Joseph A. Kaplan & Sons, Inc., a Corporation, Petitioner, v. Federal Trade Commission, Respondent, 347 F.2d 785 (D.C. Cir. 1965)

This case comes to us on a petition to review an order of the Federal Trade Commission directing petitioner Joseph A. Kaplan & Sons, Inc., (Kaplan), a manufacturer of shower curtains, to cease and desist from certain conduct. After administrative proceeding, the propriety of which is not questioned, the Commission held that Kaplan had violated Sections 2(a), 2(d), and 2(e) of the Robinson-Patman Act, 49 Stat. 1526 (1936), 15 U.S.C. §§ 13(a), (d), and (e). It thereupon entered the order under review.

The Commission made the following findings, which we believe to be supported by substantial evidence, regarding the operation of Kaplan's business. A significant portion of Kaplan's business during the years in question consisted of sales nominally to Aimcee Wholesale Corporation (AWC), the wholly-owned subsidiary of Associated Merchandising Corporation (AMC), which is in turn owned by 26 large retail department stores located throughout the country (AMC stores). When an AMC store wanted to purchase some of Kaplan's products, it usually placed its order with AWC, which transmitted the order together with shipping instructions to Kaplan, who then drop-shipped the merchandise to the ordering store. Occasionally AMC stores bought directly from Kaplan. Kaplan also negotiated "advertising allowances" and "markdown allowances," both on goods sold directly to the AMC stores and on goods sold through AWC, directly with those stores. However, such allowances were reflected in credits issued by Kaplan to AWC, which in turn credited the individual stores. Kaplan's salesmen frequently visited the AMC stores, as well as other retailer customers, to examine their stocks, anticipate merchandising problems, and recommend sales measures. In short, the Commission concluded, with the exception of the mechanics of ordering and billing, Kaplan dealt with the AMC stores just as though AWC did not exist.

The Commission further found that the prices at which Kaplan sold to AWC were substantially lower than those it charged competitors of the AMC stores, and that, even after paying AWC's costs, the AMC stores were able to sell Kaplan products competitively at a higher profit than their competitors.¹  It also found that Kaplan regularly granted "markdown allowances" to some of its customers, including the AMC stores, with the effect that those customers ultimately paid lower prices for Kaplan merchandise than their competitors.²  Kaplan paid several of its customers, among them the AMC stores, allowances on goods purchased directly and through AWC as compensation for their advertising its products.³  In addition, it granted some retailers separately stated "advertising allowances" on patterns which, it claimed, were being discontinued. Comparable allowances were not made, or offered, to all of its retailer customers. Finally, Kaplan allowed several of its customers, including AMC stores, to return unsold merchandise for credit, in order to help them clear excess stock. Credits were issued both through AWC and directly, depending on the route of the original sale. Not all of Kaplan's retailer customers received, or indeed knew of, this privilege.

On the basis of these and certain additional findings,⁴  the Commission concluded that the individual AMC stores, and not AWC, "were the purchasers and customers for the purposes of the Robinson-Patman Act." The differences between the prices at which Kaplan billed AWC and those at which it sold to competitors of the AMC stores, and the "markdown allowances" granted to AMC stores and other favored customers, the Commission held, were discriminations in price likely "substantially to lessen competition" within the meaning of Section 2(a) of the Act. It further ruled that Kaplan's advertising allowances violated Section 2(d) because they were "not made available to competing customers on proportionally equal terms,"⁵  and that Kaplan's practice of permitting certain customers to return merchandise for credit constituted the furnishing of a service in connection with the sale of its products prohibited by Section 2(e). We find these rulings to be amply supported by the evidence of record, and we think the Commission quite properly rejected the defenses to the complaint put forward by Kaplan. See FTC v. Morton Salt Co., 334 U.S. 37, 68 S. Ct. 822, 92 L. Ed. 1196 (1948); Moog Industries, Inc. v. FTC, 238 F.2d 43 (8th Cir. 1956), aff'd 355 U.S. 411, 78 S. Ct. 377, 2 L. Ed. 2d 370 (1958).

The only matter that seems to us to present a substantial question is the scope of the cease and desist order by which the Commission sought to implement its decision on the merits. Kaplan argues that the order, which is set forth in the margin,⁶  is both too vague and too broad. It complains that it is impossible to tell what conduct it is forbidden to engage in, as well as that the order purports to proscribe conduct which has never been adjudicated to be unlawful and which is quite unrelated to the violations the Commission found it had committed. As appears on its face, all three paragraphs of the order are couched in broad language which clearly goes beyond the specific violations found by the Commission. In justifying the breadth of the order, the Commission stated:

"We have found that respondent has violated Sections 2(a), (d) and (e) of the Clayton Act, as amended [by the Robinson-Patman Act], and to have violated these subsections in a variety of ways. The violations shown herein cover a long period of time and tend to show favored treatment towards certain large retail customers. In the circumstances, we believe that an order broad enough to prevent future violations through variations in the methods engaged in is fully justified."

To us the Commission further argues that the use of the language of the statute provides "more clarity and precision of meaning * * * than alternative language could be sure to have," since that language has acquired specific meaning through administrative and judicial interpretation. Moreover, it points out, if the occasion arises Kaplan can seek modification of the order, or, under the Commission's Rules of Practice, 16 C.F.R. § 3.26(b), "request advice from the Commission as to whether a proposed course of action, if pursued by it, will constitute compliance with such order."⁷  This latter procedure has been referred to in the past by courts of appeals, including this one, in sustaining orders of the Commission against similar attacks. See, e. g., Giant Food Inc. v. FTC, 116 U.S.App.D.C. 227, 237, 322 F.2d 977, 987 (1963), cert. dismissed, 376 U.S. 967, 84 S. Ct. 1121, 12 L. Ed. 2d 82 (1964); Vanity Fair Paper Mills, Inc. v. FTC, 311 F.2d 480, 488 (2d Cir. 1962). Compare Colgate-Palmolive Co. v. FTC, 326 F.2d 517, 521 n. 12 (1st Cir. 1963).

The Commission, we recognize, has a wide discretion in formulating appropriate remedies to deal with violations of the antitrust laws. FTC v. Ruberoid Co., 343 U.S. 470, 473, 72 S. Ct. 800, 96 L. Ed. 1081 (1952); Jacob Siegel Co. v. FTC, 327 U.S. 608, 611, 66 S. Ct. 758, 90 L. Ed. 888 (1946). In the exercise of this discretion, the Commission can properly consider many factors, such as the frequency and duration of the violations, the business and competitive history of the respondent, including evidence of past violations, and the likelihood that the respondent knew, or should have known, that its conduct was unlawful. This enumeration is by no means exhaustive.⁸  And in most cases the Commission's choice of remedy will be left undisturbed by the courts.

We think that Paragraphs 1 and 2 of the Commission's order are reasonably adapted to prevent repetition of the specific practices found to be unlawful, as well as their possible resumption in modified form. See FTC v. National Lead Co., 352 U.S. 419, 428-429, 77 S. Ct. 502, 1 L. Ed. 2d 438 (1957). Kaplan violated Section 2(a) in two different ways, and Section 2(d) by two other means, one of which it apparently concedes to have been unlawful. Each of these violations tended to favor a single group of its customers, the large retail outlets, and in particular the owners of AMC. They continued for a significant period of time. In each instance, the language of the order is framed to reach only the specific conduct found to be unlawful and related variations calculated to achieve the same prohibited ends. Under these circumstances, we are not prepared to say that these paragraphs of the Commission's order are unreasonably broad.

Paragraph 3 of the order, in our view, stands upon a somewhat different footing. Kaplan was found to have violated Section 2(e) in only one way, i. e., by permitting some customers to return merchandise for credit. As the trial examiner recognized, that section embraces an unusually broad range of prohibited services, and he therefore limited his proposed order to forbidding "the acceptance of return of merchandise * * * rather than covering the myriad services possible in a merchandising relationship." The Commission, however, amended his order by inserting the words "or any other service or facility connected with the handling, sale or offering for sale of said products," thereby, in effect, proscribing all that the statute itself purports in general terms to forbid.⁹  At the same time it left unchanged Paragraph 2 of the order which, though Kaplan had been found to have violated Section 2(d) in at least two ways, was limited to advertising and promotional allowances. Perhaps the difficulty of framing an order that would proscribe the violation actually found and still prevent achievement of the prohibited objective by related means caused the Commission to scrap the examiner's recommendation. In any event, we think that the Commission's version, on the facts shown by this record, is unnecessarily broad, and that the examiner's order should have been approved.

We are reminded that Kaplan is subject to heavy monetary penalties if it should later be found to have violated the terms of the Commission's final order. Recently the Supreme Court intimated strongly that the 1959 amendments to Section 11 of the Clayton Act, 73 Stat. 243 (1959), 15 U.S.C. § 21,¹⁰  impose an additional responsibility upon the Commission in framing its orders. In the course of expressly disclaiming to hold that an order unsuccessfully challenged prior to 1959 would likewise withstand attack under the new amendments, the Court declared:

"The severity of possible penalties prescribed by the amendments for violations of orders which have become final underlines the necessity for fashioning orders which are, at the outset, sufficiently clear and precise to avoid raising serious questions as to their meaning and application."

FTC v. Henry Broch & Co., 368 U.S. 360, 367-368, 82 S. Ct. 431, 436, 7 L. Ed. 2d 353 (1962). Our task in reviewing Commission orders necessarily includes the responsibility of seeing that the Commission remains appropriately conscious of the Supreme Court's injunction.

Kaplan can, of course, seek to take advantage of the Commission's procedure for advising a respondent as to whether its proposed conduct violates the terms of its order. But this procedure might well prove a wholly inadequate means for clarifying language as broad as that contained in Paragraph 3. Kaplan will be then in the position of inquiring whether its proposals violate the Commission's order, not whether they violate the antitrust laws. If it should honestly and in good faith disagree with the Commission's interpretation and implement them notwithstanding the Commission's disapproval, it risks incurring the substantial penalties for violation of a final order, not simply a proceeding before the Commission, accompanied by a full hearing and resulting, at worst, in an order to cease and desist. And if the Commission determines to pursue the matter, Kaplan will come before the contempt court with a record of having ignored the Commission's advice. In order to avoid this possibility, it may be impelled to forego altogether whatever advantages the procedure affords. All of these, of course, are problems that any convicted violator of the antitrust laws encounters. But when an order is as broad as Paragraph 3 of the Commission's order in this case, honest disagreements as to its scope and meaning will be considerably more frequent than otherwise might, or need, be the case. A respondent forced to operate thereunder must either expose his major business decisions to a Commission veto, or remain in the dark regarding their legal consequences, with the risk, in either event, of incurring the substantial penalties now provided for by statute.

The Commission's findings of fact and conclusions of law are sustained. Paragraphs 1 and 2 of its order are enforced as entered. Paragraph 3 of the order is modified to read as follows:

"3. Discriminating directly or indirectly among competing purchasers of its products by contracting to furnish, furnishing, or contributing to the furnishing of the service or facility of accepting the return of its unsold products to any purchaser of said products bought for resale, with or without processing, unless such service or facility is accorded on proportionally equal terms to all purchasers competing in the resale of said products."

and, as so modified, is enforced.

It is so ordered.