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"We're a little cautious up here in Maine," said one source close to the association which includes pharmacists in Penobscot, Piscataquis, Washington, Waldo, and Hancock Counties.
However, Edward L. Allen, secretary of the Maine Pharmaceutical Association, who operates a drugstore in Bangor, believes that in view of the recent FTC move in a case involving Fred Meyer, Inc., Portland, Oreg., operator of retail drugstores (Drug News Weekly, April 17), that wholesalers are entitled to the same allowances as is given directly to retailers, wholesalers in this area might be willing to join in co-ops ads.
"This is important to Maine because there are so few large retailers," he points out.
TAMPA: MORATORIUM ON SUCH ADS FOR NOW
TAMPA.-Pharmaceutical groups here and in St. Petersburg and Clearwater do not plan to run pooled co-op ads, at least for the present.
Pharmaceutical leaders said that despite the belief of Earl Kintner, counsel for the National Association of Retail Druggists (Drug News Weekly, April 24) that the Federal Trade Commission would not move against druggists or others using pooled co-op price ads, they would "play it safe," and not run such ads
The CHAIRMAN. Mr. Chairman, we are delighted that you could come. We would be pleased to hear you.
TESTIMONY OF PAUL RAND DIXON, CHAIRMAN, FEDERAL TRADE COMMISSION; ACCOMPANIED BY GEORGE ROUNTREE, CHIEF, DIVISION OF ADVISORY OPINIONS, BUREAU OF INDUSTRY GUIDANCE, FEDERAL TRADE COMMISSION, AND J. V. BUFFINGTON, ASSISTANT TO THE CHAIRMAN
Mr. DIXON. Mr. Chairman, thank you very much for asking us. As you noted, I am here today with three of our Commissioners that are in the audience, Commissioners Elman, MacIntyre, and Higginbotham, as well as our Executive Director, Mr. Wheelock, and other officials of the Commission.
Here at the table with me, to my left, is Mr. Buffington, who is my assistant, and, to my right, Mr. Rountree, who is the Chief of the Advisory Opinions Division.
I am here today, at your request, to furnish information and to answer any questions concerning the recent advisory opinion by the Commission relating to the legality of combination or joint advertising of drug items by retail druggists.
The plan in question, which was evolved by Marketing Programs, Inc., of New York City, was first brought to the attention of the Commission on July 24, 1962, when Mr. William H. Manville, a representative of J. M. Hickerson, Inc., the advertising agency employed by Marketing Programs, Inc., conferred with members of the staff of the Commission's Division of Advisory Opinions. As outlined at that time, the plan contemplated agreements between Marketing Programs, Inc., and various local and/or State retail druggists associations, under which said associations would assign to Marketing Programs, Inc., advertising and promotional allowances received by or available to each of the member druggists for the purpose of publishing joint advertisements featuring certain drugstore items and listing the names of the participating retailers. The basic selling point to be employed by Marketing Programs, Inc., for the purpose of inducing retail druggists associations and their members to engage in this program was that most independent drugstores were entitled to such small coopera
tive advertising allowances from their suppliers, that such allowances were of no practical use to them individually, but that by pooling such allowances, participating drugstores could receive mention in a fullpage advertisement featuring certain selected items. Under this plan, Marketing Programs, Inc., was to collect the allowances from suppliers, prepare the advertisements, place them in the appropriate advertising medium, and pay the costs thereof.
The Commission's staff members who discussed this program at that time expressed serious doubts concerning its legality because of the representation that the advertisements would contain prices, which prices were to be established by a committee of local druggists and would presumably be followed by all participants.
Mr. Manville again conferred with members of the staff on September 26, but on neither occasion did he indicate that he was seeking or would seek a formal binding advisory opinion as provided for in sections 1.91 through 1.93 of the Commission's Rules of Practice and Procedure.
On or about October 15, 1962, the staff was visited by Mr. Earl W. Kintner, representing the National Association of Retail Druggists, who advised that he had been instructed by his client to seek an advisory opinion concerning the legality of the participation in this program by members of that association, and that a formal request would be submitted within a few days. Copies of the request and enclosures are attached. He also stated that it was his understanding that Marketing Programs, Inc., through it local attorneys, had presented the same plan to the Antitrust Division of the Department of Justice with a request for a "railroad release."
Upon learning of this development, discussions were held between cognizant members of the staff of both the Commission and the Department of Justice with respect to the proper handling of the two separate requests for an opinion on the same subject. Because of the possibility that implementation of the plan might involve the Robinson-Patman amendment to the Clayton Act, as well as fictitious pricing under the Federal Trade Commisison Act, the Antitrust Division of the Department of Justice agreed that the matter should best be handled by a single agency in order to eliminate any duplication of effort and that in view of legal implications other than those arising under the Sherman Act, the Federal Trade Commission was the logical agency to consider the matter.
Accordingly, by letter dated October 25, 1962, a copy of which is attached, the Antitrust Division referred its file on the matter to the Commission with the request that the Commission's Division of Advisory Opinions consult with the Antitrust Division before making any recommendation to the Commission.
(The letter referred to appears on p. 103 of the appendix.)
Mr. DIXON. Included in the enclosures submitted by Mr. Kintner was an incomplete mockup of the joint advertisement proposed to be published by the Iowa Pharmaceutical Association. Inasmuch as this document failed to disclose whether or not prices of the featured products would be listed, counsel for Marketing Programs, Inc., the organization which originated the plan in question, was requested to furnish a complete mockup of the type of advertisement which would be recommended for use by various local pharmaceutical associations or groups of retail druggists engaging in this program.
The mockup in question, copy attached, constituted the basis for discussions with representatives of Marketing Programs, Inc., and with Mr. Earl W. Kintner, counsel for NARD.
(The mockup referred to appears on p. 135 in the appendix.)
Mr. DIXON. Mr. Chairman, as an aside, with the material which I have submitted, I point out to you this mockup. It is in that material. I have it unfolded here. You will find it in the material.
On January 8, 1963, following completion of a draft of a memorandum to the Commission on this subject, as well as drafts of proposed letters to certain of the interested parties, the entire file, including the memorandum and drafts of letters, copies attached, was transmitted to the Antitrust Division for its views and comments.
By letter dated January 15, 1963, a copy of which is attached, the Antitrust Division advised that it had reviewed the proposed memorandum to the Commission and stated as follows:
On the basis of the information submitted to the Department of Justice and to the Commission, we agree that the granting of clearance in this matter would be inconsistent with the antitrust laws.
(The letter referred to appears on p. 140 in the appendix.)
Mr. DIXON. Upon return of the file from the Antitrust Division, the memorandum in question was revised to incorporate a statement concerning the review of the file by that Division and to include the statement quoted above, which statement was believed by the staff to constitute wholehearted concurrence in its recommendation as well as with the reasons advanced in support thereof.
This slightly revised memorandum, copy attached, was forwarded to the Commission on January 29, 1963. After consideration by the Commission, revised letters dated March 29, 1963, were sent to the interested parties, together with the dissenting statement of Commissioner Élman and supplemental statements by Commissioners Anderson, MacIntyre, and Higginbotham. Because of the public release by some of the recipients of these letters and statements, the Commission, on April 16, issued a press release which embodies the Commission's opinion and also includes the accompanying statements referred to above. A copy of this press release is attached.
(The press release referred to and the opinion appear on p. 144 in the appendix.)
Mr. DIXON. Because of the controversy which has arisen following publication of this opinion, I believe that a brief explanation is in order concerning the advisory opinion procedure which was initiated by the Commission on June 1, 1962, and which has been received with general approval by members of the business community and the bar. Under this procedure, any person, partnership or corporation may request advice from the Commission as to whether a proposed course of action, if pursued, would probably violate any of the laws administered by the Commission. On the basis of the facts submitted as well as other information available to the Commission, and, where practicable, the Commission will advise the requesting party whether or not the proposed course of action, if pursued, would be likely to result in further action by the Commission.
It was this procedure which was utilized by the National Association of Retail Druggists on behalf of its membership after they were
1 This material will be found in the appendix.
solicited by Marketing Programs, Inc., to engage in the plan in question. Since there appeared to be no reason why the rendition of an opinion would not be practicable, as is the case in many requests involving the legality of medical or scientific claims or representations, the National Association of Retail Druggists' request was treated as an advisory opinion matter. The proposal as submitted by Marketing Programs, Inc., in its presentation to the Antitrust Division, clearly indicated that the items to be featured and the prices to be advertised would be selected and/or established by a committee of retail druggists. Furthermore, it was even contemplated that such committee would select at least one item in each week's advertisement which would be featured as a "loss leader." As indicated above, it was the understanding of all parties concerned that the previously mentioned mockup submitted by Marketing Programs, Inc., would be representative of the type of advertisement which would be published by each association or group of retail druggists engaging in the marketing programs planned.
A plan whereby those engaged in the same line of endeavor would announce identical prices at which they will sell immediately raises antitrust questions. No principle in the field of antitrust law is more firmly fixed than that any agreement, express or implied, to fix or establish prices is unlawful per se. The Supreme Court of the United States has repeatedly so stated and held. In the landmark decision in Socony-Vacuum Oil Co., Inc. v. United States, 310 U.S. 150 (1940), the Court stated:
Any combination which tampers with price structures is engaged in an unlawful activity. Even though the members of the price-fixing group were in no position to control the market, to the extent that they raised, lowered, or stabilized prices they would be directly interfering with the free play of market forces. The act places all such schemes beyond the pale and protects that vital part of our economy against any degree of interference. Congress has not left with us the determination of whether or not particular price-fixing schemes are wise or unwise, healthy, or destructive. It has not permitted the age-old cry of ruinous competition and competitive evils to be a defense to price-fixing conspiracies. It has no more allowed genuine or fancied competitive abuses as a legal justification for such schemes than it has the good intentions of the members of the combination. If such a shift is to be made, it must be done by the Congress. Certainly Congress has not left us with any such choice. Nor has the act created or authorized the creation of any special exception in favor of the oil industry. Whatever may be its peculiar problems and characteristics, the Sherman Act, so far as price-fixing agreements are concerned, establishes one uniform rule applicable to all industries alike.
Illustrative of the fact that this principle applies to small as well as large enterprises are numerous actions which have been instituted under the antitrust laws against collusive pricing conduct on the part of relatively small concerns engaged in essentially local activities. For example, actions have been brought against associated retail grocers, automobile dealers, soft drink bottlers, bakeries, and dairies. Of more particular importance in the consideration of the outlined plan were the antitrust actions recently instituted by the Department of Justice against associations of retail druggists in Arizona, Utah, Idaho, California, and Hawaii, each of which was charged with having fixed the prices at which prescription drugs should be sold by their retail dealer members.
Under the proposed plan, as outlined by the requesting parties, the joint advertisements of the participating dealers would carry the
prices for the products advertised. The representation that the dealers would charge identical prices for the same commodities convinced a majority of the Commission that the plan, if placed in actual operation would raise a serious question under the Federal Trade Commission Act and possibly other Federal laws. Under these circumstances, the majority of the Commission felt that the reply which was given was impelled by the facts and that any reply other than that given might mislead the requesting parties as to the legality of the proposed plan under applicable Federal laws.
I think that it is safe to say that no Government agency is more keenly aware of the problems of small business than is the Federal Trade Commission. We at the Commission are sympathetic to their problems and are fully cognizant of the difficulties with which most small businesses are confronted in their attempts to compete with chain and discount store competition. As disturbing as our advice may have been in this particular instance, we feel that we are bound by the law as enacted by the Congress and interpreted by the courts. Although we realize and appreciate the concern with which this decision has been viewed, a majority of the Commission saw no other possible answer to the question concerning the legality of the proposal which was presented.
Commissioner Elman has requested me to state that, as he read the Commission's advisory opinion of March 29, 1963, it took the broad position, without qualification or limitation, that "any plan" for cooperative advertising by retailers which mentioned prices "would contain a basic flaw" and that "no prices, terms, or conditions of sale of any of the items should appear in the advertising." Since he dissented from that position, Commissioner Elman did not think it appropriate for him to participate in the preparation of the Commission's statement today.
Commissioner Anderson is out of the city on an engagement made some months ago and has not had an opportunity to read this statement. He is expected to return on Monday, May 6, at which time I will request him to inform this committee in writing of any disagreement with what I have said.
In your invitation to me, Mr. Chairman, you requested that we appear here with one representative to testify, and if any other members of the Commission had a statement, that I read that also, and two of our Commissioners have seen fit to do so, and I will read their statements, if it is proper to do so.
The CHAIRMAN. You may present your colleagues' statements, Mr. Chairman.
Mr. DIXON. I have a statement by Everette MacIntyre, Commissioner:
Mr. Chairman and members of the committee, it is a distinct privilege to present this statement to you on this occasion for inclusion in your record of this hearing.
In your announcement you made it clear that the subject of this hearing would be the formal advisory opinion of the Federal Trade Commission issued March 29, 1963
The CHAIRMAN. Mr. Chairman, it was our thought in deciding upon this course of procedure that we would not have time to hear all five Commissioners, and we did not want to engage in any legal splitting. We look upon you Commissioners as the experts, and we thought that you could have a consensus of opinion which represented