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Biddle Purchasing Co. v. Federal Trade Commission.

May 2, 1938


Appeal from the Federal Trade Commission.

Author: Manton

Before MANTON, L. HAND, and SWAN, Circuit Judges.

MANTON, Circuit Judge.

Complaint was issued by the Federal Trade Commission, charging petitioners with violating the provisions of the Clayton Act as amended by section 2(c) of the Robinson-Patman Price Discrimination Act, 15 U.S.C.A. § 13(c). Petitioner Biddle Purchasing Company is in the brokerage business as herein described. Some of the petitioners are buyers, while others are sellers of commodities bought and sold in interstate commerce through the Biddle Company as brokers. The sellers were charged with unlawfully paying brokerage fees to the Biddle Company for the use of buyers of the commodities in interstate commerce.

The order appealed from provides that the Biddle Company, "its officers, representatives, agents and employees, in connection with the purchase or sale of commodities in interstate commerce or in the district of Columbia, do forthwith cease and desist from: (1) Receiving or accepting any fee or commission, as brokerage or as an allowance in lieu thereof, from any seller of commodities, which fee or commission is intended to be paid over to the purchaser of such commodities, or which is to be applied for the use and benefit of such pruchaser; (2) Paying or granting to any purchaser of commodities any fee or commission received or accepted by said Biddle Purchasing Company, as brokerage or an allowance in lieu thereof, from the seller of such commodities."

The Commission found that those of the petitioners who were sellers violated section 2(c) of the Robinson-Patman Act by paying brokerage fees to petitioner Biddle Company, with knowledge of the fact that the fees were intended to be and were being paid over by said Biddle Company to its buyers; that the buyers were violating the statute by receiving and accepting brokerage fees paid by the sellers in connection with the purchase of commodities by said buyers, through the Biddle Company; and that the latter was violating the statute by accepting such fees and transmitting them to the buyers.

Section 2(c) of the Robinson-Patman Act provides that "It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid."

Biddle Company's business method was to obtain subscribers to its combined market information and purchasing service charging therefor from $25 to $50 per month. It provides a trade information and purchasing service for wholesalers and jobbers throughout the country. It also is engaged in selling the products of numerous manufacturers, canners, and packers to the concerns for whom it supplies market information and purchasing service. Biddle Company has written contracts with the buyers. With the sellers oral contracts to dispose of their products were made under which the commissions were paid to Biddle which in turn paid them over to the buyer of the particular commodity. In about 86 per cent. of these transactions the buyers received back as commissions no more than the amount they had paid to the Biddle Company for its market information service, but in 14 per cent. the commissions exceeded that sum and this excess was paid to the buyers. Large numbers of buyers subscribe to its service. It has sold for many sellers. The Biddle Company is not controlled by or affiliated with either buyers or sellers through stock ownership, but is an independent corporation. This method of transacting business, with the remission of the selling commissions to the buyers, in effect, gives the buyer a discount on his purchase.

The regulation of competition results in a competitive etiquette, in standards of business conduct, in a plane of competition. Trusts were forbidden because they stified competition and tended to create monopoly.The prohibitions of the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note, set a plane of monopolistic conduct rather than a plane of competition. Anti-trust laws regulate monopolistic practices which are repugnant to decent business morality, which are injurious to competitors and to consumers, which are economically wasteful but which do not jeopardize to an appreciable degree the very existence of competition. Both types of practice must be included in the legal plane of competition; both are types of regulation which enforce each other; both are animated by a common objective notwithstanding the differences of their intermediate ends. Monopolistic purpose and intent (Swift & Co. v. United States, 196 U.S. 375, 25 S. Ct. 276, 49 L. Ed. 518) are illustrated by decisions as in Standard Oil Company Case, Standard Oil Co. v. United States, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619, 34 L.R.A., N.S., 834, Ann. Cas. 1912D, 734, where the Oil Company was engaged in local price cutting and espionage, established bogus independents, and granted rebates to preferred customers and exacted rebates and preferences from railroads, all for the purpose of suppressing competition. And the American Tobacco Company v. United States, see 221 U.S. 106, 31 S. Ct. 632, 55 L. Ed. 663, employed fighting brands for the same purpose. The United States v. International Harvester Company, D.C., 214 F. 987, appeal dismissed 248 U.S. 587, 39 S. Ct. 5, 63 L. Ed. 434; Id., 274 U.S. 693, 47 S. Ct. 748, 71 L. Ed. 1302, closed the channel of trade to competitors by tying up all the main retail outlets with exclusive dealing contracts. It is reasonably clear that most of these methods violated the Sherman Anti-Trust Act only when they were part of a scheme to stifle competition and to obtain control of an industry.

Resale price maintenance has received fuller consideration than any of the other selling devices challenged under the antitrust laws. Agreements maintaining resale prices have been condemned as a restraint of trade. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S. Ct. 376, 55 L. Ed. 502; Straus v. victor Talking Machine Co., 243 U.S. 490, 37 S. Ct. 412, 61 L. Ed. 866, L.R.A. 1917E, 1196, Ann. Cas. 1918A, 955. And as an unfair method of competition under the Federal Trade Commission Act, 15 U.S.C.A. § 41 et seq., see, Federal Trade Comm. v. Beech-Nut Packing Co., 257 U.S. 441, 42 S. Ct. 150, 66 L. Ed. 307, 19 A.L.R. 882; J. W. Kobi Co. v. Federal Trade Comm., 2 Cir., 23 F.2d 41. The injury, if any, resulting from price maintenance, is suffered not by the competitors of the producer but by the retailer and the ultimate consumer. The courts draw the distinction between price maintenance by agreement and price maintenance by refusing to deal. United States v. Colgate & Co., 250 U.S. 300, 39 S. Ct. 465, 63 L. Ed. 992, 7 A.L.R. 443. Cf. Frey & Son, Inc. v. Cudahy Packing Co., 256 U.S. 208, 41 S. Ct. 451, 65 L. Ed. 892.

Thus the rules governing the maintenance of prices must be included in any discussion of unfair competition, although the problem is somewhat different from other trade practices. But the Clayton Act, 38 Stat. 730, singled out two practices for special treatment, price discrimination and exclusive dealing and other tying agreements. Section 2 forbids discriminations in price not based upon differences in grade, quality, quantity, or cost of transportation which substantially lessen competition or tend to create a monopoly in any line of commerce. The section outlaws unfair discriminations which substantially lessens competition or lead to monopoly. It does not compel a one-price sales policy. It does not forbid sales below cost in the absence of discrimination.Porto Rican American Tobacco Co. v. American Tobacco Co., 2 Cir., 30 F.2d 234.

The amendment in section 2(a), 15 U.S.C.A. § 13(a), has for its purpose making discrimination in prices unlawful "where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them."

It is argued that section 2(c), 15 U.S.C.A. § 13(a), under which this proceeding is brought, is to be construed in the light of section 2(a), and that, so construed, the payment or receipt of the brokerage is illegal only when it has such effect upon competition as is provided in section 2(a). The argument is that the receipt of brokerage here would be illegal only if it restricts competition or restrains trade or injures a competitor. But no complaint is made against Biddle Company or the other petitioners for this reason. The complaint here is under the provisions of section 2(c) and not section 2(a) of the statute. The validity of the order entered is dependent entirely upon the legality of section 2(c). Section 2(c) contains no classification provision nor is there anything in it which would justify the conclusion that it would not be uniformly applied. It in no way supports the theory that the relative size of businesses coming within its purview or other differing plans of organization determine the question as to whether or not violations of the statute occur.

Petitioners say that, if section 2(c) is construed to prohibit the payment or receipt of brokerage irrespective of a finding of injurious effect on competition, then section 2(c) deprives petitioners of their right to make usual and ordinary contracts for the disposition of property and services without due process of law contrary to the Fifth Amendment of the Constitution U.S.C.A. Const. Amend 5.While the Biddle Company was disassociated in ownership and management from either buyers or sellers, direct and indirect control can be exercised by buyers or sellers over a broker in transactions of purchase and sale by means other than participation in the broker's ownership and management. In the purchasing transactions which the Biddle Company executes for its buyers, it is the agent and representative of the buyers, and is therefore to ...

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