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September 29, 1961

K.S. CORP., Plaintiff,
CHEMSTRAND CORPORATION and Fabrex Corp., Defendants

The opinion of the court was delivered by: METZNER

Defendant Chemstrand Corporation moves to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1, 6) and 12(h)(2), 28 U.S.C.

Plaintiff instituted a suit consisting of three causes of action, the first and third being asserted against Chemstrand Corporation alone and the second being asserted against both Chemstrand and Fabrex Corp. jointly. The first cause of action charges Chemstrand with a violation of the Robinson-Patman Act (15 U.S.C.A. 13(d, e)) for alleged discrimination against plaintiff and in favor of Fabrex in sales promotions and advertising allowances, and services and inventory financing. The second cause of action charges the defendants with a violation of Sections 1 and 2 of the Sherman Act (15 U.S.C.A. 1 and 2), alleging the existence of a conspiracy to increase defendant Fabrex's position in the sportswear, dress and coat market and concurrently to eliminate plaintiff as a substantial competitor. The third cause of action consists of a claim for breach of contract against Chemstrand.

Chemstrand has moved, pursuant to Rule 12(b)(6), to dismiss the first cause of action on the grounds that neither plaintiff not Fabrex was a 'purchaser' or 'customer' of Chemstrand within the meaning of the Robinson-Patman Act and that plaintiff's and Fabrex's fabrics were not 'commodities of like grade and quality' within the meaning of the act.

 Plaintiff and Fabrex are 'converters' who are engaged in acquiring 'greige goods' or unfinished textiles, manufactured to their specifications, from mills, converting these greige goods into finished textiles and selling them to manufacturers of 'consumer goods.' Chemstrand is a manufacturer of an acrylic fiber which is sold under the trademarks Acrilan and A-Acrilan to mills. This fiber has been made known to the public in general and to members of the trade specifically by extensive advertising and promotional activity carried on by Chemstand.

 Plaintiff alleges that Chemstrand solicits converters in order to induce them to use Acrilan fiber in their greige goods. In this solicitation Chemstrand discusses and agrees upon the price of the fiber to be charged the mill. In addition, Chemstrand contracts directly with some converters by way of standard contract forms and license agreements to furnish them advertising and sales promotion, including the right of the converter and its customers to utilize the Chemstrand trademarks. The said license agreements provide for quality control by Chemstrand over the finished goods of the converter.

 Plaintiff alleges that after extensive negotiation Chemstrand represented that it would furnish advertising and other such promotional help to plaintiff and its customers in exchange for plaintiff's agreement to order from the mills greige goods made in part from Acrilan and furnished to the mill by Chemstrand at agreed upon prices. After plaintiff placed its order for greige goods containing Acrilin fibers, Chemstrand refused to make available to plaintiff the promotion and advertising which it had promised. Plaintiff further alleges that Chemstrand agreed to furnish and did in fact furnish Fabrex the type of promotion and advertising which plaintiff had negotiated for as well as 'services and inventory financing.'

 Contrary to plaintiff's contention, the term 'customer' used in Section 2(d) of the Robinson-Patman Act is to be given the same meaning as 'purchaser' in Sections 2(a) and 2(e) of the act, in order to harmoniously effectuate the purpose of the parallel provisions. Atty. Gen.Nat'l Comm.Antitrust Rep. 189 (1955).

 Privity of contract between the manufacturer (Chemstrand) and a converter (plaintiff) is not a necessary condition for the converter to be considered a 'purchaser' within the meaning of the Robinson-Patman Act. An indirect purchaser may come within Section 2 when the manufacturer deals directly with him in promoting the sale of his product and exercises control over the terms upon which he buys. Union News Co., Trade Reg.Rep. (F.T.C. Complaints, Orders, Stipulations, 1960-61) P29,335 (1961); Champion Spark Plug Co., 50 F.T.C. 30 (1953) (manufacturer conducted negotiations and set terms and conditions of sale); Dentists' Supply Co. of New York, 37 F.T.C. 345 (1943) (manufacturer solicited customers and suggested retail prices); Luxor, Ltd., 31 F.T.C. 658 (1940) (same); Kraft-Phenix Cheese Corp., 25 F.T.C. 537 (1937). Cf. Elizabeth Arden, Inc. v. F.T.C., 2 Cir., 1946, 156 F.2d 132.

 In Union News Co., supra, sufficient control by the manufacturer was held to exist because the prices charged by the wholesaler and the retailer were fixed in negotiations between the manufacturer and the retailer, the manufacturer bore the cost of unsold magazines and specified the dates on which new copies were sold and old ones returned. In Kraft-Phenix Cheese Corp., supra, the manufacturer solicited orders from the retailers, issued suggested price lists to the wholesalers, which prices were usually adhered to, and exchanged directly with the retailer fresh cheese for stale cheese.

 When the manufacturer lacks sufficient contact with the indirect purchaser and/or sufficient control over the terms upon which he buys, the latter will not qualify as a 'purchaser' within the meaning of the act. Klein v. Lionel Corp., 3 Cir., 1956, 237 F.2d 13 (mere existence of fair-trade agreement insufficient to establish control); Baim & Blank, Inc. v. Philco Corp., D.C.E.D.N.Y.1957, 148 F.Supp. 541 (finding that wholesaler set terms and conditions of sale). Cf. 1960 Antitrust Law Symposium, Trade Reg.Rep. No. 153, p. 107 (June 1960). The ultimate determination as to whether sufficient control exists to make the plaintiff a purchaser within the meaning of the act will depend to a large extent on the proof adduced as to the number and quality of the contacts between Chemstrand, the plaintiff and Fabrex. A reading of the above cited cases indicates the vague line that separates a covered indirect purchaser and one who is not. It would appear that each case must be decided on its own facts. Sufficient has been alleged in this complaint to permit the plaintiff to ultimately prove its cause of action. Adverse determination cannot be made on this motion to dismiss. The facts may become clearer after the discovery deposition procedures have been exhausted.

 Similarly, the question as to whether the fabrics bought by plaintiff and Fabrex were 'commodities of like grade and quality' cannot be decided on this motion. Whether the acrylic fiber was what the converters were purchasing or whether the greige goods were the object of the purchase must await further development through proof.

 The motion to dismiss the first cause of action is denied.

 Chemstrand has moved, pursuant to Rule 12(b)(6), to dismiss the second claim upon the ground that it fails to allege any acts constituting a violation by the defendant of Sections 1 and 2 of the Sherman Act, and further that it fails to allege that public injury resulted from the alleged unlawful acts committed by the defendant.

 The claim alleges that Fabrex was and is a major supplier of cloth used in the manufacture of women's and children's sportswear, dresses and coats and that Chemstrand's trademark, by virtue of extensive advertising and consequent consumer acceptance, was a desirable adjunct to the sale of such cloth. It is then alleged that Chemstrand and Fabrex entered into a conspiracy to increase the position of Fabrex in the market of selling cloth containing this acrylic fiber and to prevent plaintiff from becoming a substantial competitor therein and to eliminate plaintiff from the market. In furtherance of this conspiracy several acts of a discriminatory nature are alleged, including the giving by Chemstrand to Fabrex of certain advertising and promotional allowances, and permission to use Chemstrand's trademark, all on the understanding that they would not be furnished plaintiff. In addition, it is alleged that the ...

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