Ao,Per Release at It 00 P* M ,

Friday January 28, I960

"EQUITABLE TREATMENT OP COMPETITORS"

Remarks By

EDWARD T . TAITFederal Trade Commiealoner

Before the

SECTION ON ANTITRUST LAW

NEW YORK STATE BAR ASSOCIATION

New York, New York

January 28, I960

"Why pick on me?" is a common query heard atthe Federal Trade Commission. As you listen youtry to place this person and his remark in theproper setting. A businessman has Just beencaught violating the law. Sometimes you feel hemust have known that he was doing so. Is he aseller or buyer caught in the intricate web ofthe Robinson-Patman Act or is he an advertisersqueezing more sales from an alluring but cleverlydeceptive innuendo? Putting aside sympathy, orlack of it, you remember a pigeon-holing phrase ofour profession, "competition not competitors.11

Respondents frequently say that their competi-tors are engaged in the sarae alleged illegal prac-tices. They further claim that if the Commissionissues a cease and desist order against themselvesalone, -they will be at a serious competitive disad-vantage. Recently the Commission issued simultaneouscomplaints against one large company and several smallones. The large company was heard Lo complain at thevery outset, "Why were we the only large company tobe sued?"

I know you and your clients are very much inter-ested in the competitive effects of the Commission'slaw enforcement. I shall not discuss the TradePractice Conference Procedure. It is well understoodas an effort to gain industry-wide voluntary compli-ance with the law through what one might call theeducational process. I shall refer only briefly tothe Stipulation and Guides procedures.

My remarks this afternoon are directed primarilyto those situations wherein the Commission determinesthat it is necessary to issue formal complaints. Thisbrings us to the heart of my topic—the equitabletreatment of competitors in formal proceedings. FrancisBacon once said that the best armor is to keep out ofgunshot. I could heed that advice by presenting apaper condemning the sale of lottery devices. Such apaper would be safe and probably of no interest to you.Bear in mind, however, that I am discussing the equitabletreatment problem in general terms and advancing ageneral theme for purposes of information and illustra-tion. I am not attempting to promulgate rules of pro-cedure.

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As a practical matter the Commission has neithersufficient funds nor manpower to investigate allcompetitors allegedly engaged in identical malprac-tices, issue complaints, try the various casesseparately and issue orders to cease and desistsimultaneously. This raises the first question:Does the Commission have discretion in the selectionand prosecution of cases? Or, can the Commissionissue an order to cease and desist against only afew of the competing firms who allegedly are com-mitting the same illegal offenses?

In the Niehoff (C. E . Niehoff & Co. v. P . T . C . ,2I4.I P . 2d 37 /$S$ff) and the M O O R (F.T.C. V . MoogIndustries, Inc., 238 P . 2d 1+3 £L9567) cases, theCourts of Appeal in the Seventh and Eighth Circuitswere urged to stay the enforcement of the Commission'sorders to cease and desist until similar complaintsand orders were issued against their competitors. InNiehoff, the Seventh Circuit did stay the enforcementof the order to cease and desist "in the light ofequitable principles" and depending upon "the futurecourse of the Commission's proceedings againstNiehoff s competitors." In Moog, the Eighth Circuitaffirmed the Commission's order without granting astay.

These cases thus directly presented the issue.On certiorari, the Supreme Court clearly answeredthis question in the affirmative as follows (MooIndustries, Inc., v. F . T . C , 355 U . S . lj.ll / % J

"a •«• -a Thus, the decision as to whether or notan order against one firm to cease and desistfrom engaging in illegal price discriminationshould go into effect before others are simi-larly prohibited depends on a variety of factorspeculiarly within the expert understanding ofthe Commission. Only the Commission, for ex-ample, is competent to make an initial determi-nation as to whether and to what extent thereis a relevant 'industry' within which theparticular respondent competes and whetheror not the nature of that competition is suchas to indicate identical treatment of theentire industry by an enforcement agency.Moreover, although an allegedly illegal prac-tice may appear to be operative throughout an

industry, whether such appearances reflectfact and whether all firms in the industryshould be dealt with in a single proceedingor should receive individualized treatmentare questions that call for discretionarydetermination by the administrative agency.It is clearly within the special competenceof the Commission to appraise the adverseeffect on competition that might result frompostponing a particular order prohibitingcontinued violations of the law. Furthermore,the Commission alone is empowered to developthat enforcement policy best calculated toachieve the ends contemplated by Congressand to allocate its available funds andpersonnel in such a way as to execute itspolicy efficiently and economically."

It is therefore clearly established that theCommission can issue an order against one of severalcompetitors, all of whom allegedly are violating thelaw. It logically follows that the selection of casesis also(within the discretion of the Commission.

In the exercise of this discretion is the Cora-mission alert to reality, i.e., to the competitivedisadvantage which may at times exist should an orderissue against but one or few of many offenders. Iassure you we are keenly aware of it. Indeed, youconstantly remind us. Further, on our part, and onthe part of some respondents who exhibit initiative,there is and has been a continued effort to provideworkable solutions within the statutory framework.This is demonstrated by some specific cases to whichI shall refer later.

In our processing of cases one factor—publicinterest--is at all times paramount. Although it ishighly desirable that competitors be treated alike,the lodestar is the protection of the public interest.Where one dovetails with the other we can use short-ened, flexible procedures to avoid competitive advan-tage or disadvantage.

Several procedures have been used and usedsuccessfully. And I should add that the casesinclude both antimonopoly and antideceptive prac-tices. Therefore, I am not confronted with a situation

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similar to that faced by Rufus Choate who, whenasked by the court to cite a precedent, replied,"I will look, your Honor, for a precedent, althoughit would be a pity that the court should lose thehonor of being the first to establish so just arule."

Where all respondents desire to terminate thechallenged practice at the same time, they can acceptorders to cease and desist simultaneously. The ordersmay or may not vary in some detail, depending uponthe particular facts. The Commission issued complaintsagainst the Bulova Watch Company, Inc. (D. 5830), theGruen Watch Company (D. 5836), and the Elgin NationalWatch Company (D. 5837), charging each of them withgranting advertising allowances to customers ondisproportional terms in violation of Section 2 (d)of the amended Clayton Act. It is a probability ofbusiness life that If sellers are competing for thebusiness of preferred buyers by granting them dis-proportional advertising allowances and that if oneof the sellers is required to discontinue the prac-tice first, then he will lose business.

Counsel for one of the respondents in the watchcases readily agreed that a cease and desist ordercould be issued against his client provided that suchan order was simultaneously issued against the othertwo respondents. Subsequently, counsel for the tworemaining respondents made similar proposals. Theresult was that orders were issued at the same timeagainst the three competitors.

In effect, the Commission determined in the abovecases that the public interest would be well protectedby such agreements. Most certainly there was no delayin obtaining ultimate compliance with the law. Infact, compliance in all three cases was hastened. Inaddition, competitive advantage, or disadvantage, waseliminated. And it is readily apparent that the tax-payers' and the respondents' money was conserved.

In another series of cases the Commission issuedcomplaints against Sperry Rand Corporation (D. 6701),Schick Incorporated (D. 6892), North American PhilipsCompany, Inc. (D. 6900), and Ronson Corporation(D. 7066). The several complaints contained variouscharges of price discrimination in violation of

Section 2 (a) of the amended Clayton Act, the useof disproportional advertising allowances in viola-tion of Section 2 (d), the furnishing of servicesand facilities on disproportional terms in violationof Section 2 (e), and illegal resale price maintenancein violation of Section 5 of the Federal Trade Com-mission Act*

The various respondents separately filed consentagreements providing that the effective date of theorders would be stayed until the Commission issuedorders against the other respondents. Respondents1

counsel, in submitting their separate proposals,insisted that the orders be issued simultaneously.The consent agreements were accepted.

These razor cases again illustrate that compli-ance with the law and equality of treatment forcompetitors can go hand-in-hand. It is noteworthythat the procedure was used successfully notwithstand-ing the multiplicity of charges in the various com-plaints'. It was not necessary to litigate questionsof law. The respondents, apparently, were primarilyinterested in obtaining equality of treatment bothin substance and in the timing of the orders.

Another procedure has been used where allrespondents wish to terminate the practice if it isfound to be illegal. Under these circumstances,where there is a bona fide desire to litigate theissues, respondents may agree with the Commissionthat one case will be selected by the Commissionfor trial, all respondents to abide by the finaldetermination in the selected test case. Respondentswould further agree that should a cease and desistorder issue in the test case, then such an order isto issue against each of them without further pro-ceedings.

In the reprocessed oil cases it was necessaryto litigate the Illegality of the challenged practice.The Commission had issued a complaint against theMohawk Refining Corporation (D. 6588), charging itwith violation of the Federal Trade Commission Actthrough failure to disclose the prior use of certainoil products. While hearings were in progress, fiverespondents similarly charged in other complaints

(Dockets 6581, 6682, 6717, 6709 and 6579) filedseparate agreements that cease and desist orderscould be issued against them provided that theorders be stayed until final decision in the Mohawkcase. The Commission accepted these five agreements*

In the reprocessed oil cases, all of the sellersdid not compete with each other but all of them com-peted with another. Counsel for five respondentsagreed to abide by the decision in a case other thanthe case against their clients. The Commission hadreason to believe that the failure to label the oilas used oil was illegal, but there was no direct courtprecedent in Commission cases. Since litigation todetermine the question of legality was apparentlynecessary, it was obvious that it was more efficientfor the Commission to determine this point in thetrial of one case. Compliance with the law by allrespondents was thus obtained and the procedure savedthe expense of extended litigation, including severalappeals to the courts. At the same time, no respondentwas placediat a competitive disadvantage.

A somewhat different procedure was used in twoother groups of antideceptive practice cases. Thefirst proceeding was in May 1957, and involved sixmanufacturers of wool interliners (Dockets 6796, 6797#6798, 6799, 6800 and 6801); the second was in June1958, and involved eight manufacturers of woolen waste(Dockets 7227, 7228, 7229, 7230, 7231, 7232, 7233 and

U)Both groups were handled in the same way. After

it was ascertained that the several proposed respondentswere willing to consider agreements for consent orders,drafts of complaints were prepared for each case bythe Bureau of Litigation and submitted to the proposedrespondents informally, with explanation that this wasthe form of complaint which would be presented to theCommission with recommendation for issuance. At thesame time an agreement containing a consent order wasalso submitted to each proposed respondent for signa-ture. The agreement contained a provision that theywaived service of the complaint. This agreement wassigned, the date and docket number being left blankso that they could be filled in after issuance ofcomplaint. Accompanying the agreement was a separatewaiver for their signatures, whereby they waived

service of the hearing examiner's initial decisionand the thirty-day period within which the initialdecision may become the decision of the Commissionunder its Rules. These negotiations were carriedon with each proposed respondent with the under-standing that the same procedure would be used asto all other proposed respondents involved, andthat such action as would be taken would be simul-taneous.

After the agreements and the waivers were signedby proposed respondents, the complaint drafts werethen submitted to the Commission. Upon issuance ofthe complaints by the Commission (minus the usualnotice form), the consent order agreements weretransmitted to the hearing examiner. Upon issuanceof his initial decisions based on the consent agree-ments, '-the initial decisions and the waivers mentionedabove were filed with the Commission. The initialdecisions as to all respondents were forthwithadopted as the decisions of the Commission and theattendirig cease and desist orders were issued simul-taneously.

The novelty of the procedure used in the inter-liner and woolen waste cases was that the discussionand agreement among counsel occurred prior to theissuance of the complaints. Usually, of course, thediscussions among counsel occur after the issuanceof complaints. These cases were also unusual in thatthe two groups comprise practically the entire indus-tries. Each group was highly competitive and anxiousto avoid any competitive disadvantages.

With variations to accord with the particularcircumstances, procedures substantially similar tothose used in the reprocessed oil cases were quiterecently used in the so-called "cigarette vendingmachine" cases which involved alleged violations ofSection 2 (d) of the amended Clayton Act: Brown &Williamson Tobacco Corp. (D. 6908); R. J. ReynoldsTobacco Co. (D. 681*8); Philip Morris, Inc. (D. 6750);American Tobacco Co. (D. 6830), and Liggett & MyersTobacco Company, Inc. (D. 66i|2). The foregoing casesdemonstrate what can be accomplished to dovetail thepublic interest and competitive equality.

A factor common to each group of cases was thatno respondent claimed that his particular situationdeserved treatment different from his competitors.

All wanted only to be treated alike. Insofar, as itis possible we, too, desire to treat all who arealike, alike. In each of the cases, compliance withthe law was obtained more quickly, efficiently, andeconomically than would otherwise be possible.

Generally speaking, what are some of the morebasic considerations as to the availability of condi-tional consent agreements to alleviate competitivedisadvantage? What atmosphere must prevail if theiruse is to be contemplated? Are subjective as well asobjective factors involved?

The goal itself suggests one of the basic ques-tions, namely, must a competitive situation existamong the various alleged offenders? Or, leavingaside the question of competitive disadvantage for amoment, assume the Commission files complaints againstthree fur retailers, none of whom competes with theothers. If all three fur retailers want to litigatecommon, bona fide questions of law, is there any reasonfor the Commission to resist use of the test caseprocedure? Obviously, more reasons exist for the useof conditional consent agreements where competitivedisadvantage is a factor. But competitive disadvan-tage should not be our only consideration. In alarger sense, as administrators we are striving inevery instance to achieve greater degrees of flexi-bility in law enforcement through approaches gearedto reasonableness, to practicality, and to the dic-tates of experience. 1/

What is the effect of the existence of an enforce-able order against a competitor of the respondent whoseeks equitable treatment? If a respondent's competitoris already subject to such an order, respondent may haveno valid claim to equitable relief. All the more, per-haps, is an enforceable order against him Justified.Some equity lies with his restricted competitor.Recently the Commission rejected a respondent's condi-tional consent agreement for this and other reasons.But this reason, too, should not be the only consider-ation. For example, assume that the Commission issuessimilar complaints against twelve competitors. Further

1/ See Groveton Paper Company, et al., D. 6$92-6600.

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assume that one immediately accepts a consent orderwhile the other eleven assert an intention to liti-gate a common, bona fide question of law. It mightwell be that the eleven should be permitted to usethe test case procedure, as in the reprocessed oilcases. Depending upon the impact of the particularpractice on the public, the compliance of the onerestricted competitor might be stayed to await theoutcome of the test case.

An atmosphere conducive to use of these proceduresis present only if there is a full measure of coopera-tion, good faith and understanding among the attorneyson the Commission's staff and counsel for the variousrespondents. I emphasize the good faith elementbecause, in its absence, any attempt to use equitableprocedures may but serve to delay final action. Inshort, .equitable procedures are not available to sellthe public interest "down the river."

Subjectively, there must sometimes be the willing-ness by ,'attorneys for the various competing respondentsto risk the outcome of a case tried by another lawyerrepresenting a respondent who is not their client.This not only involves the relative abilities oflawyers to try cases but also, perhaps, other moremundane considerations. The clients, no doubt, willalso have definite views on this strategy.

Objectively, there is the question whether thefacts and the law of various cases are suitable andappropriate for group handling. This decision iswithin the discretion of the Commission. As statedby the Supreme Court in the Moog case, supra, amonga variety of factors for consideration is the extentof the relevant industry. Especially pertinent, ofcourse, is the area of competitive impact. What isthe nature of the offense? What is the nature of thecompetition? Another factor, and a very practical one,is whether the resources of the Commission will permitthe investigation of a large number of concerns withina reasonable time. The Commission is not authorizedunder existing law to issue complaints unless there isreason to believe that the particular respondent hasviolated a law administered by the Commission.

Counsel for respondents can be cf substantialassistance in developing the facts and the background

data for the particular industry. Counsel may beable to obtain data from their clients as to theextent of the use of an illegal practice in the industryand the identity of the offenders. If the Commissionreceives this data early in the investigation, atentative decision can then be made as to whether thepractice might be appropriate for group handling. Norespondent should complain of being singled out andnot accorded equitable treatment unless he has exertedhimself to the best of his ability to assist theCommission in bringing about the cessation of thesame practices on the part of his competitors.

There are many situations where this group pro-cedure may not be appropriate. For example, sellersof medicinal preparations containing different ingredi-ents may recommend their products for the same generalpurpose. The alleged false advertisements may vary inconsiderable detail. Obviously, any orders to ceaseand desist might well vary with the facts in each case.Again, for example, if a number of sellers were chargedwith price discrimination in violation of Section 2 (a)of the amended Clayton Act, and if the defense to suchcharge were cost justification or the meeting of competi-tion in good faith, then the several matters might haveto be considered separately. These defenses, too, wouldvary with the facts in each case.

These same basic considerations with respect tothe handling of formal complaint proceedings are appli-cable as well to those matters which initially aredetermined by the Commission to be the proper subjectof stipulations to cease and desist under Section 1.5>1of the Commission's Rules of Practice. Assuming thatthe various requisites are all present, competing membersin an industry can have assurance of equality of treat-ment by entering into separate voluntary stipulationswith the Commission to cease and desist their practicesat one and the same time.

In the context of today's discussion a brief refer-ence to the Commission's Guides program is equallyfitting. Thus far the Commission has issued guidesin carefully selected fields dealing, e.g., with tireand cigarette advertising, with fictitious pricingpractices, and with bait advertising in general.These guides constitute another step taken by the

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Commission to place competitors upon a more evenbasis at the very outset insofar as knowledge of mal-practices is concerned. For those in business andindustry who sincerely wish to travel the straightand narrow, the guides serve as pathways. Generalvoluntary compliance with the guides will tend toeliminate competitive disadvantages resulting attimes from case-by-case enforcement of the law.Along with the Trade Practice Rules, the guidestherefore are another of the first lines of approachto the problem of equal impact of law enforcementupon competing members of an industry.

Litigation before both the courts and the admin-istrative agencies is steadily increasing. We must beever alert to improve legal procedures. At this timewe are considering possible revision of the Commis-sion's Rules to clarify the complaint and consentorder procedure so it will be known to all. Ifadopted, one press release would cover the complaintand the order.

We,have also referred to a staff group the problemof recommending new procedures for enforcing theRobinson-Patman Act. It is desirable that the Commis-sion find better and more equitable enforcement pro-cedures in this area without lessening the vigorousenforcement of the Act. Some of the ideas consideredto date are ingeniu3 and even revolutionary; for example,can the Commission make greater use of Section 6 of theFederal Trade Commission Act to detect violations of thelaw? It is too early, however, to predict what theCommission will adopt.

In preparing for our meeting today I failed tofind any prior extensive discussion of what I callequitable treatment of competitors. One who does nothold public office could, perhaps, rephrase some of myquestions as answers. Personally, in the light of therelevant factors mentioned, I prefer to handle theseproblems on a case-by-case or an Indus try-by-Indus trybasis. Through time and experience we may be able toadopt more definitive criteria.

Some legal procedures can be misapplied and mis-used to the detriment of public or private rights orboth. The wise law enforcement official, I believe,is one who has the courage to be prudently flexibleand the wisdom to realize that precedent is the guide-post of the law.

Today I have concentrated upon procedures atthe Commission which perhaps are not sufficientlywell known to the Bar. There will be, of course,differences of opinion as to whether or not theseprocedures should be used in particular situations.However, such procedures in appropriate cases can bequite effective in giving flexibility and reasonable-ness to law enforcement.