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Dictograph Products Inc. v. Federal Trade Commission.

December 15, 1954

DICTOGRAPH PRODUCTS, INC.
v.
FEDERAL TRADE COMMISSION.



Author: Medina

Before CHASE, MEDINA and HARLAN, Circuit Judges.

MEDINA, Circuit Judge: This is a proceeding to review an order of the Federal Trade Commission directing petitioner to eliminate from its contracts with independent distributors certain restrictive, exclusive-dealing clauses and to cease and desist from certain practices connected therewith, in alleged violation of Section 3 of the Clayton Act and Section 5 of the Federal Trade Commission Act.

For many years petitioner and its predecessor company have manufactured and distributed hearing aids under its trade name "Acousticon." Due to the fact that there are said to be from 25,000,000 to 55,000,000 persons in the United States who are hard of hearing and to the rapid development in recent years of electronics and allied areas of scientific knowledge, the industry has had phenomenal growth, especially since 1940 or thereabouts. Since long prior to that date petitioner has been one of the largest manufacturers of hearing aids, although there is nothing in the voluminous record now before us to indicate that petitioner now or at any time had a "dominant" position in the hearing aid business.

In the period 1944-1949 petitioner's sales of hearing aids and of parts and accessories were as follows:

Year Hearing Aids Parts & Accessories

1944 $741,874 $257,933

1945 1,041,097 162,100

1946 2,231,570 1 87,761

1947 1,937,432 269,182

1948 1,763,955 200,757

10 Mos. 1949 1,546,797 142,025

While some makes of hearing aids are sold by at least one mail order house and in department, optical and drug stores over the counter, the best market for the manufacturer of hearing aids is the independently established retail distributor, whose business is devoted entirely to the fitting and sale of hearing aids to the hard of hearing public, and these distributors also serve as the best market for parts and accessories.

There is substantial evidence to sustain the findings below that there are only approximately 1000 established responsible distributors specializing in the sale of hearing aids in the United States and, of these, 220 are distributors of the "Acousticon," operating generally under "franchises" from petitioner for designated territories and always pursuant to the terms of the restrictive, exclusive-dealing agreements which, together with the arrangements which commonly accompany them, forbid dealing in the products of competitors and in the sale or distribution of used instruments which are traded in or may be otherwise procured or obtained; and the strict enforcement of such agreements has had the effect of establishing and maintaining an area or segment of the hearing aid business in which the independent distributors of the "Acousticon" will not undertake to sell the hearing aids of competing manufacturers but deal only in the "Acousticon," despite requests by competing manufacturers that they handle their products, and despite the fact that many independent distributors handle more than one make of hearing aid. Accordingly, it was found by the hearing examiner and by the Commission:

"Respondent's distributors constitute a substantial segment of the outlets for sale of hearing aids and supply coverage for the more important trade areas of the United States. In such segment the respondent has effectively established a monopoly. Competing manufacturers of hearing aids have suffered substantial injury in the form of loss of sales and inadequate distribution of their competing products as a result of the respondent's requirements that its distributors and dealers handle only the products manufactured and sold by the respondent, and such ...


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