, Mr. Shuman.

Mr. SHUMAN. Thank you.

Senator HART. Professor, I had said that I thought your preliminary description of the evolution and the nature of the franchise agreement was the best statement that I had seen. I repeat it. One of the points that you made so well is that this type of contract does not reflect very often the give and take of negotiations, the trimming of causes, adjusting the percentages, and fixing the performance steps. Instead, generally the franchisor makes up his mind whether he wants you or not and the franchisee makes up his mind whether to take it or leave it. That is the way the contract often appears. Not an oversimplification at all. Again, we appreciate your testimony, which I think was a most appropriate note on which to close these hearings.

Mr. SHUMAN. Thank you very much.

Senator HART. This concludes the hearings on these two bills. They reinforce my conviction, based on the earlier hearings, that legislation

adopting the concepts of the bills is desirable and would be helpful in maintaining an independent system of distribution. As has been said frequently, both of these bills have legal flaws. They do need redrafting to meet legitimate objections that have been raised. I would ask the staff to undertake that job.

I want to thank all of the witnesses for the constructive attitude they have taken in their comments to this subcommittee. For the most part the suggestions that have been made are thoughtful and will enable us greatly to improve the product which I hope will come from the subcommittee, a bill that will insure equity and independence in our distribution system without impending its operation.

The hearing is adjourned.

Mr. CHUMBRIS. Mr. Chairman, before we adjourn, I was just going to raise the question of how much time will the people have to submit statements. The 30th of November?

Senator HART. I think November 30th, the end of the month, is a good suggestion. There have been, as Mr. Chumbris' comment reminds me, a great many people who have wanted to present points of view to the subcommittee. In many cases they were disappointed that the schedule of Senate business prevented additional days of hearings when we would have been able to get their testimony orally. But the statements that are filed, including some which have already been received, will be made a part of the record, which will remain open until the end of the month to receive additional statements and information that come in.

Mr. CHUMBRIS. Mr. Chairman, may I just make one more comment with Mr. Shuman? There was one other thought in that colloquy that we had, Professor Shuman. Let us take, for example, the person, who is a franchisor and he is new in the field. I think two of them have testified that they were new in the field. They stated that they made their franchise agreements the way they did because they wanted to be sure that the franchisee carried out the provisions of that agreement to their specifications, because they felt that it was most important for them, in order to break into this highly competitive market, to maintain their reputation, which would inure to the benefit of the franchisee. In other words, if the franchisee did not follow specifically the details, as I believe International Pancakes witness and others pointed out, and were allowed to deviate from the agreement as to how he should operate the franchise, it would not only hurt the franchisor but the franchisee himself would not be successful. So, there is a situation where it does not have to be a dominant type of an industry where the franchisors feel that some of those provisions should be in the franchise agreement.

Mr. SHUMAN. I think that there are many legitimate reasons for the restraints found in franchise agreements. Some of them relate to trademark protection, others to good business practices. But, I do not think that at the point of entering into the contract the parties are on an equal footing. If you find a situation where you have a new franchisor, in all probability he is going to be dealing with a proportionately weaker franchisee, because the person who would be eligible to get a franchise from one of the large franchisors, would probably go to that large franchisor. So, you are going to have the relative positions of both the franchisor and the franchisee reduced

where you have a new franchisee. The franchisor is going to still be in the relative dominant position in bargaining, he is still going to present his contract on a somewhat take-it-or-leave-it basis. He is going to say to the franchisee this is the percentage that we will allow you, you must operate your business in this manner, you must keep it open a certain number of hours a day, you must locate it here. You take it or leave it. There may be some variables, but I do not think that they are sufficient to say that the parties are actually negotiating a contract. Mr. CHUMBRIS. I do not think we are in any disagreement. I just wanted to augment your statement with certain situations where we have to look at each particular industry. The chairman has to get to the Senate floor. So, we should not prolong the discussion any further, sorry.

Senator HART. It happens to be a morning I have to preside.
Thank you very much.

(Whereupon, at 11:55 a.m., the hearing was adjourned.)

APPENDIX

AUTOMOBILE DEALER'S DAY IN COURT ACT

AUTOMOBILE DEALER SUITS AGAINST MANUFACTURER

That as used in this Act

67

(a) The term "automobile manufacturer" shall mean any person, partnership, corporation, association, or other form of business enterprise engaged in the manufacturing or assembling of passenger cars, trucks, or station wagons, including any person, partnership or corporation which acts for and is under the control of such manufacturer or assembler in connection with the distribution of said automotive vehicles.

(b) The term "franchise" shall mean the written agreement or contract between any automobile manufacturer engaged in commerce and any automobile dealer which purports to fix the legal rights and liabilities of the parties to such agreement or contract.

(c) The term "automobile dealer" shall mean any person, partnership, corporation, association, or other form of business enterprise resident in the United States or in any Territory thereof or in the District of Columbia operating under the terms of a franchise and engaged in the sale or distribution of passenger cars, trucks, or station wagons.

(d) The term "commerce" shall mean commerce among the several States of the United States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or among the Territories or between any Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation.

(e) The term "good faith" shall mean the duty of each party to any franchise, and all officers, employees, or agents thereof to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party: Provided, That recommendation endorsement, exposition, persuasion, urging or argument shall not be deemed to constitute a lack of good faith.

SEC. 2. An automobile dealer may bring suit against any automobile manufacturer engaged in commerce, in any district court of the United States in the district in which said manufacturer resides, or is found, or has an agent, without respect to the amount in controversy, and shall recover the damages by him sustained and the cost of suit by reason of the failure of said automobile manufacturer from and after the passage of this Act to act in good faith in performing or complying with any of the terms or provisions of the franchise, or in terminating, canceling or not renewing the franchise with said dealer: Provided, That in any such suit the manufacturer shall not be barred from asserting in defense of any such action the failure of the dealer to act in good faith.

SEC. 3. Any action brought pursuant to this Act shall be forever barred unless commenced within three years after the cause of action shall have accrued. SEC. 4. No provision of this Act shall repeal, modify, or supersede, directly or indirectly, any provision of the antitrust laws of the United States.

SEC. 5. This Act shall not invalidate any provision of the laws of any State except insofar as there is a direct conflict between an express provision of this Act and an express provision of State law which cannot be reconciled.

57 Act of August 8, 1956, c. 1038, 70 Stat. 1125; 15 U.S.C. 1221-25, Public Law 1026, 84th Cong.

(369)

[S. 2549, 89th Cong., first sess.]

A BILL To amend the Sherman Antitrust Act (15 U.S.C. 1 et seq.) to provide that exclusive territorial franchises, under limited circumstances, shall not be deemed a restraint of trade or commerce or a monopoly or attempt to monopolize, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Sherman Antitrust Act (15 U.S.C. 1 et seq.) is amended by adding immediately after section 8, the following new section as section 9 thereof:

"SEC. 9. For the purposes of the Act of July 2, 1890, as amended, commonly referred to as the Sherman Antitrust Act (15 U.S.C. 1 et seq.) and for the purposes of the Federal Trade Commission Act (15 U.S.C. 41 et seq.) a contract or agreement between a purchaser and a supplier restricting the right of the purchaser to the distribution of the supplier's product within a clearly delineated territorial area shall not in and of itself be deemed to be an unfair method of competition or a contract, combination or conspiracy in restraint of trade, or an unfair or deceptive act or practice in commerce or a monopolization or attempt to monopolize where the product or products which is or are the subject of such exclusive territorial franchise agreement or contract are in free and open competition with products of like grade and quality produced by persons other than the supplier and where the purchaser under such exclusive territorial franchise agreement or contract is in free and open competition with other vendors of like or similar merchandise within the territorial area defined by such agreement or contract and is not inhibited by the terms of such agreement or contract from dealing in like or similar products of persons other than the supplier."

AMERICAN MOTORS SALES CORPORATION V. L. G. SEMKE

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

SEPTEMBER TERM, 1967

(No. 8797)

AMERICAN MOTORS SALES CORPORATION, A CORPORATION, APPELLANT,

V.

L. G. SEMKE. APPELLEE

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

C. Harold Thweatt (William E. Carroll, William J. Holloway, Jr., Crowe, Boxley, Dunlevy, Thweatt, and Swinford & Johnson on the brief) for Appellant. William J. Otjen, Jr. (Loyd Benefield of Savage, Gibson, Benefield & Shelton on the brief) for Appellee.

Before MURRAH, Chief Judge, and HILL and SETH, United States Circuit Judges.

HILL, Circuit Judge.

The appeal is from a judgment entered upon a jury verdict in an action brought under 15 U.S.C. §§ 1221–1225, commonly referred to as "The Automobile Dealers Day in Court Act." The judgement and verdict were in favor of appellee-plaintiff, Semke, and against appellant-defendant, Américan Motors Sales Corporation. Semke, formerly a franchised dealer for American Motors, by his complaint, in pertinent part, alleged: That during the years 1959, until late in 1962, American Motors pursued a course of action that coerced and intimidated him into terminating his dealership agreement; that American Motors breached the conditions of the Franchise Agreement; that such course of conduct was in violation of 15 U.S.C. § 1222 and as a result of such conduct he had suffered a monetary loss of $600.000.00 which he sought to recover from American Motors. Other claims for damages are alleged but not allowed by the jury and not pertinent here.