effect where the retailer or retailers in that particular area were in fact experiencing injury or experiencing an inability to compete effectively with the integrated refiner-retailer, then certainly that is unfair competition and I think that is an area that this committee very properly addresses.

Mr. DEMAREST. Thank you, Mr. Chairman.

Mr. MAGUIRE. The majority counsel has questions.

Mr. VLCEK. Thank you, Mr. Chairman. In your description of title II of the bill in your testimony, you state as follows: "We oppose legislation which imposes arbitrary restraints on competing refiners and nonrefiners."

I notice in your comments here with respect to title I that you didn't comment on section 101 which basically confines the provisions of title I to refiners, and their distributors, as well as to the relationship between a branded distributor and a retailer.

Do you feel it would be appropriate for the committee to consider and in fact to extend the provisions of the franchise requirements to the nonbranded distributor and to the relationship that he has with his dealer?

Mr. MARTIN. I would certainly urge the committee to do so. I thing it should apply across the board because the rules of the road again and we are trying to set these out for the welfare of the various segments of the industry-are no less important for an individual who operates without a brand than they are for a branded dealer.

They are both independent dealers who are operating in the marketplace under different marketing strategies, but nonetheless under the same competitive circumstances.

Mr. VLCEK. The potential for abuse, in other words, is not less in a nonbranded sector than it is in the branded sector?

Mr. MARTIN. I believe so.

Mr. VLCEK. If I may refer you now to your specific recommendations for statutory changes, looking first at the second page of the addendum to your testimony and the list of conditions under which the provisions of section 102 would be triggered, two of the conditions that you note there seem to be potentially redundant.

You say at one point that loss of right to grant possession of the premises would be a condition and later on, about five lines down, you say loss of the premises covered by the franchise. Aren't these really repetitive provisions?

Mr. MARTIN. I think they certainly are related. There may be a distinction there that is important. Mr. Minotti, would you care to comment on that?

Mr. MINOTTI. I think the basic difference talks about the right versus the premises themselves. This is intended to cover a situation where we have a base lease which is in the possession of a third party. In other words, where we have the right to grant possession of the premises based upon our underlying lease with the third party. In other words, where we do not own the premises, as opposed to the loss of the premises covered by the franchise, which could be a little broader. Also would include what I have indicated, just losses across the board, as opposed to a right that we have.

Mr. VLCEK. So the loss of the premises, the second condition, involves premises where you are the owner of the premises?

Mr. MINOTTI. Yes. Loss of the premise covered by the franchise. In a sense, it is really again more specific. You also will not that when we say "loss of right to grant possession of the premises or to use a trademark," that is a much broader element than again talking more of the intangibles. In other words or if we have a lease-hold interest in that premises, such like we have an intangible interest in the trademark, as opposed to an actual loss of the premises themselves later on.

Mr. VLCEK. I notice also on this same page that you made some changes in the provisions of H.R. 13000 with respect to the 180-day requirement. In the provisions of the bill, the 180-day period was 180 days prior to the date of such termination or cancellation. You have triggered it on 180 days prior to the date notice has been given, which in turn, according to the provisions in 105, is 90 days before termination. In other words, you have extended that period of time.

Would you explain for the record why you make that recommendation to the subcommittee?

Mr. MARTIN. Well, I think one of the things that we had in mind. was to identify actually when the particular time would begin to toll in connection with those two provisions, and this is why we would amend it by saying where "the franchisee has not posted by mail a written notice to the franchisor repudiating such agreement." We would be concerned where we do not have that particular notice. Then the franchisee, in other words, waits 30 days or 45 days and then avails himself under the provision of the 90 days, without a situation, a clearcut situation, where we want to identify the maximum 180 days. Again, it is a question, in other words, of what-where do you begin to toll the particular time. This is what we are trying to correct here.

Mr. VLCEK. You would be extending the time to potentially a 270-day period.

Mr. MARTIN. Or even longer.

Mr. MINOTTI. But again it would be triggered by an actual notice. In other words, we would like to have the beginning date, so it would either be 90 days or 180 and we could take a look at it. How do you best evidence that fact?

Mr. VLCEK. On page 6 of the bill, section 103 (2) (B), we describe one of the bases for failure to renew as being the occurrence of an event, and then that is modified by the language which appears on line 25, running over to line 7, which says that with respect to such event, the franchisor first acquired actual constructive knowledge not more than 180 days prior to the date of such failure to renew. I believe in your proposed recommended changes you eliminated that notice requirement, in your language on page 3 where you recast this provision to include a list of criteria. You did not add a constructive knowledge type of requirement respecting criterion (B) through (G).

Would you explain the reasons for deleting that requirement of actual or constructive knowledge?

Mr. MINOTTI. I think we are dealing with a situation of failure. to renew, and you automatically know the particular time which the franchise would be involved, and where you would have the notice as a result of that, as opposed to a midstream termination, if I understand your question correctly.

Mr. VLCEK. The requirements of the bill are that the only event which would qualify as an event as a result of which a failure to renew could take place is an event of which the franchisor had constructive knowledge 180 days prior to the date of failure to renew. Now you have left that out. You say these things can happen at any time. You don't have to have constructive knowledge more than 180 days in advance. Is that an intentional omission?

Mr. MINOTTI. I think our intent was to leave it the way the original bill reads.

Mr. VLCEK. Just for the record, I want to make clear that we understand what your intent is in 103 (1) (F) on the third page of your proposed changes where you say that: "provided that, the franchisor may not fail to renew for any such reasons for the sole purpose of operating the existing premises included in the franchise for his own account." Does that mean that you can't fail to renew a lessee operation solely for the purpose of converting that into a company operated station?

Mr. MARTIN. Yes, that is correct.

Mr. VLCEK. One final area of inquiry. This is with respect to your comments on exemplary damages, which appear on the eighth page. In this case, the bill provided that the court shall award exemplary damages where appropriate.

Two questions: First, I notice you stated in your description over here that exemplary damages should be permitted, if at all, only where the franchisor has acted in bad faith or in willful disregard of the provisions of title I. Yet you have recommended that all the language relating to exemplary damages be left out. Would it be appropriate for us to write into the statute a standard that provides that the court shall award exemplary damages if the franchisor acted in bad faith or willful disregard of the provisions of the law?

Mr. MINOTTI. I think it would be appropriate and consistent with our approach to it. Yes. The exemplary damages were stated in such a farflung way-in other words, to apply across the boardthat we were trying to basically point out in here appropriate places where perhaps exemplary damages, if the committee so desired, could be assessed which we would have no problem with.

Mr. VLCEK. Similarly, you recommend deletion of a requirement that the questions of exemplary damages shall be determined by the court and not by the jury.

Mr. MINOTTI. That is right. We would take that into account in whatever new provision you would want to include under the cir

cumstances.

Mr. VLCEK. In your view, you should make those determinations? The court or the jury?

Mr. MARTIN. Well, I think if you were to adopt our observation, if at all, where we said that-where exemplary damages could be permitted, then I would think that the court would be the more

appropriate body to assess the damages because I think in dealing with exemplary damages you are dealing with a situation where I think the court really would have to take a lot more into account than just the guilt of the party involved. The court would take into account maybe not only the long-term approach to the particular problem by the particular supplier and also perhaps how inimical this kind of a practice. Are they technically permitted by the statute may be long-range as far as the franchisee is concerned? In other words, the court can take into account that, while this may be technically correct, it certainly in some respects may frustrate the intent of Congress. I think this is where a determination can best be made by a court as opposed to a jury.

Mr. VLCEK. Thank you very much.

Mr. MAGUIRE. Thank you. Thank you very much, gentlemen, for your testimony. I gather there are no further questions.

You are excused. Thank you very much.

Mr. MARTIN. Thank you very much, Mr. Chairman. We appreciate the opportunity of being here.

Mr. MAGUIRE. The next witness is Mr. William C. Lane, assistant general counsel, Independent Terminal Operators Association. You have a prepared statement, I gather, Mr. Lane?

STATEMENT OF WILLIAM C. LANE, ASSISTANT GENERAL COUNSEL, INDEPENDENT TERMINAL OPERATORS ASSOCIATION

Mr. LANE. Yes, I think it has been submitted to the subcommittee. Mr. MAGUIRE. You may either read it or summarize it, as you see fit.

Mr. LANE. Thank you very much, Mr. Chairman.

Mr. LANE. My name is William Lane, and I am assistant general counsel of the Independent Terminal Operators Association (ITOA). ITOA represents firms which own and operate inland waterway terminals, principally on the Mississippi River system. ITOA members function as nonbranded, independent marketers of gasoline and other petroleum products over a wide geographic area. Because of their strategic locations on waterways and their consequent ability to deal with a number of refiners, ITOA members are able to provide an extremely competitive influence on the marketplace.

ITOA wishes to commend this subcommittee and its staff for its work on the bill H.R. 13000. We believe this bill to be an extremely valuable piece of legislation which will restore some degree of equity in the American gasoline market.

We do, however, have three specific comments directed toward the further improvement of the bill which we would like to offer for this subcommittee's consideration.

First, while ITOA supports title I of the bill granting franchise protection to branded marketers, we do not believe that firms which merely import gasoline for resale should be subjected by that title to the same restraints as refiners. A reseller which purchases foreign products is not treated as a refiner for any purpose under the Emergency Petroleum Allocation Act or other relevant legislation.

Treating such a firm as a refiner for purposes of this bill would therefore introduce a new complexity into the law.

Further, the definition contained in section 101 (5) of this bill does not specify when a firm would be considered to be "engaged in the importing of motor fuel." Importing is not, like refining, a continuing process. For example, an independent terminal operator may import one cargo of gasoline, then import nothing further for a year. Nevertheless, such a firm might be considered to be engaged in importing under the provisions of this bill.

Finally, it is unclear why a purchaser-reseller of foreign product should be treated differently from a purchaser-reseller of domestic product for purposes of this legislation. Both types of firm operate functionally as independent wholesalers and not refiners. Neither possesses, with respect to the individual dealer, the type of overwhelming economic power held by th refiner. For all the above reasons, ITOA urges that the words "or importing" be deleted from the definition of "refiner" in section 101 (5) of the bill.

With respect to title II of the bill, ITOA supports, with some modification, the staff proposal designated as amendment 2 in the committee print of April 21, 1976. We have long supported functional pricing by refiners and have testified in favor of this concept both before the Congress and before the FEA.

However, the proposed language of amndment 2 would not effectively require true functional pricing. That amendment as it presently stands would only require that prices be uniform unless a cost difference existed. It would not mandate the converse, that prices vary according to real differences in the cost of service. In order to understand the importance of this omission to ITOA, one must be aware of the functional role which independent terminal operators, such as those which form ITOA's membership, play in the marketplace, and the problems which they face.

As independent product wholesalers, ITOA members perform a number of important functions not generally performed by jobbers or dealers. First, they purchase product in barge lots or pipeline tenders rather than in transport truckloads, thereby permitting the refiner to effect economies of scale. Second, ITOA members perform a vital transportation function in shipping product from the refinery to the terminal efficiently over water. Third, they provide bulk terminaling facilities and bear the risk of inventory loss. Finally, they distribute product overland to independent dealers. The terminal operator's performance of these functions affords a substantial savings to the refiner. Yet the refiner, and in particular the major petroleum company, is frequently unwilling to grant the terminal operator a price commensurate with the value of the services performed. Instead, the refiner will frequently quote the terminal operator its standard rack price, if indeed it is willing to sell to independents at all.

Any functional pricing legislation, in order to be effective, must therefore both forbid price discrimination where it is not justified by cost and require price differences which are justified by costs. In particular, such legislation should provide that the price at which