Petition — Gibson v. Federal Trade Commission

preme Court, U.S,

Lie

7? D rottice-S

5 * oa © Py a "

No. DEC 10 1982

NDER L. STEVAS,

IN THE —, CLERK

Supreme Court of the United States

October Term, 1982

H.R. Gibson, Jr., Gerald P. Gibson, Gibsons Inc., and

Gibson’s Discount Centers, Inc., Petitioners,

V.

Federal Trade Commission

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

ROBERT E. RADER JR

McCARTY, WILSON, RADER & MASH, P.C.

107 South Gaines Street

Ennis, Texas 75119

(214) 875-3851

Counsel for Petitioner

QUESTIONS PRESENTED FOR REVIEW

1. Where Respondents in an FTC adjudicative pro-

ceeding are expressly found not to have violated §2(c) of

the Robinson-Patman Act, 15 USC §13(c), and both the

Administrative Law Judge ard the Commission agree that

such charges should be dismissed, may the Commission

nonetheless issue the same order against Respondents as

though they had been found guilty, under the Commis-

sion’s so-called ‘‘fencing in’’ authority?

2. Does the due process right to an adjudicative hear-

ing under 5 USC §554 and 15 USC §45 become a charade,

if the Federal Trade Commission may impose the same

sanctions against Respondents specifically found not

guilty as against those found guilty, under the guise of

‘*fencing in’’?

PARTIES TO PROCEEDING IN COURT BELOW

The proceeding in the Fifth Circuit Court of Appeals in-

volved two cases, Herbert R. Gibson, .Jr., Gerald P. Gib-

son, Gibsons, Inc., Gibson’s Discount Centers, Inc., Ideal

Travel Agency, Inc., Gibson Warehouse, Inc. and

Gibson’s Products Co., Inc. v. Federal Trade Commis-

sion, No. 80-1746, on appeal from an order of the Federal

Trade Commission, and H.R. Gibson, Sr., et al v. Federal

Trade Commission, No. 80-1743 also on appeal from an

order of the Federal Trade Commission. The two cases

were combined for argument and opinion by the Fifth Cir-

cuit. Although named as Respondents in the original FTC

complaint, Ideal Travel Agency, Inc. and Gibson

Warehouse, Inc. are not parties to this petition for cer-

tiorari because the FTC order dismissed the complaint as

to those entities. Likewise, Gibson Products Company,

Inc. has been dissolved and is not a party to this petition.

The Respondent is the Federal Trade Commission.

TABLE OF CONTENTS

Page

SPIO UEUOY Sibi cscs cssccncvcccvsccrees l

I GLU G ata eben css s osc cveescce |

DMO EEN WHIRLWIND co scc cscs ccccrsescccees |

STATEMENT OF THE CASE ................0.. |

REASONS THE WRITSHOULD BEGRANTED.. 5

eee E ade nays kee ccdvevececees 9

APPENDIX:

Opinion of the Fifth Circuit Court of

Appeals, dated August 13, 1982 ........ la

Order of the Federal Trade Commission,

Ce Aerie 76a

Judgment of the Fifth Circuit Court of

Appeals, dated August 13, 1982 ........ 180a

Order Denying Rehearing by Fifth Circuit

Court of Appeals,

dated September 13, 1982.............. 182a

Section 5(b), (1) of the Federal Trade

Commission Act, 15 USC §45(b), (1) .... 183a, 184a

Section 2(c) of the Robinson-Patman

Amendments to the Clayton Act,

RES 184a

TABLE OF AUTHORITIES

Cases:

American News Co. v. FTC,

SOD F.2d 1O6 GE Ch. 1966) ova sie cess

Country Tweeds, Inc. v. Federal Trade

Commission, 326 F 2d 144 (2d Cir. 1964)...

Federal Trade Commission v. Colgate-Palm-

olive Co., 380 US 374 (1965) .............

Federal Trade Commission v. Mandel Brothers,

NG, Far Ore Fee CEO s bes head va cexees

Federal Trade Commission v. National Lead

Company, 352 US 419 (1957).............

Federal Trade Commission v. Roya! Milling

Company, 288 US 212 (1933).............

Federal Trade Commission v. Ruberoid Co.,

ERE Es Ti +s Rm i ry meg r err nge

FTC v. Henry Broch & Co.,

aS 2 Peewee oer ien cee pre re Serres

Grand Union Co, v. FTC,

SOG F Oe Fa te Gols So kok s Coes ec ecees

Grove Laboratories v. Federal Trade

Commission, 418 F 2d 489 (Sth Cir. 1969) ..

ITT Continental Baking Company, Inc. v.

Federal Trade Commission,

oe ee ge Ce Ae, yen ee

National Dairy Products Corporation v.

Federal Trade Commission,

412 F 2d 605 (7th Cir. 1969) ..............

Porter & Dietsch, Inc. v. Federal Trade

Commission, 605 F 2d 294 (7th Cir. 1979) ..

R.H. Macy & Co. v. Federal Trade Commission,

326 F 2d 445 (2d Cir. 1964)...............

Page

Pe

Statutes: Page

SRA GERD ci bce Code sudh coent ene dcenevesss 3

SSI SI oc ipckccsvlevaveaeeeqwceie dessins 3

SER SEE inh hasde ade ta ak amano enrenken 3

iv

OPINION BELOW

The opinion of the Fifth Circuit Court of Appeals is

reported at 682 F 2d 554 (Sth Cir. 1982). The opinion of

the Federal Trade Commission is reported at 95 FTC 721

(1980).

JURISDICTION

The opinion and judgment of the Fifth Circuit Court of

Appeals was rendered cn August 13, 1982. On August 25,

1982 these petitioners filed their Petition for Rehearing

and such petition was denied on September 13, 1982.

Under 15 USC §45(g) no motion for stay of mandate was

necessary, and this petition for certiorari is timely filed

under 28 USC §2101(c). The jurisdiction of this Court

rests on 28 USC §1254 and 15 USC §4S5(c).

STATUTES INVOLVED

Section 5 of the Federal Trade Commission Act, 15

USC §45(b), governs the FTC’s authority to issue orders

prohibiting unfair methods of competition and violations

of the antitrust laws. That section also imposes penalties

of up to $10,000 per day for violation of FTC orders. The

specific antitrust statute upon which the FTC order rests in

this case is 15 USC §13(c), commonly referred to as

Robinson-Patman 2(c), which prohibits the payment of

brokerage by one party in a transaction to the other party.

Since the provisions of these statutes are lengthy, their per-

tinent text is set forth in the appendix.

STATEMENT OF THE CASE

Petitioners Herb Gibson, Jr. and Gerald Gibson have

been prosecuted for the past seven years by the FTC solely

because they happened to be born the sons of H.R. Gib-

son, Sr. To understand their predicament, some factual

background is necessary.

In 1958 Petitioners’ father, H.R. Gibson, Sr., founded

the first Gibson Discount center and began to franchise

the use of Gibson trademarks and trade names to others

who wanted to open retail Gibson Discount Center stores.

Around 1963, after Petitioners graduated from college,

they too opened their own Gibson Discount Center stores

and paid a franchise fee to their father for the use of his

trademarks and trade names. Petitioners were indepen-

dent businessmen, and their father had no ownership in-

terest in or control over their stores.

In the late 1960’s, Petitioners saw the drastic changes

taking place in discount merchandising, and realized it

would be necessary to pool their retailing interests, and to

centralize buying and administrative functions for their

hitherto autonomously operated stores. In the process of

consolidating their own interests, Petitioners approached

their father and contracted to buy his trademarks and

trade names, as well as various stock interests their father

had in corporations operating other Gibson Discount

Center stores. Because the legal arrangements and tax

aspects were very complex, the sale was not finalized until

November 1, 1972.

Petitioners consolidated their own retail interests, and

the interests and trademarks and trade names purchased

from their father, under a new company called Gibsons,

Inc. From its formation, Petitioners had ownership and

total control of that company.

After November 1, 1972, Petitioners moved to set up

their own central warehouse and buying staff, and to

upgrade, modernize and control the Gibson stores now

under the umbrella of Gibsons, Inc. In this process, Peti-

tioners hired expert management people from other com-

panies such as Sears, Nash Hardware, Alexander Grant &

Co., and others.

After November i, 1972, Petitioners’ father, H.R. Gib-

son, Sr., devoted his energies to building and running a

sales organization called The Gibson Trade Show -- in ef-

fect, a giant manufacturer’s representative. Petitioners’

father did not participate in or exercise any influence

whatsoever over Petitioners’ business operations. Like-

wise, Petitioners had no interest in or influence over their

father’s business.

In 1975 the Federal Trade Commission filed a complaint

against H.R. Gibson, Sr. and several of the companies he

had previously owned an interest in.' The FTC also

included these Petitioners in the complaint, together with

their company, Gibsons, inc. The complaint contained

three counts: Count I charged that the fees paid by sup-

pliers to H.R. Gibson, Sr. in connection with his trade

show were in effect discriminatory promotional

allowances prohibited by Robinson-Patman §2(d) and

§2(e) (15 USC §13(d), (e)). Count II alleged that various

Gibson Discount Center stores had boycotted suppliers

who did not grant the ‘‘special allowances”’ as set forth in

Count I. And Count III charged H.R. Gibson, Sr., as well

as these Petitioners, with accepting or receiving illegal

brokerage prohibited by Robinson-Patman §2(c) (15 USC

§13(c)).

'These companies were Gibson’s Discount Centers, Inc., Ideal

Travel Agency, Inc., Gibson Warehouse, Inc., and Gibson Products

Company, Inc. These were among the interests purchased by peti-

tioners from their father in 1972.

At the beginning of the trial it became apparent that

FTC complaint counsel had no knowledge of the business

set-up of these Petitioners. Indeed, complaint counsel had

the mistaken belief that Petitioners’ father, H.R. Gibson,

Sr., owned and operated Petitioners retail businesses!

After ten months of trial, however, it was clearly estab-

lished that H.R. Gibson, Sr. had no connection with Peti-

tioners’ business operations. Public auditors, bankers and

others confirmed that no monies were passed through

from H.R. Gibson, Sr. to Petitioners, and that Petitioners

were not controlled or influenced in their business deci-

sions by their father -- or vice versa.

At the conclusion of the trial the Administrative Law

Judge dismissed Counts I and III against these Peti-

tioners.? On appeal, the Federal Trade Commission af-

firmed the dismissal of both Count I and III, but nonethe-

less entered an order against these Petitioners on the

Count III charges for ‘‘fencing in purposes’’. (FTC Order,

April 30, 1980)

Thus, after a costly ten-month trial and an express find-

ing of no violation by both the Administrative Law Judge

and the Commission, these Petitioners ended up with the

same Count III order against them as was entered against

those respondents actually found guilty of accepting illegal

brokerage.

?The Count II boycott charges were upheld based on activities of

certain store corporations before these Petitioners purchased such

store corporations from their father. Indeed, the evidence showed,

and the Administrative Law Judge recognized, that the stores actually

owned by these Petitioners at the time continued to buy from the

allegedly boycotted suppliers. (See, /nitial Decision, 209,210)

Petitioners therefore appealed to the Fifth Circuit on

the grounds that the Commission’s order was overbroad.

In its August 13, 1982 opinion, the Fifth Circuit deferred

to the Commission’s ‘‘wide discretion in determining what

type of order is necessary to remedy the unfair practices

found.’’ 682 F 2d at 572.

These Petitioners petitioned the Fifth Circuit for rehear-

ing, urging, infer alia, that the Commission surely cannot

under the guise of its ‘‘wide discretion’’ impose the same

sanctions against the innocent as against the guilty, and

that an order imposing sanctions under Count III cannot

by any stretch of the imagination be reasonably related to

the violation if there has been an express finding of no vio-

lation. Nevertheless, the petition for rehearing was denied

on September 13, 1982 and Herb Gibson, Jr. and Gerald

Gibson now petition this Court to grant certiorari.

REASONS THE WRIT SHOULD BE GRANTED

This Court has noted that it is not possible to generalize

as to the proper scope of FTC orders, since ‘‘it depends on

the facts of each case’’, Federal Trade Commission vy.

Mandel Brothers, Inc., 359 US 385, 392 (1959). However,

this Court has established certain basic guidelines for de-

termining whether an FTC order is impermissibly broad in

scope.

First, it is axiomatic that orders of the Federal Trade

Commission should ‘‘go no further than is reasonably

necessary to correct the evil and preserve the rights of

competitors and public.’’ Federal Trade Commission v.

Royal Milling Company, 288 US 212, 217 (1933). Second,

the scope of the FTC’s order must have a ‘‘reasonable

relation to the unlawful practices found to exist.’’ Federal

Trade Commission v. National Lead Company, 352 US

419, 445 (1957), Federal Trade Commission v. Ruberoid

Co., 343 US 470, 473 (1952), Federal Trade Commission

v. Colgate-Palmolive Co., 380 US 374, 394-395 (1965).

5

In previous cases, this Court has upheld broad FTC

orders against violators on the theory that ‘‘those caught

violating the Act must expect some fencing in.’’ Federal

Trade Commission v. National Lead Company, supra,

352 US at 431. In each case where a broad order has been

upheld, however, it was against a respondent who had

clearly violated the law. In National Lead, for instance,

the Court found that respondents ‘‘have plainly disre-

garded the law.’’ 352 US at 445. Likewise, in Federal

Trade Commission v. Ruberoid Co., the respondent had

‘‘discriminated among customers in the prices charged

them for roofing materials’? in a number of specific in-

stances. 343 US at 472. In Federal Trade Commission v.

Mandel Brothers this Court allowed a broad FTC order to

stand where the episodes of misbranding had been exteii-

sive and substantial. In that case the Court stated that the

proper scope of the FTC’s order required ‘‘a judgement as

to the extent to which a particular violator should be

fenced in’’. 359 US at 392. Again, in Federal Trade Com-

mission v. Colgate-Palmolive Co., the Court allowed a

broad order because the respondents had already pro-

duced three deceptive commercials and there were indica-

tions they intended to use the same deceptive practices in

advertising other products.

However, this Court has never definitively ru'ed on

whether the FTC’s so-called ‘‘fencing in’’ powers allow

the Commission to impose the same sanctions on the inno-

cent as on the guilty. This Court has never addressed the

critical issues presented by the facts in this case:

(1) Where an FTC charge is expressly dis-

missed, because of no violation, and

that dismissal is affirmed by the Com-

mission on appeal, may an order still be

entered against the respondents on the

charge that was dismissed under the

guise of ‘‘fencing in’’?

(2) If the FTC’s ‘fencing in’’ powers allow

it to enter an order against respondents

on a charge that has been dismissed,

does this vitiate the right to a due pro-

cess hearing by rendering the hearing an

expensive charade?

Although this Court has never definitively ruled on

these issues, several of the United States Courts of Ap-

peals have done so. And in similar factual situations the

Courts of Appeals have generally held that the FTC may

not use its ‘‘fencing in’’ power to impose an order against

a respondent who has been expressly found not guilty of

violating the Act. In J7T Continental Baking Company,

Inc., v. Federal Trade Commission, 532 F 2d 207 (2d Cir.

1976) the FTC charged that ITT made twelve nutritional

misrepresentations in its advertisements of Wonder Bread

and Hostess Snack Cakes. The Commission found that the

evidence did not support eleven of the charges and

dismissed them. The Commission did find one nutritional

misrepresentation, and based on that violation entered a

broad cease and desist order. On appeal, the Second Cir-

cuit limited the scope of the FTC’s order to the violations

for which ITT had been found guilty, stating that

‘**... paragraph l(a), (b) and (c) of the

cease and desist order were framed to

remedy wrongs which the Commission

found not to have been committed.”’

532 F 2d at 221

(emphasis added)

Here, too, the FTC’s order against Petitioners in the

present case is framed to remedy wrongs which both the

Administrative Law Judge and the Commission found

Petitioners did not commit. Such order is therefore not

‘reasonably related’’ to the violation, because there was

an express finding of no violation.

(THIS PAGE INTENTIONALLY LEFT BLANK]

In Country Tweeds, Inc. v. Federal Trade Commission,

326 F 2d 144 (2d Cir. 1964) the FTC found respondents

had misrepresented only the quality of their cashmere, but

entered an order prohibiting respondents from

“misrepresenting in any manner the quality of the

cashmere or other fabric in their merchandise."’ 326 F 2d

at 148 (emphasis added). The court held that the FTC's

order was overbroad and was not reasonably related to the

violation proved, and restricted the order to misrepresen-

tations concerning cashmere.’

In R.H. Macy & Co, v. Federal Trade Commission, 326

F 2d 445 (2d Cir. 1964) the court confirmed that an FTC

order ‘‘should be limited to the particular kind of practice

found unlawful.’’ 326 F 2d at 450, Accord: Grand Union

Co. v. FTC, 300 F 2d 92, 100 (2d Cir. 1962), American

News Co, v. FTC, 300 F 2d 104, 111 (2d Cir. 1962), It

follows that since these Petitioners were found in the pre-

sent case not to have violated §2(c), no order should be

issued against them on that count,

Likewise, in National Dairy Products Corporation vy.

Federal Trade Commission, 412 F 2d 605 (7th Cir. 1969)

the respondent was found guilty of charges of price dis-

crimination in violation of Robinson-Patman 2(a) as to its

sale of fruit spreads. The Commission's final order,

however, was not limited to fruit spreads but also included

other food products concerning which the Commission

had specifically dismissed a §2(a) charge. There, as here,

the Administrative Law Judge had recommended that the

order be limited to the violations actually found te have

*The Second Circuit took cognizance of the suggestion in FTC vy.

Henry Broch & Co., 368 US 360, 367-368, and reiterated in FTC vy,

Colgate-Palmolive, supra, 380 US at 392, that the stiff penalty pro-

cedures under the 1959 amendments to the Federal Trade Commission

Act may well require a more specific and precise order (han would

have been necessary prior to the enactment of those penalties.

been committed by the respondent. The Seventh Circuit

agreed that the Commission's order was overbroad and

limited it to price discriminations in connection with fruit

spreads. Accord: Grove Laboratories v. Federal Trade

Commission, 418 F 2d 489, 497 (Sth Cir. 1969), cf., Porter

& Dietsch, Inc. v. Federal Trade Commission, 605 F 2d

294, 309 (7th Cir, 1979).

The Fifth Circuit below did not consider /77 Continen-

tal Baking Company, Inc, and the other cases supra, that

prohibit the FTC from using its ‘fencing in’’ authority to

impose orders on respondents that have been found not to

have violated the law. Review by this Court is therefore

needed for the following reasons:

(1) To delineate the scope of the Federal

Trade Commission's discretion in issu-

ing orders against non-violators;

(2) To determine whether the due process

right to a hearing may be nullified by

the FTC's so-called ‘‘fencing in

authority”;

(3) To resolve whether the FTC may enter

the same order against the innocent as

against the guilty.

CONCLUSION

Although this Court has indicated in the past that the

FTC will be allowed some discretion in framing its orders,

such discretion must surely be limited where a respondent

has been found not to have violated the law, and the

charges have been expressly dismissed by the FTC,

Guidance is needed from this Court as to the proper scope

of FTC orders against non-violators, Only this Court can

resolve the current uncertainty as to the ‘‘fencing in”

powers of the FTC, Petitioners therefore pray that this

Court grant a writ of certiorari to review the judgment of

the United States Court of Appeals for the Fifth Circuit,

Respectfully submitted,

McCARTY, WILSON, RADER & MASH

107 South Gaines Street

P.O. Box 429

Ennis, Texas 75119

(214) 875-3851

By: AAbut-E Geder,\).

Robert E, Rader, Jr,

Attorneys for Pet tioners

CERTIFICATE OF SERVICE

This is to certify that three copies of the

foregoing Petition were mailed to the Solicitor

General, US Department of Justice, Washing-

ton, D.C., and to the Federal Trade Commis-

sion, Washington, D.C, on this /O/day of

December, 1982.

Robert E, Rader, Jr. ;

APPENDIX

HERBERT R. GIBSON, JR., GERALD P. GIBSON,

GIBSON'S, INC., GIBSON'S DISCOUNT CENTERS,

INC., IDEAL TRAVEL AGENCY, INC., GIBSON

WAREHOUSE, INC. AND GIBSON'S PRODUCTS CO.,

INC., Petitioners,

V.

FEDERAL TRADE COMMISSION,

H. R. GIBSON, SR., ET AL, Petitioner, v.

FEDERAL TRADE COMMISSION, Respondent,

Nos. 80-1743, 80-1746.

United States Court of Appeals,

Fifth Circuit.

Aug. 13, 1982.

Petitions were filed to review final

order of the Federal Trade Commission. The

Court of Appeals, Brown, Circuit Judge,

held that: (1) petitioners waived objec-

tion to participation of administrative

law judge who had previously served as at-

torney advisor to the FIC Commissioner;

(2) there was substantial evidence to sup-

port finding of group boycott; (3) there

was sufficient evidence to support finding

2a

of violation of the Robinson-Patman Act;

and (4) FTC order was not overly broad.

Affirmed and enforced.

Petitions for Review of a Final Order

of the Federal Trade Commission.

Before BROWN, COLEMAN and RUBIN, Cir-

cuit Judges.

As the curtain rises, the Gibsons appear

before us once more for what we hope will

be the final act in this almost 15 year

drama starring the Gibsons, masters of dis-

count merchandising, and the Federal Trade

Commission (FTC). Unlike the earlier scenes

of this Court!, this time we are to arrive

at the merits as we review the FTC's final

order enjoining the Gibson Petitioners from

-- -——_-_ --— eo

lIn two prior cases we affirmed enforce-

ment of FTC subpoenas, once during the in-

vestigative stage, FTC V. Gibson, 460 F.2d

(Sth Cir. 1972), and 6ncé Following the sub-

sequent issuance of an FTC complaint, FTC v.

Gibson Products of San Antonio, Inc., 569° ~~

Fr2d “900 “CSth Cir- 1978). While the parties

in these two cases and the instant case are

not absolutely identical, the actions all

stem from the same FTC investigation.

3a

engaging in assorted trade practices. As

the curtain falls, we affirm the order and

direct enforcement.2 No encores please.

Setting the Stage

In 1958 H. R. Gibson, Sr. and his wife

Belva founded the first Gibson Discount

Center in Abilene, Texas. From this begin-

ning emerged a chain of over 500 retail

discount stores operating in 29 states,

and several small corporations providing

certain support or related services to the

retail stores. The scions of the family,

H. R. Gibson, Jr., and Gerald P. Gibson,

were actively involved in the family busi-

ness, each owning interests in several of

the retail stores, and eventually receiving

the ownership interest of their parents.

2"To the extent that the order of the

Commission is affirmed, the Court shall

thereby issue its own order commanding

obedience to the terms of such order of

the Commission." 15 U.S.C. §845(c).

4a

A Family Affair or Who's Minding

the Store

The Gibson retail discount stores are

generally incorporated individually and

include not only family owned and operated

stores but also stores licensed to use the

Gibson name.> In the period 1969 to

October 31, 1972, Gibson, Sr., in addition

to licensing various franchisees to use

Gibson trade names in the operation of re-

tail stores, operated a private trade show

where manufacturers displayed their products

to buyers for both Gibson-owned and fran-

chised stores. During this same period,

Gibson, Sr. and his wife Belva were majority

stockholders in several Gibson retail stores

and held a minority interest in certain other

3As of December 31, 1976, 43 retail

stores were controlled by individual men-

bers of the Gibson family and 614 licensed

stores were operated under the Gibson

trade name. The licensees pay a monthly

fee for the use of the Gibson trade name.

Sa

retail stores. The store managers of the

majority owned stores were hired by Gibson,

Sr. who left the day-to-day operations

largely to the store managers. During this

same period, from 1969 to November 1, 1972,

both Gibson sons owned retail stores.4

The Gibson stores, family owned and fran-

chised, collectively did approximately

$1.6 billion in business in 1971.

On November 1, 1972, the Gibson busi-

nesses were reorganized so that Gibson, Sr.

and wife Belva disposed of their ownership

interest in both the franchising and

retailing aspects of the family business,

4Gerald Gibson owned Gibson stores in

Paris, Texas, Shreveport, Louisiana and

Bruton Terrace in Dallas, Texas, as well

as minority interest in stores in Pueblo,

Colorado, Garland, Texas and Temple,

Texas. H. R. Gibson, Jr. owned the

majority of stock in stores in Hutchinson,

Kansas and San Antonio, Texas, as well

owing some stock in stores located in

Pueblo, Colorado, and the following cities

in Texas: Richardson, Temple, Bruton Road

in Dallas, Plano and Fort \Worth.

6a

transferring these to their two sons,

Gibson, Jr. and Gerald Gibson. Gibson, Sr.

sold the Gibson Products Company name to

his sons and retained only the trade show

business, registered as "The Gibson Trade

Show". Gibson's, Inc., wholly owned by

Gibson, Jr. and Gerald Gibson, was the

corporate entity used to buy Gibson, Sr.'s

retail business and continues to hold the

stock of the retail stores. Gibson's

Discount Centers, Inc., a subsidiary of

Gibson's, Inc., actually carries on the

retailing and franchise business,

Franchisees of the Gibson trade name are

charged a monthly franchise fee and are sub-

ject to quality control by the franchisor.>

—— —-— oe

SThe standard licensing contract of

Gibson Discount Centers, Inc., the wholly

owned subsidiary of Gibson's, Inc., in use

since November 1, 1972, provides in part:

"9, GIBSONS shall in connection with

this Agreement render such assistance to

LICENSEE in connection with the operation

(footnote continued on next page)

7a

Along with the use of the trade name,

franchisees receive merchandising advice

and most importantly are able to par-

ticipate in the Gibson Trade Show.

—_———- se eee eo Fe Ee EF ee Fe ee er ee ee Se ee | ee eee eee ee

(footnote 5 continued)

of his discount business as may be found

appropriate by GIBSONS after request by

LICENSEE, including advice as to merchan-

dising and other business practices so as

to enable the LICENSEE to benefit from the

knowledge and experience of GIBSONS in the

discount business,

10. LICENSEE agrees that GIBSONS retains

the absolute, complete and final right of

quality control over all products and items

sold and over all services rendered by

LICENSEE to customers of LICENSEE'S discount

business and associated enterprises using

the Service Marks and Trade Names licensed

hereby to see that the high standards of

GIBSONS DISCOUNT CENTERS throughout the

United States of America are maintained and

to protect the che fal rights of GIBSONS

in the Service Marks and Trade Names set

forth in Paragraph 1 hereof. The LICENSE

further agrees that if GIBSONS notifies

LICENSEE that GIBSONS disapproves of the

quality of products, items or services sold

or rendered in connection with sale of items

or products in the discount business of

LICENSEE, that LICENSEE will immediately

discontinue the sale of such items, products,

and/or services, or will immediately improve

such services so that ey meet the standards

of excellence maintained by GIBSONS."

ALJ opinion, p. 27-28

Tricks of the Trade

The Gibson Trade Show, an essential

element in both the Gibson franchises and

in the FTC complaint, is a private trade

show produced by Gibson, Sr. The show,

held approximately four times a year, is

basically restricted to buyers for Gibson-

owned and franchised stores. The show is

the vehicle through which representatives

of various suppliers can exhibit their

products and attempt to obtain orders from

various Gibson stores. A supplier or rep-

resentative allowed booth space in the

show in effect has authorization to sell

his products to Gibson retailers but no

guarantee that the franchisees will buy

his products. Gibson, Sr. employs "mer-

chandise managers" or "trade show buyers"

to operate the show. The trade show buyers

recruit manufacturers to participate in

the show, discuss product lines, billing

9a

terms and prices with suppliers, and nego-

tiate with suppliers to get the best

possible deal on the products that are to

be shown. These buyers basically determine

what suppliers are allowed to participate

in the show as well as what products can be

displayed. An integral part of the trade

show operation is the show sheet (an order

form and price list) which is filled out by

the buyer after negotiations and indicates

the price and terms for each product, These

sheets, which are the exclusive order form

used at the shows, are headlined "Ship to

Gibson Products Company," followed by blank

lines for the address of e@ particular store,

In addition, they contain a notation in-

structing manufacturers not to ship at

prices higher than those listed or a de-

duction will be taken. In return for the

privilege of participating in the trade

show, suppliers pay for booth rental,

10a

related service fees and show fees. Show

fees are generally based on a percentage

of sales made at the Gibson Trade Show

although some suppliers pay a flat fee,

Suppliers who refused to pay show fees

were generally not permitted to par-

ticipate in the trade show,

Prologue

Although the FTC made a cameo

appearance as early as 1967 when it first

began investigating the Gibsons, it was not

until February 1975 that it obtained star

billing by issuing a three-count complaint

alleging violations of the Federal Trade

Commission Act and the Robinson-Patman Act

against several Gibson-owned corporations,

Gibson, Sr., his wife, and sons, Herbert

and Gerald. Count I charged the petitioners

with inducing suppliers to pay promotional

allowances in connection with the Gibson

Trade Show which were not proportionately

available to other customers of the sup-

pliers, violating Section 5 of the FTC Act,

15 U.S.C. §45(a). Count II, also alleging

violation of Section 5S, concerned the boy-

cott of suppliers who did not grant the

promotional allowances charged in Count I.

This count focused on the experience of

three different suppliers, Toastmaster,

Tucker Manufacturing Co., and Jeannette

Glass Company. Count III alleged the pay-

ment of illegal brokerage in violation of

Section 2(c) of the Clayton Act, as amended

by the Robinson-Patman Act, 15 U.S.C.

§13(c).® The focus of Count III was on

6Section 2(c) provides:

"(c) Payment or acceptance of com-

mission, brokerage or other compen-

sation. 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

(footnote continued on next page)

12a

brokerage paid to Gibson, Sr. by two

brokers, Barshell, Inc. and Al Cohen Asso-

ciates, Inc., which successively repre-

sented Ray-0-Vac in sales to the Gibson

stores.’ After extensive pretrial pro-

ceedings and a ten-month trial, the ALJ

issued a 235 page opinion, accompanied by

a two and one-half page order. The ALJ

dismissed Count [. Under Count II, the

boycott of suppliers, the ALJ issued an

—— «¢ eee = Fes § eee eee ee ee he + ee Set eee ee ee Se eee ee eee ee

(footnote 6 continued)

the sale or purchase of goods, wares,

or merchandise, either to the other

party to such transaction or to an

agent, gp | Ad eager dob ony or other inter-

mediary 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 trans-

action other than the person by whom

such compensation is so granted or

paid,"

7Barshell, Inc., originally charged in

the FTC Sg greed negotiated a consent

settlement in 1976. Al Cohen Associates,

Inc., rio ty solely in Count III, was

dismissed by the ALJ after trial for failure

by the FTC to prove the allegations of the

complaint.

13a

order against all respondents except

Gibson's, Inc. Under Count III, the ALJ

issued an order only against Gibson, Sr.

Both parties appealed the ALJ's decision

to the Commission, The Commission affirmed

the dismissal of Count I. It extended the

order as to Count II to include Gibson's,

Inc., finding that the boycott continued

after November 1, 1972 under the manage-

ment of Gibson's, Inc. and that it was

proper and necessary to include Gibson's,

Inc. in the order as the successor to the

operations of a corporation found to be

guilty of unfair trade practices. As to

Count III, the Commission extended the

provisions of the order concerning illegal

brokerage to all Gibson family and cor-

porate respondents on the basis of their

complete interdependence and common control

during the period of violations. The Com-

mission's decision and accompanying order

l4a

issued on April 30, 1980. The petitioners

filed motions for reconsideration in mid-

June 1980, challenging certain aspects of

the order. In addition, the respondents

argued that certain actions taken by the

Commission during periods of allegedly

lapsed appropriations violated the Anti-

deficiency Act, 31 U.S.C. §665(a), and thus

required dismissal or remand of the case,

The third ground for reconsideration, and

the only one pursued beyond the Commission,

is based on the alleged disqualification

of the ALJ, von Brand, based on his earlier

service as an attorney-adviser to former

Commissioner MacIntyre. The petitioners

allege that in light of the opinion of the

Ninth Circuit in Grolier, Inc. v. FIC, 615

F.2d 1215 (9th Cir. 1980), von Brand

should have been disqualified from serving

as an ALJ and thus dismissal or remand of

the case was necessary. The Commission

Sa

issued a further opinion and order denying

the majority of relief sought.

Another Opening, Another Show

In seeking to have the FTC order set

aside the Gibsons raise several challenges,

not only in their case, but to the general

administrative system developed by the FTC.

in addition, they contend there is insuf-

ficient evidence on both the Count II

boycott charge and the Count [II Robinson-

Patman charge. Although the arguments in

both cases, that against Gibson, Sr. and

his wife and that against the Gibson sons

and Gibson corporations, are, like their

briefs, almost identical, the Gibson sons

and corporations also maintain that there

is no evidence to connect them, as opposed

to Gibson, Sr., with the allegations.

For openers, the Gibsons lead with

their weakest argument, contending the FTC

system of prosecution-adjudication deprives

i6a

them of their right to a fair trial and

due process. Specifically, the Gibsons

challenge the role of the Commission in

investigating, adjudicating and reviewing

complaints. "The Commission not only votes

the complaint, but it determines by its

adjudicatory powers what constitutes

‘unfair' practices under Section 5." The

Gibsons also challenge the role of the FTC

attorney who coordinated the investigation

in the pre-complaint period and then later

served as "complaint counsel". The ALJ, a

former attorney-advisor to Commissioner

MacIntyre, also figures in to the "can't

win'"' system of the FTC. Continuing their

attack, the Gibsons assert that they have

been before the FTC for 13 years, "awaiting

this opportunity for a meaningful review

by a fair and unbiased tribunal, a Court

of Law."" Finally, totally removed from

any context, the Gibsons present a tirade

17a

against the use of consent orders in

general, relying on the testimony before a

Congressional subcommittee of Fredric

Scherer, a Director of the Bureau of

Economics of the Federal Trade Commission,

{1-3} The FTC, however, clearly holds

the trump in this hand, relying first on

the Commission's organic legislation pro-

viding for the Commission to issue adminis-

trative complaints and subsequently sit as

an adjudicative body. Federal Trade Com-

mission Act §5(b), 15 U.S.C. 845(b). The

combination of investigative and judicial

functions within an agency has been upheld

against due process challenges, both in the

context of the FTC and other agencies.

FITC v. Cinderella Career And Finishing

Schools, Inc., 404 F.2d 1308, 1315 (D.C.

Cir. 1968); Pangburn v. CAB, 311 F.2d 349,

356 (1st Cir. 1962); FIC v. Cement Insti-

tute, 333 U.S. 683, 700-03, 68 S.Ct. 793,

18a

803-04, 92 L.HI. LOL), 1935 (1948); Withrow

-“——s-o—

V. y. Larkin, 121 U.S. 335, 51-56, 95 S.Ct.

1456, 1466-59, 43 L.Ad.2d 7i2, 726-28

(1975). Further, the participation of the

staff attorney in both investigation and

subsequent prosecution of a case is clearly

allowed under 5 U.S.C. §554(d). Nor is

there any merit to the Gibsons' contention

that they were denied due process by the

13-year delay. First, although the initial

decision to investigate the Gibsons

occurred in 1967, the administrative com-

plaint was not issued until 1975. Second,

as the FTC points out, the delay must be

credited in part to the Gibsons themselves.

See, FIC v. Gibson Products of San Antonio,

— — | ee ee ee eee ee eee eee ee ee ee

Inc., 569 F.2d 900 (Sth Cir. 1978); FIC v.

Gibson, 460 F.2d 605 (Sth Cir. 1972). As

to the argument that consent decrees are

used for coercion, we Find this point

irrelevant since the Gibsons are not here

19a

seeking to be relieved of a consent order

and have failed to indicate how this argu-

ment has any connection with the merits of

their own case. Forcing the Gibsons to

choose between consenting to an order or

incurring the burdens and expenses of a

defense is inherent in the adversary pro-

cess and is basically "part of the social

burden of living under government." FTC

v. Standard Oil Co., 449 U.S. 232, 244,

—— ee ee ee ee ee

101 S.Ct. 488, 495, 66 L.Ed.2d 416, 427

(1980), quoting Petroleum Exploration, Inc.

_—s-——e ee eee

v. Public Service Commission, 304 U.S. 209,

222, 58 S.Ct. 834, 841, 82 L.Ed. 1294

(1938).

Changing Roles -- From

Understudy to Lead

With FTC taking the first trick, the

Gibsons next present their strongest and

longest argument, that concerning the

qualification of the ALJ in light of his

20a

prior service as attorney-advisor to an FTC

Commissioner.

The Gibsons' chief argument as to the

administrative process concerns Theodor

von Brand's metamorphosis from attorney-

advisor to administrative law judge. Von

Brand had served previously from 1963

through January 1971 as an attorney-advisor

to Former Commissioner Everett MacIntyre.

In February 1977, at a prehearing con-

ference, von Brand apprised counsel for

Gibsons of his prior service with Con-

missioner MacIntyre. In a discussion off

the record, as to which there is no real

difference of view, von Brand indicated he

had no recollection of anything coming

across his desk while serving as attorney-

advisor concerning the Gibsons and deter-

mined that the Gibsons had no objection to

his continuing to serve as the ALJ in this

case. Then, to avoid any future problen,

2la

von Brand specifically put the following

in the record,

Judge von Brand: "All right. The first

thing I want to raise is something that

I have raised off the record. I have

informed counsel that in the period

1963 to 1970 I was legal advisor to

Commissioner MacIntyre.

Now, it is my understanding that none

of the respondents in this proceeding

would raise an objection to my con-

tinuing in this case on that ground,

Is that correct, Mr. Odom [attorney

for Gibson, Sr. and Belva Gibson]}?"

Mr. Odom: “That's correct as far as I'm

concerned, yes, sir."

* *&

Mr. Raider {attorney for Gibson sons and

corporations}: "That's correct, Your

Honor."

22a

Subsequently, von Brand presided over the

ten-month trial, during which no objection

was raised concerning von Brand's qualifi-

cation. On February 26, 1979, von Brand

issued his initial decision and order.

This decision was appealed to the Commis-

sion which issued a decision and order on

April 30, 1980. Not until June 12, 1980

did the Gibsons seek von Brand's disquali-

fication, in a petition for reconsideration

of the Commission's order. The Commission,

in an order of August 8, 1980, refused this

relief. The basis for the Commission's

decision was threefold: (1) failure by the

Gibsons to file a disqualification motion

and supporting affidavits as required by

the Commission's rule §3.42(g)(2), 16

C.F.R. §3.42(¢)(2); (2) failure to

file a timely objection; (3) no demonstra-

tion or assertion of prejudice. In its

opinion the Commission devoted substantial

23a

attention to the Ninth Circuit opinion in

Grolier, Inc.. v. FTC, 615 F.2d 1215 (9th

— |e ee eee —— ne ee

Cir. 1980), discussed in more detail below.

The Gibsons' primary argument is that

Section 5 of the Administrative Procedure

Act (MPA), 5 U.S.C. $554(d),8 by prohibit-

ing an "employee or agent" from performing

re re eet Se Feet et et et eet ee eee

8section 554(d) provides:

"(d) The employee who presides at the

reception of evidence pursuant to sec-

tion 556 of this title {5 USCS 8556}

shall make the recommended decision or

initial decision required by section

557 of this title {5 USCS 8557}, unless

he becomes unavailable to the agency.

Except to the extent required for the

disposition of ex parte matters as

authorized by law, such an employee may

not --

(1) consult a person or party ona

fact in issue, unless on notice and

opportunity for all parties to

participate; or

(2) be responsible to or subject to

the supervision or direction of an

employee or agent engaged in the

performance of investigative or pro-

secuting functions for an agency.

An peenotee or agent engaged in the per-

ForMancé “SF Tivéestigative or proce

(f£odtHote “Continued si Aext “pagey~- ~~~ i

24a

“investigative or prosecuting Functions"

and also participating or advising in the

decision, places on the adjudicative pro-

cess limitations which are essentially

jurisdictional, and in addition, cannot be

waived. The Gibsons contend that an

attorney-advisor as opposed to a Comnis-

sioner, is not exempt From the disqualifi-

cation by 5 U.S.C. 8554(d)(2)(C). To the

Gibsons, the basic concern of §8554(d) is

SS et et EF ee ee eet te eee = = ate ©

(footnote 8 continued)

functions for an agency in a case may

not, in that of a facially rélated ~

case, participate or advise In fhe

déETsion, Féconmmendéd” décrsisi, “oF

reat “fevTéw-pursiant €5-Sééfion-557

is title [5 USCS 85577, except as

Witness Or CounSeI in public pro=-~~ ~~

ceedings.” THis subsection dogs “fot

apply --

eek) in determining applications for

initial Licenses;

(B) to proceedings involving the

validity or application of rates,

facilities, or practices of public

utilities or carriers; or

(C) to the agency or a member or

members GE the body “comprising “Che

agency." ae ee ei. eae te eee

(emphasrs “added).

2Sa

the public interest in fairness, an

interest that may not be waived. The

Gibsons assert that their right to insist

upon the disqualification of von Brand is

"secondary to the public interest." Finally,

in response to any criticism of the Gibson's

delay in raising this issue, they maintain

that the right of disqualification was not

apparent until the Ninth Circuit decision

in Grolier, supra.

Taking a Due from the Ninth

The Grolier case, so heavily relied upon

by the Gibsons, actually involved the same

ALJ. ALJ von Brand has served as an at-

torney-advisor to Commissioner MacIntyre

during the period when Grolier was inter-

mittently investigated and charged by the

FTC. Records indicated that Commissioner

MacIntyre had attended at least one meeting

between Grolier and the representatives of

the FTC. Grolier, upon learning of ALJ

26a

von Brand's prior service to Commissioner

MacIntyre, requested that the ALJ dis-

qualify himself from further participation

in the proceedings. Von Brand denied the

request, stating that he did not recall

working on matters involving Grolier while

serving as a legal advisor. Grolier then

filed a formal motion for disqualification

and removal of the ALJ with the FTC and

requested that the FTC permit discovery of

certain FTC records which might reveal the

nature and extent of the ALJ's contact

with the Grolier case. Both the requested

discovery and the motion for disqualifica-

tion were denied by the FTC. In its peti-

tion for review in the Ninth Circuit,

Grolier argued that the failure to dis-

qualify ALJ von Brand violated both 8554(d)

of the APA and the Due Process guarantee of

the Fifth Amendment. Grolier also alleged

27a

error by the FTC in denying the requested

discovery.

The Ninth Circuit, in an opinion issued

January 24, 1980 as amended on denial of

rehearing April 17, 1980, determined that

the exemption under 5 U.S.C. 8554(d)(2)(C)

did not apply to ALJ von Brand once he was

no longer an attorney-advisor. The Court

specifically rejected the per se disquali-

fication argument of Grolier that the ALJ

was chargeable with knowledge of all in-

vestigative and prosecutorial activities

undertaken by the FTC during his tenure as

an attorney-advisor. In adopting a test

focusing on the activity of the ALJ at the

time that he serve as an attorney-advisor,

the Ninth Circuit indicated that disquali-

fication was necessary only if the ALJ "was

sufficiently involved with the case to be

apprised of ex parte information,..."

Grolier, 615 F.2d at 1221. The Court also

28a

placed the burden of showing the ALJ's prior

acquaintance with ex parte information on

Grolier, the party challenging the qualifi-

cation of the ALJ. After determining that

the FTC wrongly concluded that attorney-

advisors do not perform "investigative or

prosecuting functions" within the meaning

of §554(d), the Ninth Circuit remanded the

case to the FTC for reconsideration of the

denial of discovery and in light of the

results of that reconsideration, the

disqualification motion. The Court very

clearly indicated that the FTC did not

necessarily have to grant discovery but it

could not simply rely on a flat refusal to

disclose anything concerning von Brand's

involvement, The Court suggested that the

FTC might initially respond through affi-

davits concerning the extent of von Brand's

29a

involvement with the Grolier case while he

served as attorney-advisor.?

The FTC's primary argument is that the

Gibsons expressly waived the claim for

disqualification during th pretrial pro-

ceedings and did not timely renew any

claim. In addition, the FTC distinguishes

the Grolier case on facts. In Grolier

there was no express waiver of von Brand's

continuing to preside. Grolier specifi-

cally objected to the ALJ's participation

and filed a motion to disqualify the ALJ

prior to the Commission's decision. Nor

does the FTC believe that the statutory

-_ -——_ —a = ——

9The Ninth Circuit specifically did not

reach the due process claim of Grolier,

indicating that if von Brand is qualified,

a more adequate record might be developed

for the Court's determination of the due

process claim.

Upon remand, the Commission denied the

motion to disqualify von Brand and sub-

sequently reissued its final order with

modifications on March 9, 1982.

30a

separation of functions requirement cannot

be waived. Rather, the FTC contends that

the Gibsons' decision not to raise the

issue of the ALJ's disqualification in its

appeal to the Commission or prior to the

issuance of the Commission's opinion was a

calculated litigation decision, one which

paid off in part since von Brand in his

initial decision dismissed the principal

charge in the complaint. The rationale

supporting the waiver of this technical

procedural requirement is analogous to the

rule imposed on litigants that points of

error will not be considered for the first

time on appeal unless manifest injustice

will result. To the FTC there is nothing

unfair in holding a party to an express,

knowing waiver.

Prior to the Ninth Circuit opinion in

Grolier, the FTC took the position that

§554(d) did not apply to former attorney-

3la

advisors since they did not perform in-

vestigative or prosecutorial functions

within the meaning of that section, In

reaching such an outcome, the FTC focused

upon the Congressional desire to prevent

adjudication by those who had developed a

"will to win". In re Grolier, Inc., 87

F.T.C. 179 (1976). In reversing the FTC

decision, the Ninth Circuit found an

"equally important Congressional desire to

prevent adjudicative interpretation of ex

parte facts." Grolier, 615 F.2d at 1220

n.5. The Ninth Circuit, while rejecting

the FTC position that §554(d) was not

applicable to the situaion, specifically

refused to accept the position here urged

by the Gibsons and the ALJ was chargeable

with knowledge of all investigative and

prosecutorial activities undertaken by the

FTC during his tenure as an attorney-

advisor. Grolier, 615 F.2d at 1221. It

32a

is obvious from the decision that the

Ninth Circuit did not view the situation

as fundamentally unfair or jurisdictionally

void since it refused a per se disqualifi-

cation rule, choosing rather to remand the

case to determine whether Grolier could

meet the burden of showing that von Brand

formation. Thus the Ninth Circuit opinion

in no way forecloses the possibility of

waiver, a concept wholly compatible with

placing the burden or establishing prior

knowledge on the proponent. Without

rejecting the opinion of the Ninth Circuit

In the Grolier case, Grolier clearly and

vigorously raised the issue of von Brand's

participation in a timely manner, both

before the ALJ and the FTC. This is a far

cry from the Gibsons' express waiver of

any objection to von Brand's continuation

33a

in the case after the ALJ's candid revela-

tion of the facts.

The Waive of the Past

[4] We may agree, without deciding,

that 8554(d) applies to the situation of

an attorney-advisor who subsequently serves

as an ALJ. We do this because we hold

that the Gibsons -- with explicit awareness

of the facts or at least of the facts in-

dicating the necessity for further factual

inquiry open to them under FTC rules --

expressly waived any objection they might

have. Not only did the Gibsons clearly

indicate that they had no objection to von

Brand continuing to preside in their case,

they failed to raise at any meaningful

point or in any meaningful way the issue

of disqualification. Subsequent to the

ALJ's opinion, the Gibsons in their appeal

to the Commission did not mention the

issue of disqualification. Nor did they

34a

mention it at oral argument on the appeal

or once the case was under advisement by

the Commission. Even after the Ninth

Circuit issued its opinion in Grolier, the

Gibsons failed to direct the Commission's

attention to this case or to raise this

issue. Only after the Commission had

issued its decision, one less favorable to

the Gibsons than that of the ALJ, did the

Gibsons indicate any objection to the ALJ's

participation. If the Gibsons objected to

von Brand's participation, at the minimum

they should have preserved this objection

three years earlier when they were asked

specifically by the ALJ if they objected

to his continued participation.

{5} Nor can we accept the Gibsons'

argument that they were under no duty to

raise the issue since the FTC had indi-

cated in its Grolier decision that dis-

qualification was not necessary. Because

hal

35a

the Gibsons expressly waived any objection,

they are in no position to argue that a

challenge to the ALJ's participation would

have been fruitless. A party in an admin-

istrative proceeding, as in litigation in

a court, has the duty and responsibility

to bring to the attention of the agency an

objection so that the agency has the oppor-

tunity to reconsider its position. This

is no different than our requirement that

a party provide the lower court with the

opportunity to correct its errors by point-

ing out those errors to the District Judge

first. It is certainly conceivable that

von Brand would have recused himself in

the case which had not yet gotten under

way or that the FTC, if presented with

other arguments, might have reconsidered

Nor are we convinced by the Gibsons'

argument that they were afraid to raise

36a

the issue of von Brand's participation for

fear of antagonizing the ALJ. Counsel for

Gibson, Sr. would have us believe that his

reticence was based on his personal famil-

which were also being held in the Dallas

FTC offices at the same time. We are not

persuaded, Counsel for Grolier obviously

harbored no such fear, filing timely an

objection to von Brand's participation.

Even if we were to acquiesce in this

excuse for failing to raise the issue

before von Brand, this argument offers no

succor for the Gibsons' failure to raise

the issue subsequently before the Commis-

Sion. Certainly the Gibsons did not hesi-

tate to contest the ALJ's opinion in other

aspects, objections which called into

question prior opinions of the FTC in

other areas, Rather we are presented with

a situation where, due to the fortuitous

37a

intervening decision of the Ninth Circuit

in Grolier, the Gibsons are not able to

advance, retrospectively, an argument for

disqualification of the ALJ. They are,

however, unable to convince us of the

applicability of Grolier to an express

waiver of the kind involved here. The

attempted end run around the need for

timely objection through the argument of a

situation analogous to exhaustion of reme-

dies provides no yardage. While the

Gibsons rely on Board of Education v.

-——o or

Harris, 622 F.2d 599 (2d Cir. 1979), cert

denied sub nom, Hufstedler v. Board of

_-_—_——-e—e——l—/—e ie Or hi, il, ll le lt ee le lt _—_—— = om

Education, 449 U.S. 1124, 101 S.Ct. 940,

67 L.Ed.2d 110 (1981), that case specifi-

cally distinguishes the issue of exhaustion

from waiver of objection.

Case law supports the concepts of

timely objection with its complementary

notion of waiver within the context of

38a

disqualification under 8554(d). In Inter-

-__———

national Paper Co. v. Federal Trade Com-

—_———— ee wm rr ee ee ee ee ee ee

mission, 438 F.2d 1349 (2a Cir. }), cert

denied 404 U.S. 827, 92 S.Ct. 61, 30

L.Ed.2d 56 (1971), the Second Circuit, in

considering alleged violations of due pro-

cess and 8554(d) based on the participation

of the general counsel and other FPC

employees both prosecutorial and decision

making functions, found a waiver from the

failure of a party to object timely.

"Appellant made no timely challenge to

this purported practice nor did counsel

call it to the attention of the Com-

mission at the time the stipulation of

facts agreed to had been reviewed and

approved by the Assistant General

Counsel and General Counsel, before the

supposed error was committed. This

knowing inaction and calculated lying

in wait, taken with the hope of

upsetting a future adverse decision of

the Commission, constituted a waiver of

appellant's rights."

438 F.2d at 1357.

The D.C. Circuit in Democrat Printing

Co. v. FCC, 202 F.2d 298 (D.C.Cir. 1952)

Wa

also found a waiver from the failure to

raise a timely objection.

Aside from these specific interpreta-

tions of 8554(d), the requirement for

filing of a timely objection finds support

in the language of 8556(b) of the APA

which provides: "On the filing in good

faith of a timely and sufficient affidavit

of personal bias or other disqualification

of a presiding or participating employee,

the agency shall determine the matter as a

part of the record and decision in the

case." The Ninth Circuit, in considering

a motion for disqualification based on bias

on the part of the Commissioner, in Safeway

Stores, Inc. v. FTC, 366 F.2d 795, 802

“-—-——-—-—-— =e ee eer me ee

(9th Cir. 1966), cert denied 386 U.S. 932,

87 S.Ct. 954, 17 L.FEd.2d 805 (1967), found

that a motion was not timely where the

objecting party had been silent during

trial, briefing, and argument to the

40a

Commission and had only raised the argu-

ment several months after the Commission

issued an unfavorable decision. In Marcus

Ce ee ee ee ee se

tion eieaee, 548 F.2d 1044, 1050-51

(D.C.Cir. 1976), the D.C. Circuit, while

indicating that disqualification under

$554(d) is mandatory, also stated:

"Tne general rule governing disqualifi-

cation, normally applicable to the

federal judiciary and administrative

agencies alike, requires that such a

claim be raised as soon as practicable

after a party has reasonable cause to

believe that grounds for disqualifica-

tion exist. It will not do for a

claimant to suppress his misgivings

while waiting anxiously to see whether

the decision goes in his favor. A

contrary rule would only countenance

and encourage unacceptable inefficiency

in the administrative process. The

APA-mandated procedures afford every

party ample opportunity to enforce and

preserve its due process rights."

548 F.2d at 1051 (footnotes omitted).

See also Capitol Transportation, Inc. v.

—-—--=- -“--—<—- -———se ee eer eee eee Fe ee ee eee 8 ee ee ee

United States, 612 F.2d 1312, 1325 (1st

Cir. 1979) (claim of bias on part of ALJ

4la

first raised on petition for reconsidera-

tion after final order of agency.)

The Commission, in denying the Gibsons’

motion for reconsideration, indicated that

disqualification claims must be raised as

soon as practicable and cited several cases

in support. In addition, the Commission

relied on its Rule of Practice 83.42(g)(2)

governing the filing of disqualification

motions.10 The motion and supporting

et re ee ne ee

10Rule of Practice §3.42(g)(2) as in

effect at the time provides:

(g) Disqualification of administra-

tive law judges

x kk

(2) Whenever any party shall deem

the Administrative Law Judge for any

reason to be disqualified to preside,

or to continue to preside, in a par-

ticular proceeding, such party may file

with the Secretary a motion addressed

to the Administrative Law Judge to

disqualify and remove him, such motion

to be supported by affidavits setting

forth the alleged grounds for disquali-

fication. If the Administrative Law

(footnote continued on next page)

42a

affidavits must set forth the grounds for

disqualification. The ALJ has ten days

within which to disqualify himself. Should

he not do so, he must certify the motion

to the Commission which must determine

promptly the validity of the claim. As the

Commission indicated in its denial of the

Gibsons' motion for reconsideration:

"The requirement of affidavits funder

Rules of Practice §3.42(g)}, grounded in

5 U.S.C. $556 (1976), is not an empty

formality to be cast aside unilaterally

by a party to a Commission proceeding.

There are many reasons for such a

requirement. An affidavit provides an

exact, sworn recitation of facts,

collected in one place; a disqualifica-

tion motion must not be made by a

party, nor taken by the Commission,

———— eee ee ee ee - SSL LA NG A ee

(footnote 10 continued)

Judge does not disqualify himself

within ten (10) days, he shall certify

the motion to the Commission, together

with any statement he may wish to have

considered by the Commission. The

Commission shall promptly determine the

validity of the grounds alleged, either

directly or on the report of another

Administrative Law Judge appointed to

conduct a hearing for the purpose."

43a

lightly ..... Accordingly, the affida-

vit requirement serves not only to

focus the facts underlying the charge,

but to foster an atmosphere of solem-

nity commensurate with the gravity of

the claim. Respondents' failure to

submit affidavits is thus an indepen-

dently sufficient basis to deny their

petitions in this respect."

{6} This Court has implied a timeli-

ness requirement within the context of

disqualification claims in an analogous

situation, that concerning judicial

disqualification under 28 U.S.C. 8455.11

llsection 455 provides:

$455. Disqualification of justice,

judge, or magistrate

ta) Any justice, judge, or

magistrate of the United States shall

disqualify himself in any proceeding in

which his impartiality might reason-

ably be questioned.

(b) He shall also disqualify him-

self in the following circumstances:

(1) Where he has a personal bias or

prejudice concerning a party, or

personal knowledge of disputed

evidentiary facts concerning the

proceeding;

(2) Where in private practice he

served as lawyer in the matter in

controversy, or a lawyer with whom

he previously practiced law, served

(footnote continued on next page)

44a

In Delesdernier v. Porterie, 666 F.2d 116

—————— oe Fe ee ern ree ree ee

(Sth Cir. 1982), we found that a motion to

— -— —— ee ee er we ene eee One eon eer ee er ee em

(footnote 11 continued)

during such association as a lawyer

concerning the matter, or the judge

or such lawyer has been a material

witness concerning it;

(3) Where he has served in govern-

mental employment and in such capacity

participated as counsel, adviser or

material witness concerning the pro-

ceeding or expressed an opinion con-

cerning the merits of the particular

case in controversy;

(4) He knows that he, individually

or as a fiduciary, or his spouse or

minor child residing in his house-

hold, has a financial interest in

the subject matter in controversy or

in a party to the proceeding, or any

other interest that could be sub-

stantially affected by the outcome

of the proceeding;

(5) He or his spouse or a person

within the third degree of relation-

ship to either of them, or the

ouse of such a person:

(h) Is a party to the proceeding,

or an officer, director, or trustee

of a party;

(ii) Is acting as a lawyer in the

roceeding;

titi) Is known by the judge to have

an interest that could be substan-

tially affected by the outcome of

the proceeding;

(iv) Is to the judge's knowledge

likely to be a material witness in

the proceeding.

45a

disqualify raised for the first time on

appeal after two full trials on the merits

was too tardy to consider. Looking to the

policies underlying the disqualification

of judges statute, we stated:

"{f disqualification may be raised at

any time, a lawyer is then encouraged

to delay making a $455(a) motion as

long as possible if he believes that

there is any chance that he will win at

trial. If he loses, he can always

claim the judge was disqualified and

get a new trial. This result would not

comport well with the purposes behind

§455(a) .... Lack of a timeliness

requirement encourages speculation and

converts the serious and laudatory

business of ensuring judicial fairness

into a mere litigation stratagem,"

666 F.2d at 121

See also In re International Business

“-—- ——-— «= ——"<« = enw ee eee ee eee ee ee ee ee

ent a

--— 2 eee em ee

U.S. 1012, 101 S.Ct. 568, 66 L.Ed.2d 470

(1980); Marcus, supra, and cases cited

therein at n.21; Duffield v. Charleston

-—— + een ee ee oe ee ee

46a

Area Medical Center, Inc., 503 F.2d 512,

515-16 (4th Cir. 1974). the same policies

supporting timely objection or motions to

disqualify judges are equally applicable

to administrative law judges. A party

should not be able to manipulate the rules

by the use of an express waiver only to

attempt later to avoid the effects of this

waiver. Granted, as the Gibsons assert,

"f{w)hat is as stake here is not so much

the right of an individual FTC Respondent

.+- but the public interest, the confidence

of the public in the fairness of the adju-

dicative system of the FTC, and the entire

administrative action of the FTC," we must

emphasize that the public has an interest

as well in conserving judicial and quasi-

judicial resources and in ensuring the

integrity of adjudicative process. Allow-

ing a party to waive expressly an objection

and then later seek to avoid it undermines

47a

the integrity and and finality of admin-

istrative procedures.

{7} Finally, there is simply no indi-

cation of any manifest injustice or preju-

dice to the Gibsons from the participation

of ALJ von Brand. The Commission, in

denying the Gibsons' motion for recon-

sideration, also indicated that the

Gibsons had not demonstrated or even

asserted any prejudice, stating:

"fOJur review of the record convinces

us that Judge von Brand was impartial

in every respect, that his decision was

thoroughly researched, and that his

meticulous findings and conclusions

were firmly and exclusively based on

the record evidence. Of course, to the

extent respondents challenged Judge von

Brand's findings, conclusions, and pro-

osed order, we undertook an exhaustive,

independent review. In that review, we

did not find that issues of demeanor or

discretion were especially important in

the determination of the case; thus,

even if it were to be determined that

Judge von Brand was disqualified, our

decision of April 30, 1980 would not be

void, as respondents have neither

demonstrated nor suggested actual pre-

judice from his presiding, and we

perceive none."

48a

The lack of prejudice seems clear from the

fact that the transactions forming the

basis for liability challenged here

occurred after 1971 when von Brand left the

service of Commissioner MacIntyre. The

only charge that could possibly rely on ex

parte information, that in Count I, was

dismissed by the ALJ. Nor have the Gibsons

provided or even suggested the existence

of any evidence that von Brand either

possessed or relied on ex parte infor-

mation. Unlike Grolier, the Gibsons did

not even request discovery of what infor-

mation ALJ von Brand would have had avail-

able to him, choosing instead to rely on

the unsupported position that "It is

accepted that the attorney-advisor ... is

fully chargeable with whatever knowledge

the Commissioner ... had of the Gibson

pre-complaint matters before the

Commission."" The only support for this

49a

position is a quote from former FTC

Chairman Engman in which he stated: "I

generally would charge an attorney-advisor

with the same insider knowledge chargeable

to his Commissioner." Even the Ninth

Circuit in Grolier would not adopt such a

broad position.

ufficien

Act II opens with the Gibsons contending

that there is insufficient evidence to

support Count II, that of the boycott.

Specifically, the Gibsons assert that

there was no evidence to connect the

Gibson sons and companies with the invita-

tion to boycott letter, and no proof that

a boycott actually existed. The Commis-

sion's finding that the Gibsons engaged in

a group boycott, a per se violation of the

antitrust laws, relies on the evidence of

three companies who refused to meet the

price terms demanded for participation in

50a

the Gibson Trade Show, the Toastmaster

Division of McGraw Edison Co. (Toastmaster),

Tucker Manufacturing Co., and Jeanette

Glass Co.

Toastmaster participated in the Gibson

Trade Show from 1966 to 1970. At a meeting

on June 22, 1970, Toastmaster's represen-

tative was asked for a payment of three

percent of its sales volume to Gibson

stores, which the representative refused.

Toastmaster was informed that it was not

"cooperating" and as a result of this lack

of cooperation, it was unable to exhibit

at the Gibson Trade Show from August 1970

through 1973. On January 22, 1971, the

following letter on Gibson Products

Company stationery was addressed to "All

Stores" concerning Toastmaster.

"The above company will not sell to

us at a price we would recommend as

being profitable and beneficial for

your operation. We, therefore, no

Sla

longer recommend or authorize line, and

suggest that you discontinue the same,

Please give this your attention, and

we appreciate your continued cooperation."

Although Toastmaster continued its attempts

to sell to the Gibsons stores, sales

volume dropped sharply, from over $950,000

in 1970 to $297,000 in 1971. Toastmaster

representatives were told on at least two

occasions by franchised stores that they

were declining to buy from Toastmaster

because of the "All Stores" letter. In

1974, Toastmaster agreed to the terms for

participation imposed by Gibson, Sr. and

once again participated in the trade show.

At this point, Toastmaster's sales to the

Gibson stores increased.

Tucker and Jeannette had similar expe-

riences. When negotiating for an exhibit

at the February 1971 Trade Show, Tucker's

representative refused to pay a two per-

cent volume rebate and was excluded from

52a

the Trade Show. On March 11, 1971, a

substantially identical "All Stores"

letter was sent by Gibson Products Company

concerning Tucker. When Tucker represen-

tatives subsequently agreed to pay the

rebate, the company was readmitted to the

August 1971 Trade Show. Jeannette,

directly and through its brokers, was

asked for a five percent rebate, to be

paid to Gibson, Sr. and not to individual

stores. After it refused to make such a

rebate, an "All Stores" letter was sent on

March 30, 1971. Jeannette was refused

readmittance to the shows without the five

percent payment and was unsuccessful in

attempting to sell to the family-owned

stores, though it was able to make some

sales to franchised stores.

The ALJ found the Gibsons liable on the

Count II boycott charge. The Commission

amended the ALJ's order to include Gibson's,

53a

Inc., finding that the boycott continued

after the November 1, 1972 change in

management,

The Gibsons contend that there was no

boycott and that the Commission failed to

prove that the All Stores letter caused

the decline in Toastmaster sales. The

Gibsons offered several justifications for

the All Stores letter in the Toastmaster

case, including Toastmaster shipping poli-

cies during the Christmas season and

dissatisfaction with the Toastmaster

warranty program,

No R.S.V.P, Necessary

(8, 9} The All Stores letter concerning

Toastmaster is, at the minimum, an invita-

tion to boycott, specifically requesting

that the stores refrain from dealing with

Toastmaster, The letter is certainly

stronger than that found sufficient in

Eastern States Retail Lumber Dealers'

S4a

Association v. United States, 234 U.S.

600, 34 S.Ct. 951, 58 L.Ed. 1490 (1914).

Nor is it necessary for a group boycott

that there be an express mutual agreement

to refuse to deal. The contemplation and

invitation for concerted action along with

acquiescence is sufficient. From the evi-

dence presented, the Commission found that

a substantial number of stores had acqui-

esced in the request by Gibson Products

Company. Although some of this evidence

was in the form of hearsay testimony, the

Commission Rules of Practice permit the

introduction of hearsay evidence, provided

that it meets the standards of materiality,

reliability and relevance, See 16 C.F.R.

§3.43(b); Resort Car Rental System, Inc.,

v. FTC, 518 F.2d 962, 963 (9th Cir.), cert

denied 423 U.S. 827, 96 S.Ct. 41, 46

L.Ed.2d 42 (1975). The evidence that

Toastmaster representatives were told by

55a

Gibson franchisees that there was a boy-

cott, along with the actual letter and the

substantial drop in sales by Toastmaster

to the Gibson stores, amply support the

Commission's findings of a group boycott.

Nor was the Commission bound to accept

the Gibsons' alternate explanations for

the drop in sales: dissatisfaction with

Toastmaster products, preference of Toast-

master's sales representatives to sell to

distributors instead of directly to

retailers, and Toastmaster's lack of

access to Gibson retailers, because of its

non-participation in the Gibson Trade Show.

The evidence concerning dissatisfaction

with Toastmaster's warranty program related

to the mid-sixties, several years prior to

the boycott. The contention that Toast-

master preferred to sell to distributors

is undercut by the testimony of Toast-

master's representative that he continued

56a

his attempts to sell to individual Gibson

stores even after the boycott began. As

to the explanation that the drop in sales

was due to non-participation in the Gibson

Trade Show, this is merely a “which came

first, the chicken or the egg" argument.

The only reason Toastmaster did not par-

ticipate in the Trade Show was its refusal

to pay the requested rebate. The Commis-

sion failed to establish a legitimate busi-

ness reason for the drop in Toastmaster's

sales is also supported by the existence

of two other All Stores letters, those

concerning Jeannette and Tucker, which

utilize substantially identical language.

Each of the three suppliers refused at

some point to pay the required rebate for

participation in the Trade Show; each of

the three letters is identical in purpose

and effect,

57a

£10} The Gibson sons and companies

also contend that there is no evidence to

connect them with the invitation to boy-

cott. The All Stores letters, written on

Gibson Products Co. stationery, clearly

connect the Gibson sons with the action

since Gibson, Jr. was president of that

company and Gerald Gibson was executive

vice-president. Given the overlapping

ownership of the corporations and the

essential purpose of the Gibson Trade Show

to service Gibson stores, there was suf-

ficient evidence that an order including

all petitioners was necessary for effec-

tive relief. In addition, the Commission

in amending the ALJ's order to include

Gibson's, Inc., determined that the boy-

cott continued under the management of

Gibson's, Inc., a corporation wholly owned

by the Gibson sons and used to buy Gibson,

Sr.'s retail business.

58a

{11-14} The findings of the Commission

must be accepted if there is substantial

evidence on the record considered as a

whole to support them. FTC v. Standard

S.Ct. 113, 115, 82 L.Ed. 141, 145 (1937);

FTC v. Algoma Lumber Co., 291 U.S. 67, 73,

54 S.Ct. 315, 318, 78 L.Ed. 655, 660 (1934).

Where there is the possibility of drawing

two inconsistent inferences from the evi-

dence, the Commission may make the choice,

Corn Products Refining Co. v. FTC, 324 U.S.

726, 65 S.Ct. 971, 89 L.Ed. 1338 (1945).

In this case, the Commission, based on the

All Stores letter and the testimony of

Toastmaster's agent drew the inference

that the substantial decline in Toast-

master's sales was as a result of the

boycott, a determination which is sup-

ported by substantial evidence. The Com-

mission's findings that the boycott of

59a

Toastmaster continued until at least 1974

is also supported by substantial evidence.

From this finding, the Commission deter-

mined that that the “institutional manage-

nent" of the boycott, at least in the

post-November 1, 1972 period was in the

hands of Gibson's, Inc. There is also

substantial evidence to support the

Commission's determination that there was

substantial commonality of interest prior

to November 1, 1972 and that the opera-

tions of the Gibsons were sufficiently

integrated to require an order covering

all petitioners. The Commission, as

discussed below, has wide discretion in

determining the type of order necessary to

remedy unfair practices.

Assault and Batteries on

the FTC Order

In Act III, the Gibsons challenge the

finding of the Commission of the payment

60a

of illegal brokerage in violation of

Section 2(c) of the Robinson-Patman Act,

15 U.S.C. $13(c). Count III, the 82(c)

charge, concerns the receipt of brokerage

fees by Gibson, Sr., from two brokers

representing the Ray-0O-Vac Division of

ESB, Incorporated (Ray-0-Vac), Barshell,

Inc. and Al Cohen and Associates, Inc.

The FTC tried the charge on the theory

that Gibson, Sr. acted as a principal or

buyer who split brokerage fees.

The Miller's Tale

Jim Miller was a broker employed by

Ray-O-Vac to represent its products to the

Gibson stores for approximately five years,

years, from 1969 to January 1, 1974.

Miller also owned all of the stock in

Barshell, Inc., a distributor of health

and beauty aid products, redistributing

such products to various retailers and

wholesalers throughout the southwest.

6la

Beginning in 1971, Barshell became the

sales representative of Ray-O-Vac, repre-

senting Ray-0-Vac to the Gibson stores.

In this capacity, Barshell was to present

Ray-O-Vac sales promotions to Gibson head-

quarters, conduct necessary negotiations,

and have Ray-0-Vac's products listed. In

return for these services, Barshell received

a 10% brokerage fee. At the time that

Barshell sold to the Gibson accounts, about

80% of Barshell's sales were to the Gibson

stores. Ray-0-Vac sent commission state-

ments to Barshell recording all of Ray-O-

Vac's shipments to the individual Gibson

stores and the commission which Barshell

had earned on these sales. Miller testi-

fied that Gibson, Sr. frequently checked

Barshell's commission statements, after

which Barshell made payments to Gibson,

Sr., termed promotional allowances, on the

basis of sales recorded in the commission

62a

statements. A Barshell check in the

amount of $13,173.43, dated September 23,

1972, was introduced inte evidence and

Miller testified that this was a promo-

tional allowance. The ALJ found that the

check was a transmittal of brokerage fees

by Barshell, received by Ray-O-Vac, to

Gibson, Sr., when Gibson, Sr. was owner

and operator of various retail stores and

thus a buyer from Ray-0-Vac.

Al Cohen and Associates, Inc. acquired

the Ray-O-Vac account effective January l,

1974 to represent Ray-0-Vac to the Gibson

stores. Al Cohen was also paid a 10% com-

mission. In an oral agreement, Gibson,

Sr. was to increase the sales volume of

Ray-O-Vac and Cohen to pay Gibson, Sr. 90%

of the 10% commission. Cohen made monthly

payments beginning in 1974 to Gibson, Sr.,

which payments continued until at least

March 1978. The ALJ, finding that Gibson,

63a

Sr. was not a "buyer" at the time of the

commission splitting with Al Cohen Asso-

ciates, dismissed the complaint against

Cohen.

The ALJ, while finding a violation of

Section 2(c) by Gibson, Sr. as to Barshell,

specifically found that the allegations

against the Gibson sons had not been sus-

tained and that the FTC had failed to tie

the sons into the receipt of illegal bro-

kerage. Apparently the FTC had intended

to show stock ownership by Gibson, Sr.,

subsequently given to the Gibson sons, in

another of Miller's companies. On this

basis, the ALJ dismissed the Count III

allegations as to the Gibson sons. The

Commission, while upholding the Section

2(c) violation against Gibson, Sr., did

not address the FTC's position that all of

the Gibson respondents were a "single eco-

nomic enterprise". Rather, the Commission

64a

found that given the interdependence of

the Gibson companies, for purposes of

relief, there was ample justification to

bind all Gibson corporate respondents and

family members. The Commission specifi-

cally stated that they did not reverse the

finding of the ALJ as to the failure by

the FTC to tie the Gibson sons into the

receipt of illegal brokerage. Rather the

Gibson sons were placed under order for

"fencing in" purposes.

{15} Ever ready to attack the FTC's

order, the Gibsons challenge the Section

2(c) violation on several grounds. First,

the Gibsons assert that the jurisdictional

requirement of "sales in commerce" has not

been met. The brokerage payments were

allowances upon all Ray-O-Vac sales to

Gibson retail stores, both family-owned

and franchised, in a 20 state area. Thus

the underlying sales were not merely

65a

connected with, but directly in, inter-

state commerce,

Going for Broch

{16, 17) The Gibsons' second jurisdic-

tional argument is that there was no

showing of a discrimination in price. For

support, the Gibsons rely on FTC v. Henry

Broch §& Co., 363 U.S. 166, 80 S.Ct. 1158,

4 L.Bd.2d 1124 (1960). First, Section 2(c)

on its face absolutely prohibits the pay-

ment of brokerage except for services

rendered and contains no requirement that

a price discrimination occur. Second,

Broch concerned variable brokerage fees

charged for the purpose of creating dis-

criminatory price advantages, rather than

the situation here of a broker splitting

part of his commission with the buyer. In

fact, in Broch, the Supreme Court, in

reviewing the legislative history of

Section 2(c), stated:

66a

"One of the favorite means of obtaining

an indirect price concession was by

setting 3 "dummy" brokers who were

employed by the buyer and who, in many

cases, rendered no services. The large

buyers demanded that the seller pay

"brokerage" to these fictitious brokers

who then turned it over to their

employer. This practice was one of the

chief targets of 82(c) of the Act."

363 U.S. at 169, 80 S.Ct at 1160,

4 L.Ed.2d at 1128 (footnote omitted)

We agree with the Commission Section 2(c),

in light of the language and purpose,

requires no price discrimination in a

situation of dummy brokerage such as is

involved here.

{18} The Gibsons also argue that there

is no evidence that Gibson, Sr. was con-

nected with buying so as to meet the

statutory requirement of a "buyer". We

find this argument without merit since the

ALJ and the Commission found that, at

least as to the check in September 1972,

Gibson, Sr. was a buyer within the context

of his personal ownership and operation of

67a

individual retail stores, as well as in

his role as head of Gibson Products

Company.

Beauty Is Only Skin Deep

{19} Next the Gibsons maintain that

there is no proof to support the Section

2(c) violation. Gibson, Sr. contends that

the check issued on September 23, 1972

from Barshell, rather than being illegal

brokerage, was an unrelated 3% commission

due Gibson, Sr. for sales by the Gibson

Trade Show of beauty and health products

belonging to Barshell. Miller, Barshell's

sole stockholder, identified the check in

question as a payment of brokerage fees

and also testified that Gibson, Sr. would

periodically review Barshell's commission

statements to assess a charge as his fee

upon this commission. Lynn Lowe, a trade

show buyer for Gibson, Sr., provided

contrary testimony indicating that the

check was in payment for the trade show's

sales of Barshell's health and beauty aids.

The ALJ and the Commission found Lowe's

argument would not wash. There was evi-

dence that Miller sold his health and

beauty aids not through Barshell, but

through his other corporation, Progressive

Brokerage. In fact, Miller testified that

Barshell was formed specifically to be a

housewares distributor and for that reason

the Ray-0-Vac account moved through

Barshell. The ALJ and the Commission were

entitled to draw the inference that had the

payments been for the purpose described by

Lowe the check would have been made out by

Progressive Brokerage, rather than Bar-

shell. Although conflicting testimony was

presented, there was substantial evidence

from which the Commission could find a

violation of Section 2(c). Our task is

not to reweigh the evidence but only to

69a

determine whether there is "such relevant

evidence as a reasonable mind might accept

as adequate to support a conclusion."

Steadman v. SEC, 450 U.S. 91, 99, 101

S.Ct. 999, 1006, 67 L.Ed.2d 69, 77 (1981),

quoting Consolo v. FMC, 383 U.S. 607, 620,

86 S.Ct. 1018, 1026, 16 L.Ed.2d 131, 140

(1966).

The Gibsons also claim that the payments

in questions here are exempt from Section

2(c), falling within the "for services

rendered" exception. We need not here

decide whether this exception applies to

payments made to a buyer because the Com-

mission found, and we agree, that the

Gibsons failed to provide adequate evi-

dence to substantiate this claim, The

Gibsons would have us believe that since

they introduced evidence of Gibson, Sr.'s

services in selling products of Barshell

and since Barshell compensated Gibson, Sr.

70a

by check and never asked for a refund,

"the presumption then is that the services

were reasonably worth the amount paid."

This argument, however, fails to consider

that the ALJ and the Commission found that

the check in question had nothing to do

with Gibson's services but rather was a

payment for brokerage.

{20} The Gibsons' final contention is

that there is no evidence to connect Belva

Gibson or the Gibson sons with the Section

2(c) violation. The brokerage payments

from Barshell to Gibson, Sr. were based on

Ray-O-Vac sales to Gibson retail stores at

a time when Gibson Products Company was

wholly owned by the Gibsons. As the

Commission stated:

"The Gibson Products Company, through

which Gibson, Sr. conducted the fran-

chising, trade show and brokerage busi-

nesses, and the various corporate

entities through which the Gibson-owned

retail stores were operated were

completely interdependent and under the

Tia

control of the same few individuals in

the Gibson family. For purposes of

relief, in this environment, there is

ample justification to bind all Gibson

corporate respondents, except dissolved

corporations, and all Gibson family

respondents in order to insure that the

order we issue today is not circum-

vented,"

Don't Fence Me In

In this final act the Gibsons challenge

the FTC order as overly broad. This argu-

ment also includes the assertions of lack

of evidence to connect the Gibson sons and

corporations with the boycott and Section

2(c) violations. They contend that the

evidence used pertains only to Gibson, Sr.

and that including the other petitioners

is merely "guilt by association". The

Gibsons also attack the order as arbitrary

and overly broad by requiring notice to

the FTC of change in employment for a ten

year period and prior notification to the

FTC of corporate acquisitions, reorganiza-

tions, etc.

72a

£21, 22} The Commission clearly found

that a broad order was necessary for effec-

tive enforcement in light of the interre-

lationship among the Gibson family members

and corporations. "At least since

November 1, 1972, there has been an en-

hanced potential for Gibson, Sr. to act as

agent or intermediary for retail stores

owned by other members of the Gibson

family. Indeed, he owns no stores out-

right at this time, meaning that, leaving

aside the possibility of treating all

respondents as a ‘single enterprise,' an

order limited to Gibson, Sr. as a buyer

might have little practical effect." The

Commission has wide discretion in deter-

mining what type of order is necessary to

remedy the unfair practices found. Jacob

Siegel Co. v. FTC, 327 U.S. 608, 611, 66

S.Ct. 758, 760, 90 L.Ed. 888, 892 (1946);

FTC v. National Lead Co., 352 U.S. 419,

-_———eOem nw eee ee eee eee ee

73a

428-29, 77 S.Ct. 502, 508-09, 1 L.Ed.2d

438, 444-45 (1957); Alterman Foods, Inc.

v. FTC, 497 F 2d 993, 1001 (Sth Cir.

1974). "¢{T)he courts will not interfere

except where the remedy selected has no

reasonable relation to the unlawful prac-

tices found to exist." National Lead,

352 U.S. at 418, 77 S.Ct. at 508, 1

L.Bd.2d at 444, The use of a broad order

within the context of interwoven corporate

entities is within the Commission's dis-

cretion where the remedy is reasonably

related to the violation. See, Sunshine

Art Studios, Inc. v. FTC, 481 F.2d 1171

-_-—o oe

(1st Cir. 1973); Delaware Watch Co. v. FTC,

332 F.2d 745 (2d Cir. 1964). In this case

where there is a substantial interrela-

tionship among the Gibson family members

and corporations, and where the trade show

and franchising aspects overlap, the FTC

order, by enjoining the Gibson sons, Belva,

74a

and the corporations as well as Gibson,

Sr., is reasonably related to the remedies

sought, that is to restrain further viola-

tions of Section 2(c) and to block possible

group boycotts of the type here found.

Pro Bono Publico

{23, 24] The Gibsons' swan song is

that the order is not in the public

interest. This chorus appears to rely on

the contentions that the FTC failed to

prove injury to competition or the exis-

tence of a “continuing practice". First,

the violations at issue here are per se

and thus do not call for extensive analy-

sis of anticompetitive effect. The Com-

mission has broad discretion in deter-

mining whether the public interest requires

an order. Cotherman v. FIC, 417 F.2d 587,

594-95 (Sth Cir. 1969). Nor have the

Gibsons demonstrated that there is no risk

75a

of repeated violations. The Commission

specifically responded to the argument

that no order was necessary since the

practices were isolated.

"Respondents cannot and do not contend

that the law violations were inadvertent

or that these practices were volun-

tarily abandoned, even after issuance of

the complaint. Given the nature and

structure of their business operation,

which remains essentially unchanged, and

given the absence of any evidence of

abandonment, we find that an order is

necessary to combat a cognizable danger

of recurrence of the violations."

We find that the order, while broad, is

reasonably related to the practices found

to be in violation of the FTC Act and

Robinson-Patman Act and that the FTC could

conclude that these provisions are necessary

to prevent future violations within the con-

text of the interrelated corporate and

family réspondents, We bring down the

curtain on this 15-year proceeding by

ordering that the Commission's order be

enforced.

AFFIRMED AND ENFORCED.

76a

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

Filed: April 30, 1982

COMMISSIONERS:

Michael Pertschuk

Paul Rand Dixon

David A. Clanton

Robert Pitofsky

Patricia P. Bailey

In the Matter of )

) Docket No. 9016

HERBERT R. GIBSON, SR., )

et al. )

FINAL ORDER

This matter having been heard by the

Commission upon the appeals of complaint

counsel and respondents from the initial

decision, and upon briefs and oral argu-

ment in support thereof and in opposition

thereto, and the Commission for the

reasons stated in the accompanying

Opinion having determined to sustain the

initial decision with certain

modifications:

77a

IT IS ORDERED that the initial deci-

sion of the administrative law judge,

pages 1-214, as amended, be adopted as

the Findings of Fact and Conclusions of

Law of the Commission, except to the

extent indicated in the accompanying

Opinion. Other Findings of Fact and

Conclusions of Law of the Commission are

contained in the accompanying Opinion,

IT IS FURTHER ORDERED that the

following Order to Cease and Desist be,

and it hereby is, entered:

I.

IT IS ORDERED that respondents Herbert

R. Gibson, Sr., individually doing busi-

ness as Gibson Products Company and The

Gibson Trade Show, Belva Gibson, Herbert

R. Gibson, Jr., Gerald Gibson, indivi-

dually and/or as officers of corporate

respondents; and corporate respondents

78a

Gibson's, Inc., Gibson's Discount Center,

Inc., Ideal Travel Agency, Inc., Gibson

Warehouse, Inc. and Gibson Products Co.,

Inc., their successors and assigns,

officers, directors, agents, represen-

tatives and employees, directly or through

any corporation, subsidiary, division or

other device in connection with the oper-

ation of a trade show, the operation or

franchising of any retailing business, or

the operation of any business related to

retailing in or affecting commerce, as

"commerce" is defined in the Federal

Trade Commission Act, do forthwith cease

and desist from:

"1. Combining, agreeing,

engaging in an understanding, or

conspiring with any of said other

respondents, or any other person,

partnership or corporation, to

79a

eliminate or boycott any supplier

in order to prevent or hinder the

supplier's sales to or business

dealings with any of the respon-

dents or any other person, part-

nership, or corporation, provided

that nothing herein shall prevent

respondents from acting collec-

tively to further legitimate

business decisionmaking with

respect to businesses, including

retail stores, which said respon-

dents own collectively.

2. Coercing or intimidating

any supplier in any manner to

prevent such supplier from com-

peting for the sale of any pro-

ducts to any retailer or any

other person, partnership or cor-

poration.

80a

3. Representing directly or

indirectly or implying to any

supplier that the supplier may

not compete for the sale of any

, products to any other person,

partnership or corporation.

4. Taking any individual

action to eliminate a supplier or

to prevent or hinder the

supplier's sales to or business

dealings with any other person,

partnership or corporation because

such supplier does not appear in

shows conducted with the Gibson

Trade Show,

5S. Recommending, suggesting

or advising any retailer or any

other person, partnership or

corporation not to deal with a

supplier because such supplier

does not appear in shows con-

ducted by the Gibson Trade Show,

or because such supplier is

unwilling to meet the price,

delivery, or billing terms

demanded by respondent{s] or by

any retailer or any other person,

partnership or corporation.

II.

IT IS FURTHER ORDERED that Herbert R.

Gibson, Sr., individually and doing busi-

ness as Gibson Products Company and The

Gibson Trade Show, Belva Gibson, Herbert

R. Gibson, Jr., and Gerald Gibson, Gibson

Products Co., Inc., Gibson's, Inc.,

Gibson's Discount Centers, Inc., their

successors and assigns, officers, agents,

representatives and employees, directly

or through any corporation, subsidiary,

82a

division or other device in connection

with the purchase of merchandise, in com-

merce, as "commerce" is defined in the

Clayton Act, as amended, do forthwith

cease and desist from:

1. Receiving or accepting,

directly or indirectly, as a

buyer or acting for or in behalf

of or subject to the direct or

indirect control of a buyer, from

any seller or seller's broker

anything of value as a commission,

brokerage, or other compensation

or any allowance or discount in

lieu thereof upon any purchase

for the account of any retailer

using or licensed to use one of

respondents' trade names, in-

cluding "Gibson Discount Center."

83a

2. Assuming control of or

influencing any seller or

seller's broker to induce such

seller or seller's broker to pay

to respondentf{s]} anything of

value as a commission, brokerage,

or other compensation or any

allowance or discount in lieu

thereof upon any purchase for the

account of any retailer using or

licensed to use one of respon-

dents' trade names, including

"Gibson Discount Center".

Til.

IT IS FURTHER ORDERED that Count I of

the complaint be, and it hereby is,

dismissed.

IV.

IT IS FURTHER ORDERED that Count III

84a

of the complaint be, and it hereby is,

dismissed as to respondents Ideal Travel

Agency, Inc., Gibson Warehouse, Inc., and

Al Cohen Associates, Inc.

V.

IT IS FURTHER ORDERED that, for a

period of 10 years from the date of

service of this Order, each individual

respondent named herein shall promptly

notify the Commission of the discontinu-

ance of his or her present business or

employment and of each affiliation with a

new business or employment. Each such

notice shall include the individual

respondent's new ousiness address and a

statement of the nature of the business

or employment in which the respondent is

newly engaged as well as a description of

respondent's duties and responsibilities

in connection with the business or

85a

employment. The expiration of the notice

provision of this paragraph shall not

affect any other obligation arising under

this Order.

VI.

IT IS FURTHER ORDERED that respondents

shall notify the Commission at least

thirty (30) days prior to any proposed

change in the corporate respondents such

as dissolution, assignment, or sale

resulting in the emergence of a successor

corporation, the creation or dissolution

of which may affect compliance obliga-

tions arising out of the Order.

VII.

IT IS FURTHER ORDERED that respondents

herein shall within sixty (60) days after

service upon them of this Order file with

the Commission a report in writing

setting forth in detail the manner and

86a

form in which they have complied with

this Order.

By the Commission,

SEAL /s/Carol M. Thomas

Secretary

ISSUED: April 30, 1980

87a

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS:

Michael Pertschuk

Paul Rand Dixon

David A. Clanton

Robert Pitofsky

Patricia P. Bailey

In the Matter of )

) Docket No. 9016

HERBERT R. GIBSON, SR., )

et al. )

OPINION OF THE COMMISSION

By Clanton, Commissioner:

The complaint in this case charges

respondents with violations of Section 5

of the Federal Trade Commission Act, 15

U.S.C. 845(a) (1976), and Section 2(c) of

the Clayton Act, as amended by the

Robinson-Patman Act, 15 U.S.C. 813(c)

(1976), stemming principally from the

operation of the "Gibson Trade Show", one

part from a network of respondent family

enterprises. Individual members of the

Gibson family control corporations which

own 43 retail discount stores, known as

"Gibson Discount Centers"; a family cor-

poration also licenses 614 other stores

to operate under the Gibson name.! (ID

29). Together, the Gibson-owned and

franchised stores combine to buy many of

their products from suppliers at a

quarterly private fete in Dallas, staged

by the Gibson Family, and known as the

Gibson Trade Show. (ID 60-61).

Count I of the complaint charges

respondents with inducing the payment

from suppliers of promotional allowances

Ithe following abbreviations will be

used in this opinion.

ID - Initial Decision Finding number

ID p. - Initial Decision page number

Tr. - Transcript page number

CX - Complaint Counsel's exhibit

number

RAB - Appeal brief of Gibson, Sr.

CAB - Complaint Counsel's appeal brief

89a

in connection with the Gibson Trade Show,

which allowances were not available on a

proportionally equal basis to other

customers of these suppliers. This alle-

gation, while maintained under Section 5

of the FTC Act, is patterned after and

draws from Sections 2(d) and 2(e) of the

Clayton Act, as amended by the Robinson-

Patman Act. Count II alleges that

respondents, in violation of Section 5 of

the FTC Act, collectively boycotted

suppliers who did not grant the promo-

tional allowances charged in Count I.

Finally, Count III is a distinct allega-

tion of the payment of illegal brokerage

in violation of Section 2(c) of the

Clayton Act.

Administrative Law Judge Theodor P.

von Brand (the "ALJ") dismissed Count I,

issued an order against all respondents

90a

except Gibson's, Inc., under Count II,

and issued an order only against respon-

dent Herbert R. Gibson, Sr. under Count

III. Complaint counsel and respondents

both appeal.

Respondent's Businesses

A description of the numerous Gibson

corporate entities and the intertwining

relationship among them and Gibson family

members is set forth at length in the

initial decision and will not be repeated

here. (ID 1-117).

Briefly, the respondents are Herbert

R. Gibson, Sr., ("Gibson, Sr."), indivi-

dually and doing business as Gibson

Products Co. and The Gibson Trade Show;

his wife Belva Gibson ("Belva"); two

sons, Herbert R. Gibson, Jr. ("Gibson,

Jr.") and Gerald Gibson ("Gerald"); and

eight corporations, five of which are

9la

Gibson family controlled.2 Of the re-

maining three corporations, two negoti-

ated consent settlements in 1976, and

one, Al Cohen Associates, Inc., charged

solely in Count III, is still in the case.

Gibson, Sr. founded the retail dis-

count store chain and, until November l,

1972, directed the franchising and trade

show aspects of the family enterprise,

doing business as the Gibson Products

Company. (ID 3-4) Two other Gibson-

controlled corporations, Gibson Ware-

house, Inc., and Ideal Travel Agency,

were used by Gibson, Sr. as vehicles to

store and resell merchandise and to

— —_ — oo — — ee oe ae ee ee

2Gibsons, Inc., Gibson Discount

Centers, Inc., Ideal Travel) Agency, Inc.,

Gibson Warehouse, Inc., and Gibson

Products Co., Inc.

3Pprogressive Brokerage, Inc. and

Barshell, Inc.

92a

collect booth and show fees at The Gibson

Trade Show. (ID 14-15).

As of November 1, 1972, a reorganiza-

tion and change in operating control of

various aspects of the family business

was effected, essentially through a

transfer of stock by Gibson, Sr. and his

wife to a corporation, Gibson's, Inc.,

all of whose shares were owned by two of

their sons, Herbert R. Gibson, Jr. and

Gerald Gibson. This corporation now owns

and operates the franchising and retail

aspects of the family business. Gibson,

Sr. retained the trade show business and,

having sold the Gibson Products Company

name to Gibson, Jr. (ID 16, 25), he

registered the name, "The Gibson Trade

Show", on November 1, 1972. (ID 26).

The Gibson Trade Show, upon which much

of this case turns, is a private trade

93a

show where manufacturers display their

products to buyers for Gibson owned and

franchised stores. (ID 59-61). The show

provides the booth space from which the

suppliers’ representatives can show their

wares and attempt to obtain orders.

Gibson, Sr. employs "merchandise

managers" or "trade show buyers" to

operate the show. These buyers recruit

the partic‘pation of manufacturers to

sell at the show. (ID 78). Buyers

discuss product lines, billing terms and

prices with suppliers, negotiating to get

the best deal on the products to be

shown. Upon the satisfactory conclusion

of negotiations, a buyer fills in a "show

sheet" with the price and terms for each

product. These sheets, which are the

exclusive order forms used at the shows

(ID 90), are headlined "Ship To Gibson

94a

Products Company", followed by blank

lines for the address of a particular

store. (ID 91). They contain a notation

that items are not to be shipped at

prices higher than those listed or else

a deduction will be taken. (ID 93).

The trade show buyers patrol the aisles

and booths during the show, talking to

suppliers' and retailers' representa-

tives.4

41n addition to the provision of booth

space, the trade show provides meeting

facilities and other services, including

the opportunity for placement of "blanket

orders," recommendations sent to Gibson

— to purchase particular items. (ID

98).

Suppliers are also solicited to adver-

tise in Gibson tabloids, which are used

by Gibson retailers as newspaper supple-

ments or which are mailed out or posted

in stores (ID 105). Participating stores

purchase the “inished tabloids from one

of the Gibson family corporations; the

tabloids are prepared and “chagris by G&G

Advertising, a proprietorship run by

(footnote continued on next page)

9Sa

Payments made by suppliers, and alle-

gedly illegally induced by respondents,

in connection with the trade show in-

cluded the following, for each year from

1969 through 1972: (1) payment for booth

rental, in an amount which was identical

for all suppliers; (2) payment for ser-

vices in connection with booth rental

including, but not limited to electrical

contractor services and furnishings; (3)

payment for provision of personnel to

prepare and attend the booth throughout

the time The Gibson Trade Show was open;

(4) payment for advertising in a Gibson

ee ee me em me re re rm ee ee ree rm re rene ee ree ee ee ee ee ae ee ee ee ee

(footnote 4 continued)

Gerald Gibson. (ID 107). Also, Gibson,

Sr. at times sends letters to suppliers

requesting that they advertise in par-

ticular tabloids. (ID 113-115). If an

item is to be advertised in a tabloid,

there is a sign on its suppliers' booth

at The Gibson Trade Show which states

"Recommended tab item",

96a

tabloid; (5) special trade show prices on

one or more of the suppliers’ products

offered for sale at The Gibson Trade Show;

(6) special billing terms on all sales

made at the trade show; (7) special allow-

ances on sales made at the trade show

calculated from a previously negotiated

percentage of all such sales (the so-

called "show fee").

The principal family business, from at

least 1969 to November, 1972, from

November, 1972 to the date the complaint

issued in 1975, and to the present, was

the ownership and operation of Gibson

retail discount stores and the fran-

chising of those stores. Both before and

after the November, 1972 transfer, the

franchise agreements promised the fran-

chisee the benefit of Gibson volume pur-

chasing and the advice on merchandise,

but reserved to the franchisor the right

97a

to order the discontinuance of an item or

service if the quality was disapproved.

Participation in the Gibson Trade Show

is a standard vehicle for manufacturers

wishing to sell to Gibson retail stores.

Few other retailers stage private trade

shows, however, and accordingly, the

complaint charges that the myriad

payments made to the Gibson enterprises

were not matched by similar payments or

terms to the suppliers’ other customers,

No additional facts are pertinent to

Count I of the complaint; additional

information needed to dispose of Counts

II and III is set forth infra,

Count I

Count I of the complaint largely

tracks the language of the Clayton Act

98a

§§2(d) and 2(e)5, as amended, and alleges

that the Gibson family and corporate

_—— _—_— -——< —_—— ero nw er

SSection 2(d), 15 U.S.C. $13(d) (1976),

provides:

"That is shall be unlawful for any

person engaged in commerce to pay or

contract for the payment of anything

of value to or for the benefit of a

customer of such person in the course

of such commerce as compensation or in

consideration for any services or

facilities furnished by or through

such customer in connection with the

ag pigs handling, sale or offering

or sale of any products or com-

modities manufactured, sold, or

offered for sale by such person,

unless such payment or consideration

is available on proportionally equal

terms to all other customers competing

in the distribution of such products

or commodities."

Section 2(e), 15 U.S.C. $13(e) (1976),

provides:

"That it shall be unlawful for any

person to discriminate in favor of one

"abe or purchasers of a commodity

ought for resale, with or without

beige iad J by contracting to furnish

or furnishing of, any services or

facilities connected with the pro-

cessing, handling, sale, or offering

(footnote continued on next page)

99a

respondents knowingly induced and/or

received promotional payments and ser-

vices in connection with the sale of pro-

ducts to Gibson owned and franchised

stores in violation of Section 5 of the

FTC Act.© The seven types of allegedly

illegal allowances are those set forth

supra.

The ALJ found that the variety of fees

and special terms given by manufacturers

to respondents were not within the purview

——_—— ee ee ee ee ee ee ee ee re ee ee

(footnote 5 continued)

for sale of such commodity so

purchased upon terms not accorded to

all purchasers on proportionally equal

terms."

6Although buyer misconduct is not a

violation of Sections 2(d) and 2(e), this

omission appears to be only a matter of

congressional inadvertence. See Grand

Union Co. v. FTC, 300 F.2d 92, 96 (2d

Cir. 1962). Nevertheless, such miscon-

duct is cognizable under Section 5 of the

FTC Act. R. H. Macy §& Co. v. FTC, 326

F.2d 445 (2d Cir. 1964).

100a

of Sections 2(d) and 2(e), because they

were in connection with original sale of a

product, rather than in connection with

its resale.’ In his view, the allega-

tions of Count I should have been brought

under Section 2(a) for price discrimina-

tion. Complaint counsel, relying prin-

—_——— ee a ew eee -—-—_----

1974), which was distinguished by the

ALJ, appeal.8

7The ALJ found that the solicitation

of fees for tabloid advertising was

within the purview of Section 2(d). (ID

184). However, he held that complaint

counsel had not sustained their burden of

showing contemporaneous sales with

respect to the items promoted in the

tabloids (ID 189), and complaint counsel

did not appeal from this holding.

8complaint counsel have appealed from

other holdings of the ALJ on this count

of the complaint, but in light of our

disposition of this threshold question,

we do not reach these other issues.

10la

Two features differentiate Sections

2(d) and 2(e) from the provisions of

Section 2(a). The first is that the

seller must either provide "services or

facilities" or make payment in consider-

ation of "services or facilities fur-

nished by or through {the} customer." It

has been held that the service or payment

at issue must be promotional in nature,

such as for advertising. See, P. Loril-

lard Co. v. FIC, 267 F.2d 439, 443 (3d

Cir.), cert. denied, 361 U.S. 923 (1959).

The second is that the payment made or

service rendered must be in connection

with the "processing, handling, sale, or

offering for sale" of a product by the

customer, i.e., it must bear a nexus to

the resale or preparation for resale by

the retailer. See, Rutledge v, Electric

Hose & Rubber Co., 511 F.2d 668, 678

102a

(9th Cir. 1975). If these conditions can

be met, the plaintiff may take advantage

of Sections 2(d) and 2(e), which carry an

easier standard of proof than does

Section 2(a). Under Section 2(a), price

discrimination is lawful, unless it may

susbstantially lessen or injure com-

petition and, inter alia, it is neither

cost- justified, nor undertaken to meet

competition. Sections 2(d) and 2(e)

require no showing of competitive effect,

nor do they allow resort to Section 2(a)

statutory defenses, save perhaps the

"meeting competition" defense. See E.

Kintner, A Robinson-Patman Primer 270-72

(2d ed. 1979); Exquisite Form Brassiere,

Inc., v. FTC, 301 F.2d 499 (D.C. Cir.

1961), cert. denied, 369 U.S. 888 (1962);

but see Henry Rosenfeld, Inc., 52 F.T.C.

1535 (1956). Thus, Sections 2(d) and

103a

2(e) "create a legal premium for the FTC

or other plaintiffs to ease their evi-

dentiary burdens." F. Rowe, Price

Discrimination Under the Robinson-Patman

Act 372 (1964).

The traditional use of Sections 2(d)

and 2(e) has been in the realm of cooper-

ative promotional arrangements. See,

FTC _v. Fred Meyer, Inc., 390.U.S. 341

(1968). In the classic Section 2(d) and

2(e) case, a manufacturer has compensated

a high volume retailer via a discrimina-

tory plan, sometimes in an amount far in

excess of that retailer's actual promo-

tional costs, and in so doing has utilized

a scheme not realistically available to

small retailers. In addition, the manu-

facturer often rebates a "promotional

allowance" to a retailer in an amount

tied to the number of units resold by the

104a

retailer to the public, but not linked to

the retailer's actual promotional expen-

ditures. Plainly, such a transaction is

in connection with a resale and within

the ambit of Sections 2(d) and 2(e).

Similarly, making employees available or

arranging with a third party to furnish

personnel for purposes of performing work

for a customer would also come within

Sections 2(d) and 2(e). FTC Guides for

Advertising Allowances and Other Merchan-

dising Payments and Services, 16 C.F.R.

§240.7, example 6 (1980).

Because of the easier threshold of

proof carved out for Sections 2(d) and

2(e), the Commission and the courts have

an obligation to ensure that the juris-

dictional prerequisites of those sections

are reasonably, and not expansively, con-

strued. Accordingly, we will generally

105a

find that Sections 2(d) and 2(e) apply to

cooperative promotional arrangements.

See Rowe, supra at 381 ("{TJhe legal cri-

teria of Sections 2(d) and 2(e), unless

confined to the sphere of cooperative

promotional arrangements, would cut across

and confound the legal requirements of

the separate price and brokerage provi-

sions of the Act.")

The legislative history of Sections

2(d) and 2(e) evidences the relatively

narrow scope that Congress intended these

specific provisions to have. For example,

Representative Utterback, Chairman of the

Senate-House Conferees, stated that:

"The existing evil at which this

part of the bill is aimed is, of

course, the grant of discrimina-

tions under the guise of payments

for advertising and promotional

services which, whether or not the

services are actually rendered as

agreed, results in an advantage to

106a

the customer so favored as com-

ared with others who have to

ear the cost of such services

themselves."" 80 Cong. Rec. 9418

(1936).

And the Senate and House Judiciary Com-

mittee Reports also focus on "special

allowances in purported payment of adver-

tising and other sales promotional ser-

vices, which the customer agrees to render

with reference to the seller's products,

or sometimes with reference to his busi-

ness generally." S. Rep. No. 1502, 74th

Cong., 2d Sess. 7 (1936); H.R. Rep. No.

2287, 74th Cong., 2d Sess. 15-16 (1936).

In keeping with this narrow scope

courts have not hesitated to reject

claims under Sections 2(d) and 2(e) which

more properly should be brought under

Section 2(a). Variations in credit terms

107a

have consistently been held to present

only a Section 2(a) issue, and courts

have refused to allow such claims to be

maintained under Sections 2(d) and 2(e).

See, e.g., Robbins Flooring, Inc. Vv.

Federal Floors, Inc,., 445 F Sup. 4, 8

(B.D. Pa. 1977); Glowacki v. Borden, Inc.,

429 F. Supp. 348, 353 (N.D. Ill. 1976).

Likewise, discriminatory freight allowances

have been held to be in connection with

delivery on the original sale and as such

within Section 2(a) rather than Sections

2(d) or 2(e), see Chigaco Spring Products

F.2d 428 (7th Cir. 1966), and other so-

called delivery allowances have been held

not to be in connection with resale and

so to state a Section 2(a) rather than a

Section 2(d) claim, Glowacki, supra at

358-59.

108a

Furthermore, courts have recognized

that the purpose of Sections 2(d) and

2(e) is to strengthen Section 2(a) by pro-

hibiting outright hard-to-detect, dis-

guised discrimination in the form of

promotional allowances, thus forcing most

discrimination into the open area of

price allowances or discounts, where it

can be measured and adjudicated under

Section 2(a). FTC _v. Simplicity Pattern

light of its salutary, but narrow, statu-

tory purpose, the courts have, albeit not

unanimously, resisted expanding the "scope

of Sections 2(d) and 2(e) beyond the

limited area of applicability intended by

v. General Motors Corp., 380 F. Supp.

109a

Corp., 233 F.2d 762 (Sth Cir. 1956); New

Amsterdam Cheese Corp. v. Kraftco Corp.,

363 F. Supp. 135 (S.D.N.Y. 1973); David

R. McGeorge Car Co., Inc. v. Leyland

Motor Sales, Inc., 504 F.2d 52 (4th Cir.

1974), cert. denied, 420 U.S. 992 (1975).

There is some authority, however, for

expanding the scope of Section 2(e).

Centex-Winston Corp. v. Edward Hines

Lumber Co., 447 F.2d 585 (7th Cir. 1971),

cert. denied, 405 U.S. 921 (1972), cited

by complaint counsel, held that preferen-

tial differences in the timeliness of

delivery were within the purview of

Section 2(e) because consistently faster

deliveries would ultimately promote and

facilitate resale. The very limited

acceptance of this decision, see Glowacki

v. Borden, supra at 356; Harlem River

Consumers Cooperative, Inc. v. Associated

110a

Grocers of Harlem, Inc., 371 F Supp. 701,

Cir. 1974) (dicta); Palmer News, Inc. v.

ARA Services, Inc., 476 F. Supp. 1176,

1183 (D. Kan. 1979) (dicta), is outweighed

by the strenuous criticism of its expan-

sive view, see Rowe, Pricing and the

Robinson-Patman Act, 41 Antitrust L.J.

98, 108-09 (1972); Cecil Corley Motor Co.,

Inc., supra at 851-852, and other courts

have either rejected, id.; Buchannan v.

Cas. (CCH) 61,245 at 70,728-29 (D. Ore.

1976), or distinguished the decision,

David R. McGeorge Car Co., supra at 55;

Purdy Mobile Homes, Inc. v. Champion Home

Builders Co., 594 F.2d 1313, 1317-18 (9th

Cir. 1979). Indeed, it is not entirely

clear whether the Seventh Circuit continues

to hold firmly to its Centex-Winston

Corp., £1980} 5 Trade Reg. Rep. (CCH)

63,229 at 78,126-27 (7th Cir. March 17,

In Kirby, which dealt with advertising

allowances, the court reaffirmed the

accepted distinction between payments

and services in connection with the

original sale, which are challengeable

only under Section 2(a), and those with a

connection to the resale, which are

cognizable under Sections 2(d) or 2(e).

The court then concluded:

"In view of the strict standards

of 88 2(d) and 2(e), which focus

on resale, it appears quite clear

that Congress carefully con-

sidered the deficiency in the

original law proscribing price

112a

discrimination in the supplier-

customer sale and drafted 882(d)

and 2(e) to apply exclusively to

promotional discriminations like

those alleged in this case." 489

F.2d at 910-11

Whatever vitality remains in the Centex-

~_-_——-— Soo

Winston decision, it does not contravene

the general standards which we bring to

bear upon the facts of this case,

Against this legal background, we

approach our earlier decision in Alterman

Foods, Inc., supra. Unlike the ALJ, we

are unable to discern a principled basis

upon which to distinguish that case from

the one at bar. In a factual setting

quite similar to the instant case, Alter-

man held that discriminatory payments to

a private trade show were, in fact,

unlawful promotional allowances under

Sections 2(d) and 2(e) of the Clayton

Act. In finding that the Alterman food

ll3a

show had induced suppliers to violate

Sections 2(d) and 2(e), the Commission

relied upon two kinds of benefits which

had accrued to the Alterman retail opera-

tion. These benefits were described as

"Cdjirect in the sense that profits from

booth rentals enhanced the financial

position of the respondent, and indirect

in the sense that the suppliers' booths,

displays and demonstrations at the food

show were intended to aid in and promote

the product's resale to the consuming

public." 82 F.T.C. at 343.

After careful reexamination of our

decision in Alterman, we conclude that

its reasoning is flawed and, henceforth,

we decline to follow it. Specifically,

we do not judge the "benefits" recited in

Alterman, which are relied upon by com-

plaint counsel, to be sufficiently related

ll4a

to the promotional allowance and resale

requirements of Sections 2(d) and 2(e) to

trigger application of those provisions.

Undoubtedly, the products purchased by

Gibson retail buyers from manufacturers

at the trade show were intended for resale

to the ultimate consumer. But this fact

standing alone is insufficient to trans-

form what is plainly the original sale

into one that is in connection with

resale. To the extent that Gibson enti-

ties received booth rentals and Gibson

buyers received price concessions not

available to the competing customers, an

action may lie under Section 2(a). But

to focus on the translation of these

"direct benefits" down to the next level

of competition, i.e., to rely on finan-

cial strength of the company, enabling

Gibson retailers to undercut competitors

15a

on subsequent resales, is to misapply the

statute.9 "Benefits" of this sort are

inherent in any transaction in which goods

are ultimately destined for resale, and

opening up Sections 2(d) and 2(e) to

practices that Congress intended to be

challenged solely under Section 2(a).10

90f course, an examination of such

direct benefits ab initio may be neces-

sary to determine whether there has been

discrimination among competing customers.

See Kintner, supra at 254. But even if

we assume for purposes of this discussion

that all seven categories of alleged dis-

criminatory payments, including the show

fees, inured somehow to the benefit of

the Gibson retailers, that does not auto-

matically bring such payments within the

purview of Sections ota) or 2(e).

Although it is not entirely clear, it

both the discrimination and resale

issues.

100ur holding is not inconsistent with

R. H. Macy §& Co. v. FTC, 326 F.2d 445 (2d

Cir 1964), in which Macy's solicited

(footnote continued on next page)

116a

As to the “indirect benefits" iden-

tified in Alterman, we believe they play

a role too incidental in the overall

transaction here to warrant applications

of Sections 2(d) and 2(e). In general,

marketing assistance, if discriminatorily

granted, does run afoul of Sections 2(d)

———e— 6 eee Oe 8 et Ee et te eee ee

(footnote 10 continued)

vendors to contribute $1,000 apiece to

help defray advertising and promotional

costs of its 100th anniversary celebra-

tion. While Complaint counsel would read

Macy as proscribing the receipt of pay-

ments as "general revenue", in fact the

court specifically found that Macy's used

the contributions for advertising

purposes:

"Macy's used the payments for

institutional advertising and

promotions to get more people

into its stores to buy the goods

of all its vendors. The payments

by the contributing vendors were

thus in consideration for ser-

vices or facilities furnished by

Macy's in connection with the

offering for sale of the vendor's

goods." Id, at 450.

117a

and 2(e). But in the present case, it is

clear that the principal function of the

trade show was to funnel a high volume of

products from manufacturers to partici-

pating retailers at a discount price, and

not to provide promotional assistance.

While various suppliers may have laid out

their merchandise and demonstrated their

products as complaint counsel contend

(CAB 22), and while suppliers may even

have discussed selling techniques with

would-be buyers, plainly the suppliers’

principal purpose in engaging these acts

was to induce retail store buyers to make

the original purchases, not to provide

marketing or promotional assistance to

them.11 Moreover, no real showing has

been made that retailers received

l1l[In Elizabeth Arden, Inc. v. FTC, 156

F.2d 132 (2d Cir. 1946), cert. denied,

(footnote continued on next page)

"services or facilities" furnished or

underwritten by suppliers beyond comple-

tion of the original sale. We do not

mean to suggest that trade shows are free

of the constraints of Sections 2(d) and

2(e) insofar as they facilitate promotion

upon resale, but rather we will look

realistically at transactions as a whole

before deciding to apply Sections 2(d)

and 2(e), the narrower statutory provi-

sions, instead of Section 2(a). In this

case, the sundry fees paid by suppliers

at the trade show were, at bottom, little

———— 2 6 88 8 ee 8 6 eee Oe 8 ee Re eet Oe ee ee eee ee

(footnote 11 continued)

331 U.S. 806 (1947); and Exquisite Form

Brassiere, Inc. v. FTC. 301 F.2d 499

(D.C. Cir. 1961), cert. denied, 369 U.S,

888 (1962), for examplé; fanufacturers'

employees were utilized to demonstrate

product use to customers at retail out-

lets. The marketing assistance in the

instant case, by contrast, was no more

than a tangential element of the transac-

tion.

119a

more than reductions in price necessary

to induce Gibson retailers to make the

original purchase of the products,

We believe this result comports most

closely with the intent of Congress and

meaning of the statute. Accordingly,

Count I, which rests on too expansive an

interpretation of the jurisdictional

requisites of Sections 2(d) and 2(e) of

the Clayton Act, is dismissed.

Count II

Few manufacturers could resist the

subtle persuasion of Herbert R. Gibson,

Sr. to participate in the Gibson Trade

Show. And, indeed, as Gibson, Sr. would

point out, matters had been arranged so

that the Gibson Trade Show was a very

important vehicle for selling to Gibson

retail stores. The trade show afforded

suppliers a unique opportunity to exhibit

their wares to a multitude of Gibson

120a

retail stores at once. On occasion,

however, Gibson, Sr. and would-be trade

show participants, such as Toastmaster

Division of McGraw Edison Company, would

have a disagreement over the sundry fees

to be paid by the exhibitor.

Toastmaster had participated in Gibson

trade shows from 1966 to 1970, but in

1970 was unable to agree with Gibson

buyers on terms for its future participa-

tion. (ID 379, 384-86). On January 22,

1971, a letter was sent out to "All

Stores" by two buyers from the Gibson

Products Company, Tommy Perkins and Bobby

Regeon, concerning Toastmaster, (CX 104).

It read:

"The above company will sell us

at a price we would recommend as

being profitable and beneficial

for your operation. We, there-

fore, no longer recommend or

I2la

authorize this line, and suggest

that you discontinue the same.

Please give this your attention,

and we appreciate your continued

co-operation."

Similar letters, signed by Tommy

Perkins, were sent out on March 11, 1971

and March 30, 1971 concerning Tucker

Manufacturing Co. and Jeannette Glass

Co., respectively. (CX 303, CX 136).

There was evidence as well of other

direct and indirect communications to

Gibson-owned and franchised stores

suggesting they not purchase from

designated suppliers.

Toastmaster sales to Gibson-owned and

franchised stores, which had amounted to

$953,656 in 1970, plummetted to $269,778

in 1971. (ID 390). Tucker and Jeannette

sales also fell sharply following the

Perkins letters. (ID 398-99, 408).

122a

Despite efforts by Toastmaster repre-

sentatives to sell directly to individual

Gibson franchised stores, sales remained

depressed for two additional years. In

1974, Toastmaster met with Gibson, Sr.'s

terms for participation in the trade

show, and its sales to Gibson stores went

up. (ID 392).

The ALJ found that the Gibson family

respondents and the Gibson corporate

respondents, in combination with some or

all of the Gibson family owned stores and

Gibson franchised stores, had maintained

an illegal boycott of suppliers who would

not grant the special allowances demanded

on sales during or incident to the trade

show. He found that respondents had

induced Gibson franchised stores to stop

buying from specified suppliers in order

to coerce those suppliers into paying

123a

increased show fees to Gibson, Sr. for

participation in the trade show, All

Gibson family respondents were placed

under order, as they were officers and

directors of Gibson Products Company (ID

9), the name under which the trade show

operated until November 1, 1972.12 The

order also binds all Gibson corporate

respondents, save Gibson's, Inc., which

was not in existence when the boycott

began. Inclusion of these respondents

was premised on the ALJ's finding of

mutual interdependence and integrated

operation among all Gibson corporate and

family respondents.

-_— eee ee em

12pelva Gibson appeals from inclusion

in the boycott finding and order,

fag - she did not actively righ erga

in the boycott. In light of the fact

that Belva Gibson was an officer and

director of the Gibson corporate respon-

dents, except for Gibsons, Inc., we find

ore she was properly included in the

order.

"+e eee 8 re eee ee ee eee

24a

Respondents appeal, contending that

the evidence is insufficient to sustain a

finding that there was a boycott.

Respondents argue that there is no evi-

dence that specific retailers ceased

buying Toastmaster products because of

the January 22, 1971 letter; that it was

improper for the ALJ to find a drop in

Toastmaster sales from 1970 to 1971; and,

finally, that it was improper for the ALJ

to infer a boycott from the drop in sales,

Complaint counsel appeal from the ALJ's

refusal to include Gibson's, Inc. in the

order. For the reasons discussed below,

we agree with complaint counsel.

Group boycotts generally are per se

violations of the antitrust laws,

"fCjJertain ayreements or practices ...

because of the pernicious effect on com-

petition and lack of any redeeming virtue

125a

are conclusively presumed to be unreason-

able and therefore illegal ... {GJroup

boycotts are of this character." United

146 (1966).15

The rule of per se illegality has been

applied to three types of group boycotts:

(1) horizontal combinations of traders at

eee ee me ee ee ca RE Ee ce EE EE SE Ee ee Ee EE cee ee eee ee

l13We are not unaware of decisions

ro the rule of reason to conduct

that was alleged to be a "boycott", see,

C.2e» wag B. Seagram § Sons, Inc. v.

Hawaiian Oke 4 Liquors, Ltd., 416 F.2d 71

(9th Cir. 1969), cert. denied, 396 U.S.

1062 (1970). But the considerable dif-

ferences between the conduct in those

cases and conduct traditionally proscribed

under a per se standard suggests that

there may be no real inconsistency in

approach. See Sullivan, Handbook of the

Law of Antitrust 256-59 (1977). In any

event, the facts of the instant case fall

well within existing per se decisional

law, and hence we have no occasion to

explore the precise dividing line between

per se illegal boycotts and arrangements

hat Should be examined under the rule of

reason. See generally St. Paul Fire §

126a

one level of distribution, the purpose of

which is to exclude direct competitors

from the market; (2) vertical combina-

tions of traders at different marketing

levels, the purpose of which is to exclude

competitors of some members of the com-

bination; and (3) combinations "designed

to influence coercively the trade prac-

tices of boycott victims, rather than to

1109 (1973). See also United States v.

127a

The conduct at issue here plainly

falls within the third category noted

above. The boycott victims all refused

to pay or increase the percentage paid to

Gibson, Sr. as a show fee for participa-

tion in the Gibson Trade Show. In order

to induce these firms to pay the demanded

amount, Gibson Products Co. requested

Gibson owned and franchised stores to

stop buying their’ products, thus denying

them access to the Gibson market. This

action manifests both exclusionary and

coercive conduct, thereby exhibiting

rather clear anticompetitive effects.

And respondents' utilization of their

status as franchisor to Gibson stores for

the purpose of coercing firms to par-

ticipate in the trade shows at a price

they were unwilling or unable to pay

admits of no redeeming virtue.

128a

Respondents' appeal, premised almost

exclusively on factual grounds, is un-

persuasive. The letters to Gibson stores

were plainly invitations to boycott.1!4

On their face, these letters went sig-

nificantly further than the communications

in Eastern States Retail Lumber Dealers’

600 (1914), the circulation of which was

to be a violation of §1 of the Sherman

Act. The EBastern States letters contained

no request to refrain from dealing, but

merely set out the names and addresses

ee ee ee ee ee EE EE EE Ee ee ae ee ee SE ae ee ee

14The ALJ found that respondents’

testimony that the letter regarding

Toastmaster was sent out only to those

stores which had already complained about

Toastmaster products was not credible,

and we agree. The record compels the

finding that "All Stores" meant just

that, and that the letter was received,

or intended to be received, by all stores

operating under the Gibson name, both

franchised and family-owned.

129a

of wholesalers who also sold at retail.

The Supreme Court found, in light of the

record in that case, that the circulation

of such information had the "natural

effect of causing such retailers to with-

hold their patronage from the concern

listed." 234 U.S. at 609. And the let-

ters in this case contained the very

suggestion of incitement and mutual

action that was found lacking in the case

relied upon by respondents, Modern Home

Institute v. Hartford Accident 4 Indemnity

Co., 513 F.2d 102, 112 (2d Cir. 1975).

Neither does the fact that there was

no express mutual agreement to boycott

vitiate the finding of a collective

refusal to deal. See Eastern States,

supra at 608-609. It is sufficient that

knowing concerted action was contemplated

and invited, the stores adhered to the

LEDS BDLEELL LL LL L L G

130a

request.15 Interstate > Circuit, Inc. v.

United States, 306 U.S. 208, 226 (1939);

——<-— «eo ee

FTC v. Cement Institute, 333 U.S. 683,

-————— oo Oe oe ee eee eee ee

716 n.17 (1948). All stores which

received the letter are chargeable with

knowledge that concerted action was at

“_—_— <n 7 ee Oe ee

cuit, supra at ai lind and it is evident

from sales data and corroborative testi-

mony that a very substantial number of

stores did participate in the scheme.

827 4m ee PLL MN Nt lt ell

1SThe fact that the letters were sent

out on Gibson Products Company stationery,

the name under which Gibson, Sr. granted

the stores their franchises, itself

suggests the presence of considerable

inducement to the franchisees to comply.

Roy Love, a franchisee in Oklahoma City,

clearly had this is mind when he told

Toastmaster's representative, after

receiving his copy of the letter, that

"if he wanted to keep his sign out in

front of his store, saying 'Gibson's', he

had to go by what Seagoville {Gibson

management] ordered or told him to do."

(Tr. 3466)

I3la

Each of the four documents in this

exhibit contains two charts. The first

is labeled "Monthly Dollars", the second

"Cumulative Dollars". On both charts

each row is labeled with a month and

each of the first eleven columns is

labeled with a product. The twelfth

column is labeled "other appliances" and

the last column is labeled "total". It

is equally clear that each figure in the

"Total" column of the Cumulative Dollars

chart represents the cumulative total of

all products sold in the preceeding

months. Consequently, the last figure in

the "Total" column of the chart repre-

sents the sale of all products through

December, or the total for that year.

Respondents have advances no alternative

interpretation of this figure, and

indeed, the chart will support none. We

132a

thus find respondents’ argument in this

respect to be utterly without merit.

Respondents, citing the general rule

against admissibility of hearsay, also

object to reliance on testimony and memo-

randa by Toastmaster representatives who

recalled being told by Gibson franchisees

that, essentially, they were under boycott.

(See Tr. 3464-66, CX 106A). Hearsay cvi-

dence is admissible, however, in FTC

adjudicative proceedings, provided that

it meets the standard set out in our Rules

of Practice §3.43(b), viz., that it ke

"relevant, material, and reliable." Resort

——_—— _——— ee -——— ——— rm.

827 (1975). In this case, the proffered

evidence is consistent with and corrobora-

tive of other facts in the record. While

we would attach less weight to hearsay

133a

evidence standing alone, under the cir-

cumstances presented here we see no

reason to exclude it or ignore it.

Respondents' final argument is that

even if Toastmaster sales to Gibson

stores did drop, the decline was more

likely attributable to factors other than

the boycott, viz., dissatisfaction with

Toastmaster products, an asserted pre-

ference by Toastmaster's representatives

to sell to distributors instead of

directly to retailers, and Toastmaster's

lack of access to Gibson retailers

because of its non-participation in the

Gibson Trade Show, 16

l6Respondents Gibson, Jr. and Gerald

also contend that retail stores in which

they were financialiy interested did not

participate in the boycott. These respon-

dents have offered little evidence to

rebut this respect, however. In any

event, since responsibility for sending

(footnote continued on next page)

134a

We agree that an inference of conspiracy

should not be drawn where other inferences

Bank of Arizona _v. Cities Service Co.,

391 U.S. 253, 280 (1968), but respondents

Clearly fail to make this showing.

Although respondents offered testimony

on complaints received about Toastmaster's

shipping policies at Christmas time (Tr.

6639), there was no evidence that any

store stopped buying Toastmaster goods

due to these problems, nor did the wit-

nesses themselves suggest that this was

the case. Furthermore, respondents' claim

that dissatisfaction with Toastmaster's

warranty program contributed to the

-“~<—— mn eee me en re em em er nm nr nr eee

(footnote 16 continued)

the boycott invitations may be attributed

to these respondents, the question of

their stores' acceptance of their invita-

tions is essentially immaterial.

135a

decline in sales is supported only by the

testimony of one witness, who stated that

such dissatisfaction caused him to

discontinue the Toastmaster Line sometime

in the mid-1960's. (Tr. 7893-94). No

evidence is offered that this caused any

store to discontinue buying Toastmaster

goods in 1970-1971. The additional claim

that Toastmaster's failure to live up to

its commitments caused the decline is

supported only by testimony from the wit-

ness who claimed he stopped buying this

line of goods during a period of time

when he was not working for any Gibson

discount store but for another store

altogether (Tr. 7938-39). All of this

evidence fails to establish that any

Gibson store stopped buying Toastmaster

products in the relevant period for any

of the suggested reasons.

136a

The second explanation offered, that

Toastmaster's representative preferred

selling to distributors, and that he did

not want to increase his sales to Gibson

stores (Tr. 3507-08), also fails to find

support in the record. No evidence was

offered to establish a decision on that

representative's part to stop selling to

Gibson stores. Nor could it be inferred

that because he did not wish to increase

sales that he, therefore, wished to

decrease them. By contrast, his own

testimony indicates that he continued to

try to sell to individual Gibson stores,

even after the January 22, 1971 letter.

(Tr. 3464-65).

The last alternative explanation, which

cites Toastmaster's non-participation in

the trade show as the cause of its

decline in sales, is rather ironic, since

137a

it was Toastmaster's refusal to accept

Gibson, Sr.'s demand for increased trade

show participation fees which led to its

being blacklisted in the first place.

Even if we were to dignify this argument

by full consideration of it, however, we

would have to conclude that it is not

adequately supported by the record.

Respondents proffered no direct evidence

of the impact, in the absence of a boy-

cott, that non-participation in the trade

show would have on a firm's ability to

sell directly to individual Gibson

stores. Without any indication of the

magnitude of this impact, we cannot infer

that non-participation in the trade show

alone could have caused such a sharp drop

in Toastmaster sales in 1971.

Respondents have failed to establish

the existence of legitimate business

138a

reasons on the part of Gibson retailers,

wholly distinct from their receipt of the

boycott letter, which would account for

the sharp drop in Toastmaster sales. Cf.,

439 U.S. 970 (1978). Neither are we per-

suaded that this drop in Toastmaster

sales was "mere chance." Interstate Cir-

cuit, supra at 223. Respondents' actions

and their consequences ‘cannot be explained

by alternate inferences that can be drawn

from the record, and in light of the spe-

cific invitation to boycott and the sub-

sequent evidence as to the effects of the

invitation, we find that respondents have

violated Section 5 of the FTC Act by en-

gaging in an unfair method of competition,

139a

viz., a group boycott.1!7 We find further

that, despite a modest rebound in Toast-

master sales to individual Gibson stores

in 1972 and 1973, this boycott plainly

continued until at least 1974 when Toast-

master capitulated to the demands of

Gibson, Sr.'s representatives for higher

fees for participation in the Gibson

Trade Show. (ID 392). We note also that

Respondents have offered no evidence to

show that the boycott was discontinued

prior to 1974.

The ALJ, E£inding that the individual

and corporate Gibson respondents comprised

a single entity, issued an order on this

count of the complaint binding all of then,

ee ee ee ee Ee ee mee ee ee ee

17 Indeed, under these circumstances an

invitation to boycott, irrespective of its

actual effects, might violate Section 5

if the soliciting wag has a reasonable

expectation that the invitation will be

accepted and acted upon.

140a

save Gibson's, Inc. Without necessarily

agreeing that there was complete unanimity

of interest among all respondents under

the pre-November 1, 1972 organizational

structure of the Gibson family business,

we conclude that the ALJ was correct in

placing all such respondents under order.

First, substantial commonality of

interest was demonstrated, especially in

the pre-November 1, 1972, environment.

The ALJ found that all individual respon-

dents, including Gibson, Jr. and Gerald,

were officers of Gibson Products Company,

the franchisor corporation, with authority

broad enough to include knowledge and

approval of the dissemination of the

boycott letters. Inclusion of the cor-

porate respondents was correctly premised

on the ALJ's finding of their mutual inter-

dependence and on the interdependence

I4la

among the corporate and individual

respondents collectively. It is not

necessary for this purpose to determine,

as the ALJ did, that all respondents were

part of a single enterprise in the pre-

November 1, 1972 period.

Second, respondents' operations are

sufficiently integrated that an order

embracing all of them is necessary to

insure the effectiveness of the relief

we have directed. Some fencing in to

prevent circumvention of Commission

orders is appropriate and lawful, see

ae ae er ee ee eee ae ae are

Cir. 1964), and where, as here, it has

been shown that respondents' operations

142a

are closely integrated, it is probably

indispensable. 18

————— ee 6 ee He eee eee ere re ee ere ee

18Respondents object also to the entry

of an order against the lot of them pre-

cisely because they are so closely inter-

woven, on the ground that corporations

cannot conspire with their own sub-

sidiaries, affiliates, or officers.

Knutson v. Daily Review, Inc., 383 F.

Supp. 1346 (N.D. Cal. 1974), modified,

401 F. Supp. 1374 (N.D. Cal. 1975), -~

modified, 548 F.2d 795 (9th Cir. 1976),

cert. denied, 433 U.S. 910 (1977). It is

contended, for example, that Gibson, Sr.,

and his wife could not have conspired

with the corporate respondents because

they owned a controlling interest in each.

Without cide the permutations of

who amongst the Gibson corporate and

family respondents could be held to have

conspired with whom, we. simply note that

concerted action between related cor-

porations which has the purpose of effect

of unreasonably restraining the trade of

unrelated third parties is highly suspect

under the intra-enterprise conspiracy

doctrine. See, e.g., American Bar

Association, Antitrust Law Developments

33 (1975), and cases cited therein.

Moreover, we have made appropriate provi-

sicn in Part I of the Final Order for

those circumstances in which some of the

respondents collectively own retail

stores.

(footnote continued on next page)

143a

Complaint counsel appeal from the

failure to include Gibson's, Inc., the

principal post-November 1, 1972, cor-

porate entity, in the boycott provisions

of the order. The ALJ reasoned that

since Gibson's, Inc., did not exist at

the time of the boycott, it should not be

covered (I) 210). We disagree.

The evidence indicates and we have

found that the boycott of Toastmaster

continued until at least 1974, and indeed,

———— eer rr rrr ee er re rr ee ee ee em eer ee

(footnote 18 continued)

We have no occasion here to examine the

outer reaches of intra-firm conspiracy

doctrine in any event, principally

because the conspiracy we have found

relates mainly to the agreement between

the respondents (and each of them) and

the Gibson franchised stores to boycott

designated suppliers' product lines.

Also, of course, the corporate respon-

dents were all held because their inter-

dependence required doing so in order to

insure the effectiveness of the relief

ordered, and "bathtub conspiracy"

doctrine does not address this question

at all.

144a

complaint counsel contend that Jeannette

is still being boycotted. (RAB 31).

Since institutional management of the

Toastmaster boycott, at least in the post-

November 1, 1972 period, was in the hands

of Gibson's, Inc., which became the fran-

chisor corporation, or of its officials,

we find that that corporation partic-

ipated substantially in the conspiracy,

and is chargeable as a member thereof.

Indeed, even if the boycott had not

continued after November 1, 1972, it

would still be necessary and proper to

include Gibson's, Inc. in the order.

Where a business found guilty of unfair

trade practices is continued by a sub-

sequently formed corporation, both busi-

nesses may be subject to the cease and

desist order, P. F. Collier 4 Son Corp.

v. FIC, 427 F.2d 261 (6th Cir.), cert.

145a

denied, 400 U.S. 926 (1970). The deter-

mination to include the newly formed conm-

pany hinges on various factors which

include whether both companies engaged in

the same business, the capability of the

new company to resume the unfair prac-

tices, and whether there is substantial

identity of ownership between the old

company and the new, id, at 272. Prior

to November 1, 1972, the franchising

business and the Gibson Trade Show were

operated by Gibson, Sr. under the aegis

of Gibson Products Co. Gibson, Jr. and

Gerald Gibson were president and execu-

tive vice president of that company.

Currently, Gibson, Sr. operates the trade

show and Gibson, Jr. and Gerald carry on

the franchising business through

Gibson's, Inc. Clearly the same parties

found to have engaged in the boycott are

146a

still in control of the same businesses

which were involved in the boycott. In

light of the integrated nature of the

business operations prior to November 1,

972, the fact that the Gibson Trade Show

continued to be oriented to Gibson stores,

and the existing family relationship, the

division of labor represented by the

franchising business being taken over by

the newly formed Gibson's, Inc. does not

justify excluding that corporation from

the order. Thus, the order will run to

this corporation as well.

Count III

Complaint counsel challenge under

Section 2(c) of the Clayton Actl9 the

-_-—— ew wr wr eee re eee ere re ee ee er

19section 2(c), 15 U.S.C. §13(c)

(1976), provides:

"That is shall be unlawful for

any person engaged in commerce,

(footnote continued on next page)

147a

receipt of commissions by Gibson, Sr.,

from two brokers representing Ray-0-Vac

Company, Barshell, Inc., and Al Cohen

Associates, Inc. The statute bans pay-

ments of brokerage or allowances in lieu

thereof by one party in a transaction

to the other and by either party to the

other's agent. Complaint counsel tried

(footnote 19 continued)

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 connec-

tion 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 inter-

mediary therein where such inter-

mediary 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."

148a

the Count III charges on the theory that

Gibson, Sr. acted in these transactions

as a principal or buyer, not on the

theory that he acted as intermediary or

agent of other respondents or nonrespon-

dent franchisees,

The ALJ found that Gibson, Sr. (but

none of the other Gibson family respon-

dents) had violated Section 2(c) by

splitting brokerage fees with Barshell.29

(ID 198). At least one payment by

Barshell to Gibson, Sr. of a part of its

—<——<——=a— «oe owe ee eee er ome eee ee ee eee eee eee

20Gibson, Sr. argues that the specific

violation found by the ALJ was not

alleged in the complaint. (RAB 8). We

find, however, that respondent had ample

notice of what complaint counsel intended

to prove, that he had adequate oppor-

tunity to defend against the charges, and

that he, in fact, took advantage of this

opportunity. See, inter alia, Complaint

Counsel's Answer to Motions to Exclude

Evidence, and Respondent's Reply to

Answer to Motions to Exclude Evidence,

each filed December 2, 1977.

149a

commissions from Ray-O-Vac was made in

September, 1972, while Gibson, Sr. was

owner and operator of various Gibson

retail stores, and, thus, while he was

clearly a "buyer". As a consequence, an

order was entered against Gibson, Sr.

With respect to the charge of splitting

commissions with Al Cohen Associates, the

ALJ found that while substantial payments

to Gibson, Sr. had been made by Al Cohen

in 1974 and 1975, Gibson, Sr. was not a

"buyer" at the time, because he no longer

had an ownership interest in any retail

operation. The law judge, therefore,

found that Section 2(c) had not been

violated and dismissed the complaint

against Al Cohen and Associates. (ID

198).

Both sides appeal, and we will con-

sider each of the issues raised seriatum,

150a

First, Gibson, Sr., relying on Gulf

U.S. 186 (1974), contends that the "in

commerce" requirement of Section 2(c) has

not been met. (RAB 19-22) We disagree.

The question answered in the negative

by the Supreme Court in Copp was "whether

a firm engaged in entirely intrastate

sales of asphaltic concrete, a product

that can be marketed only locally, is a

corporation ‘in commerce' within the

meaning of each of these sections (82(a)

of the Clayton Act, as amended by the

Robinson-Patman Act, and 83 and 7 of the

Clayton Act) and whether such sales are

‘in commerce’ and ‘in the course of such

commerce' within the meaning of 82(a) and

3 respectively." Id, at 188. There was

no argument in Copp that sales were, in

fact, made interstate commerce or were

1Sla

otherwise directly involved in national

markets. Rather, Copp argued only that

the "in commerce" requirement was satisfied

because the asphaltic concrete was used in

construction of interstate highways. Id.

at 198.

By contrast, the brokerage payments

made in this case were allowances upon all

Ray-O-Vac sales to Gibson retail stores,

both family owned and franchised, in a

20-state area. (ID 194). Thus, not only

could one find an “ample nexus to inter-

state commerce in the whole transaction,"

FTC, 321 F.2d 404, 409 (Sth Cir. 1963),

cert. denied, 375 U.S. 971 (1964), as the

ALJ did, but the underlying sales were,

in fact, directly interstate commerce,

making this a straightforward case.

1S2a

Respondent's other threshold argument

is that a showing of discrimination is a

necessary prerequisite to a finding of a

Section 2(c) violation. (RAB 22-25).

Once again, we disagree.

The proscription of Section 2(c) is

absolute in prohibiting the payment of

brokerage to the other party to a tran-

saction or to that party's agent, "except

For services rendered." The legislative

history21 and the case law support this

understanding. Such doubt as exists in

————— eee eee er ee eee rer ee eK ee SE Fe ee re ee ee

2lfhe Conference Report states:

"E£T}Jhis subsection permits the

payment of Pp a aoa by a

seller to his broker or agent for

services actually rendered in his

behalf; but it prohibits the

direct or indirect payment of

brokerage except for such ser-

vices rendered. It prohibits its

allowance by the buyer direct to

the seller, or by the seller

(footnote continued on next page)

1S3a

this area was created by dicta in the

decision of the Supreme Court in FTC v.

Broch § Co., 363 U.S. 166 (1960),22

While Broch may have generated some con-

fusion, see Rowe supra at 344-45, the

weight of authority is that a showing of

discrimination in the payment of "dummy

brokerage" is not a generic statutory

requirement.

(footnote 21 continued)

direct to the buyer; and it pro-

hibits its payment by either to

an agent or intermediary acting

in fact for or in behalf, or sub-

ject to the direct or indirect

control, of the other."

H.R. Rep. No. 2951, 74th Cong.,

2d Sess. 7 (1936).

22Respondent's argument is not based

on a SFr holding in Broch, but only

upon the Court's occasional references,

in the context of the facts of that case,

to "discriminatory" brokerage.

1S4a

to lower his commission in order to give

a purchaser a lower price. The issue was

whether the lower price that the buyer

obtained was an allowance in lieu of bro-

kerage in violation of Section 2(c). The

Supreme Court found a violation, reasoning

that this situation was analogous to a

broker splitting part of his commission

with buyer. The Court was concerned, how-

ever, that brokers be able to change their

prices without every consequent saving to

a buyer being judged an "allowance in

lieu of brokerage." Thus, the Court

wrote, "{tjJhis is not to say that every

reduction in price coupled with a reduc-

tion in brokerage, automatically compels

the conclusion that an allowance in lieu

of brokerage has been granted." 363 U.S.

at 175. The Court went on to explain

155a

that "{a} price reduction based upon

alleged savings when given only to

favored customers." Id. at 176. The

Court's language that "whether such a

reduction is tantamount to a discrimina-

tory payment of brokerage depends on the

circumstances of each case," id., cannot

fairly be read to require a showing of

discrimination as a prerequisite to

finding any Section 2(c) violation.

Read as a whole, Broch represents an

effort by the Court to plug a possible

statutory loophole through use of the

“allowance in lieu of brokerage" provi-

sion. Because of difficulties peculiar

to transactions of the type considered in

Broch, it was necessary to use the notion

of discrimination as an element in

establishing whether a price reduction

was an allowance in lieu of brokerage.

156a

The instant case is quite different,

however. Here it is alleged that the

seller made payments to a broker who, in

fact, was under the control of the buyer

and who passed on most of his commissions

to that buyer.25 Broch reviews the

legislative history of Section 2(c),

finding:

"One of the favorite means of

obtaining an indirect price con-

cession was by setting up 'dummy'

brokers who were employed by the

buyer and who in many cases,

rendered no services. The large

buyers demanded that the seller

pay "brokerage" to these fic-

titious brokers who then turned

it over to their employer. This

ee ese ee ee ee ee ee ee ee

23The ALJ found that "Gibson, Sr.'s

review of Ray-O-Vac's commission state-

ments to Miller, ostensibly a seller's

broker, to determine how much brokerage

he should receive, demonstrates

gabe control of the latter." (ID

157a

practice was one of the chief

targets of §2(c) of the Act."

363 U.S. at 169.

Thus, the type of transaction we consider

here is precisely that which it was the

major legislative purpose to curtail.

While respondent quotes a great length

from such cases as Shreveport Macaroni

Manufacturing Co. v. FIC, supra; Gulf Oil

and Roher v. Sears, Roebuck § Co., 1975-1

Trade Cas. 60,352 (E.D. Mich. 1975), for

the proposition that Section 2(c) is

directed at discrimination, none of these

cases is factually apposite and none

demonstrates that, in general, discrimi-

nation is a necessary element of a

Section 2(c) violation.

As a matter of statutory construction

of Section 2 as a whole, subsection 2(c),

158a

like subsections 2(d) and 2(e),

necessarily makes certain business prac-

tices, other than price discrimination,

unlawful, as it is designed to eliminate

hidden preferences by forcing them "into

the open" for measurement and adjudica-

tion under the more forgiving price

discrimination provisions. FTC v.

Simplicity Pattern Co., 360 U.S. 55, 68

(1959).24 Moreover, subsections 2(d) and

2(e) on their face require a showing of

discrimination, while subsection 2(c)

does not, thus manifesting an explicit

congressional determination not to

require discrimination as a precondition

to finding illegal dummy brokerage. Given

——— «=e ee eee ee ee ee ee ee ee ere ee ee er me eee

24The Court in FTC v. Simplicity

Pattern Co. noted expressly that each of

subsections (c), (d), and (e) makes cer-

tain practices other than price discrimi-

nation unlawful. 360 U.S. at 65.

159a

the purpose and structure of the Act and

the illogic of addressing the problem of

dummy brokerage in terms of discrimina-

tion, a general requirement that discri-

mination be shown cannot and should not

be read into Section 2(c).

Complaint counsel cites Rangen, Inc. v.

not to be understood to require generi-

cally a showing of discrimination, and we

find the discussion in that case con-

vincing. In Rangen it was concluded that

Section 2(c) applies to payment of com-

mercial bribery and that discrimination

is not a necessary element of a Section

2(c) violation.

160a

The Court explained that:

"... discrimination was used in

Broch to determine if the price

arrangement was an “in lieu" of

brokerage transaction' and,

although discrimination would

appear now to be relevant in

reduced-commission cases, it does

not follow that it is now an

essential element in cases

involving the outright payment of

unearned brokerage."

351 F.2d at 858

Respondent cites no decisions other

in lieu of brokerage in which a Section

2(c) case was dismissed for failure to

show discrimination. We, therefore,

conclude that Section 2(c) means, in

essence, what it says, and that complaint

counsel need not demonstrate, as respon-

dent would require, that dummy brokerage

has been paid to others, with favored

customers receiving larger payments.

l6la

Accordingly, the thr

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