perform that form of service which the seller desires to reward with an allowance under his plan. However, to ensure appropriate benefits to all qualified customers, the Commission expects the seller to offer bona fide alternative means enabling all buyers to participate in some form. In that event, a reasonable relationship among the several available types of service or allowance must be maintained, though the rate of compensation for different forms of service may vary. In this way, the statutory standard of proportional equality has been translated by the Commission into workable rules of law. On the other hand, courts have failed to integrate Section 2 (d) or (e) violations with the standards of the price discrimination provisions in the Act. While some judicial dicta intimate a requirement of competitive "injury" as a prerequisite of violation of the "proportionally equal terms" sections,101 the Commission's decisions have almost invariably adjudicated allowances and services violations without express findings of economic harm.192 Moreover, the only directly pertinent appellate holding relied on prior adjudications interpreting the "brokerage" provision, and by a literal reading of the statute declined to apply any of Section 2 (a)'s qualifications to the "proportionally equal" clauses.193 In accord with that governing judicial decision, the Act as currently construed forbids any "proportionally unequal” promotional allowance or service, though no actual or probable lessening of competition is shown to exist. The Committee considers the prevailing interpretations of the "brokerage" clause at odds with broader antitrust objectives. Goods are sped to the consumer through marketing functions, whether performed by independent "brokers" or other businessmen who have invested capital and services in the "middleman" phase of the marketing process. A legal disqualification of all but the "pure" broker's distributive services is thus at variance with business realities. Moreover, the essence of antitrust policy in distribution is to assure that the consumer benefits by vigorous competition along each step of the way. Yet the "brokerage" clause as presently interpreted enacts a preferred position for the "independent” broker, thus discriminating against competing firms in distribution who are arbitrarily denied compensation for genuine marketing functions which they per 101 See Chicago Sugar Co. v. American Sugar Refining Co., 176 F. 2d 1 (7th Cir. 1949); National Nut Co. v. Kelling Nut Co., 61 F. Supp. 76, 83 (N. D. Ill. 1945). 192 E. g., Appleton-Century-Crofts, Inc., 47 F. T. C. 1371 (1951); Grabosky Bros., 36 F. T. C. 477 (1943). 198 Elizabeth Arden, Inc. v. Federal Trade Commission, 156 F. 2d 132 (2d Cir. 1946); see also United Cigar-Whelan Stores Corp. v. Weinreich Co., Inc., 107 F. Supp. 89 (S. D. N. Y. 1952). form. Joint buying organizations for pooling the resources of small businessmen have conspicuously suffered from rigid "brokerage" clause enforcement.194 In our opinion, the virtual legal monopoly conferred by Section 2 (c) on one type of middleman clogs competition in the channels of distribution, and exacts tribute from the consumer for the benefit of a special business class. Contrary to the restrictive interpretations of the brokerage clause, the allowances and services provisions, in our view, are beginning to be administered in a workable way. We share the Commission's recognition in the Soap cases that "no standard could be laid down which would ensure exact proportionality with the mathematical accuracy of a slide rule.” 195 Hence we approve the evident intention of the Commission to accept any promotional plan "both honest in its purpose and fair and reasonable in its application." 196 However, as a matter of clarifying its enforcement policy, we recommend that the Commission promulgate a policy statement expressly sanctioning the following basic types of promotional plan: (1) percentage allowances of the buyer's gross purchase, conditioned on his performance of services reasonably equivalent in value; (2) allowances at set rates for given promotional services by the buyer, with the total allowance confined to a uniform percentage of the buyer's gross volume; (3) promotional services by the seller approximating in value a uniform percentage of the recipient buyer's gross volume. Further, in each case, equivalent types of promotion best suiting particular customer classes should be authorized, so long as a reasonable relationship between the benefits accorded each buyer class is maintained. Promotion systems whose legality is now implicit in the determinations of the Commission would thus be unmistakably qualified under the "proportionally equal" test of 2 (d) and (e). But, more fundamentally, the Committee disapproves the present disparity in the statutory consequences which attach to economically equivalent business practices. Today, "direct" or "indirect" price discriminations under Section 2 (a) do not transgress the law unless they cause adverse market effects and unless unjustifiable under one of the defensive provisos. In contrast, "brokerage" concessions or "proportionally unequal" allowances or services are illegal per se. This legal quirk facilitates manipulation and fosters confusion, since the Act places a premium on cloaking any concession in terms of a desired legal result. Virtually identical trade practices have been deemed "allow 194 "E. g., Biddle Purchasing Co. v. Federal Trade Commission, 96 F. 2d 687 (2d Cir. 1938); Modern Marketing Service, Inc. v. Federal Trade Commission, 149 F.2d 970 (7th Cir. 1945). 195 F. T. C. Docket 5585 (December 16, 1953) p. 7. 196 Ibid. ances" in one case and "indirect discriminations" in another,197 while the "brokerage" clause has been invoked even against reductions in net price in direct transactions which dispensed with fees for independent brokers.198 The decisions, moreover, reveal no guide for distinguishing a justifiable “indirect" discrimination from a flat per se offense. Such legal incongruities, we believe, frustrate equally the Commission's legitimate enforcement objectives and businessmen's good faith attempts to comply. We therefore favor reconciliation of Sections 2 (c), (d), and (e) with the remainder of the Act. Antitrust enforcement should not be complicated by diverse legal consequences solely dependent on whether a discriminatory concession masquerades as a "brokerage”, "allowance", or "service" rather than a naked quotation in price. For, as the Supreme Court has recognized, in any reasonable implementation of antitrust objectives "the crucial fact is the impact of the particular practice on competition, not the label that it carries." 199 And we consider "broader antitrust objectives" opposed to legal interpretations which penalize normal business conduct either wholly harmless in market effects, or at least justifiable in terms of the defenses authorized in price discrimination cases. Consequently, the statutory policy governing brokerage as well as allowances or services should be harmonized with the overall standards controlling the remainder of the Act. An administrative reinvigoration of the "for services rendered” exception in the brokerage clause-in order to recognize every genuine distributive function performed by any form of legitimate business enterprise-would ensure equal treatment of all types of distribution, and revive that competition in the distribution process whose benefits the customer must now by law forego. Such reconsiderations of more than a decade of administrative rulings, however desirable, is complicated by numerous appellate adjudications which affirm the Commission's previous restrictive interpretations. For this reason, in order to reconcile the brokerage clause with "broader antitrust objectives," we favor legislation as necessary to re 197 Compare e. g., Champion Spark Plug Co. and General Motors Corp., F. T. C. Dkts. 3977 and 5620 (1953), with e. g., Lambert Pharmacal Co., 31 F. T. C. 734 (1940), and American Crayon Co., 32 F. T. C. 306 (1940). 198 See e. g., Great Atlantic & Pacific Tea Co., 106 F. 2d 667 (3d Cir. 1939), and especially the Commission's recent complaint in the Topco case, F. T. C. Dkt. 6160 (February 2, 1954). 109 E. g., Federal Trade Commission v. Motion Picture Advertising Service Co., 344 U. S. 392, 397 (1953); see also United States v. Masonite Corp., 316 U. S. 265, 280 (1942); Federal Trade Commission v. Ruberoid Co., 343 U. S. 470, 475 (1952); and Times-Picayune Publishing Co. v. United States, 345 U. S. 594, 615 (1953). store the original vigor of the exception "for services rendered" in Section 2 (c). In contrast, Sections 2 (d) and (e) seem amenable to interpretive reform. Hence we deem reconciliation of Sections 2 (d) and (e) with "broader antitrust objectives" still feasible through reinterpretation of the statute short of amendment, and do not propose congressional action at this time. 8. The Buyer's Liability Unlike the provisions in Subsections 2 (a) through (e), addressed primarily to sellers who accord discriminatory concession, Section 2 (f) declares it "unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section." Although Robinson-Patman Act prohibitions were predominantly directed at discriminatory concessions coerced by powerful buyers, the legislative process relegated Section 2 (f) to a minor role. Because the original Section 2 of the Clayton Act struck at predatory price cuts destructive of competition as between the seller and other suppliers, no provision governing discriminations exacted by buyers was essential to accomplish the 1914 draftsmen's intent. Congress in 1936, though faced by the growth of chain stores and other mass merchandisers with marketing problems at an entirely different level of the distribution process, chose to retain the existing statutory framework of old Section 2 but reformulated its prohibitions through textual revision. Yet the bills introduced in both Houses of Congress which ultimately became the Robinson-Patman Act contained no reference to illegal practices on the part of buyers. The drafters concentrated on easing the test of competitive "injury" qualifying the old Clayton Act's prohibitions on discriminations by sellers. Discriminatory concessions which allegedly enabled big buyers to menace the economic survival of smaller rivals-the essential evil contemplated by the Act-were thus checked by circuitously fortifying the law's prohibitions on sellers granting the discriminations. In fact, the present prohibitions of Section 2 (f) first emerged as an amendent offered in debate on the floor of the Senate. Passed by that chamber, and accepted by the House conferees, Section 2 (f) represented a lastminute afterthought addition to the anti-discrimination law.200 As disclosed by its scant legislative history, the provision was designed to facilitate resistance to "sacrificial price cuts" through enabling the cornered seller to fend off an aggressive buyer by pleading the illegality of his excessive demands.201 In accord with this purpose, knowing receipt of an illicit concession became the core of the buyer's offense. 202 Despite its apparent significance in realizing the Act's objectives, Section 2 (f) has been sparingly invoked. Compared with over 300 proceedings against sellers charged with according discriminatory concessions, the Federal Trade Commission has directly challenged coercive bargaining by buyers less than one-tenth this number." While the first Commission action under 2 (f) resulted in a dismissal of the charges,203 all subsequent proceedings culminated in orders to cease and desist that provoked neither detailed legal analysis nor even reached judicial review-until the Supreme Court's landmark Automatic Canteen decision recently promulgated the authoritative interpretation of Section 2 (f) which to date prevails.204 The Automatic Canteen case concerned discriminatory concessions secured by a large buyer of confectioneries for resale through numerous vending machines. In administrative proceedings, the Commission's staff demonstrated that Automatic Canteen had obtained prices as much as one-third below its rivals. In the Commission's view, the demonstration that the buyer knowingly received a favorable concession-at least when sufficiently sizable to cause "injurious" market effects-established a prima facie 2 (f) violation. The burden of disproving the illegality of the price he obtained was thus cast on the buyer. This construction of Section 2 (f) was rejected by the Supreme Court. By the Court's interpretation, the statute firmly established knowing receipt of an illegal concession as the essential element of the buyer's offense. To transgress Section 2 (f) a buyer not only must obtain an unlawful concession, but also must be reasonably aware of its illegality. Conversely, exoneration followed from either a successful showing that the challenged price quotation was not in fact illegal, or that the buyer had no reason to know otherwise." 205 The issue of "knowledge" thus became focal. Mere “knowledge” by the buyer that his price was better than quotations to rivals, according to the Court, was in itself insufficient as a prima facie case of reasonable awareness of its illegality. Such a ruling necessarily would have required the buyer to prove affirmatively-in order to rebut the prima facie violation-that the price was not truly illegal because "non-injurious" to competition or otherwise "justified”. But the Court realized that a buyer charged with accepting a favorable differential could not ordinarily be expected to possess 202 The Commission has to date issued twenty complaints under Section 2 (f). 203 Bird & Son, Inc., 25 F. T. C. 548 (1937). 204 346 U. S. 61 (1953), reversing 194 F. 2d 433 (7th Cir. 1951) which had affirmed the Commission's decision, 46 F. T. C. 861 (1950). 205 346 U. S. 61, 70–71 (1953).. |