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that are granted to him are so small and so infinitesimal it would cost him more to collect it than the amount of the allowance.
He is not a businessman. He is a professional man. And for him to take and bookkeep all of these products and try to collect these allowances
The CHAIRMAN. Mr. Gale, we are going to permit you to revise and extend your remarks and make a further statement in addition to your own prepared statement here, if you wish. We want to thank you very much for your statement. We think it has been helpful and we feel that our committee is trying to be helpful to your industry and your business.
Mr. GALE. Thank you.
The CHAIRMAN. We are also going to grant permission to the National Retail Hardware Association, to file a statement for the record.
(The statement submitted by this organization follows:)
STATEMENT BY RUSSELL R. MUELLER, MANAGING DIRECTOR, NATIONAL RETAIL HARDWARE ASSOCIATION
This statement is presented on behalf of the National Retail Hardware Association composed of 22,000 independent retail hardware merchants located in more than 10,000 U.S. communities. More than half of these stores are in trading areas of under 10,000 population.
As a result of the Federal Trade Commission advisory opinion relating to a contemplated advertising plan by the drug industry there have been recurring press reports in the past few weeks giving the impression that the Federal Trade Commission has ruled that any joint advertising mentioning prices by independent retailers is illegal regardless of other considerations.
The press reports have led to confusion in the hardware industry. Unless clarified they can have a damaging effect on independent hardware dealers and hardware wholesalers who supply much of the merchandise.
Small independent hardware dealers must compete with giant retail chainstore operations in all sections of the country. These large chains have vigorous advertising programs reaching every household in the Nation in the form of newspaper ads, handbills, and mailing pieces. Small independent hardware stores have by necessity banded together for the purpose of joint advertising programs in local newspapers and by use of jointly sponsored handbills where located in small communities which have no local newspapers.
For more than 20 years hardware dealers have advertised on a cooperative basis. Many independent hardware wholesalers who supply merchandise to independent dealers have formed wholesaler-sponored voluntary groups, a most important function of which is joint promotion and advertising. This increasing trend by dealers to aline themselves with respective wholesalers serving them has been necessary to enable independent hardware dealers to compete in today's market.
Dealers joining in these programs still remain independently owned and operated. In spite of their cooperative efforts, they still have many competitive disadvantages with corporate chains.
It is natural that independent hardware dealers and wholesalers were shocked by press reports which seemed to interpret the Federal Trade Commission advisory opinion relating to the drug case as casting a doubt on legality of hardware promotion programs. They do not believe that the Federal Government would at this time change its interpretation of laws designed to apply to trusts and monopolies to stop these joint efforts of small independent retailers.
Officials of both the Federal Trade Commission and the Department of Justice by their own admission have had knowledge of these joint advertising programs and have never before raised questions as to their legality. Officials of both agencies have admitted that they do not know of a single complaint or of a single case where there have been any prosecutions as a result of these joint advertising programs involving independent dealers.
Mr. Lee Loevinger, Assistant Attorney General, in charge of Antitrust Division of the Department of Justice, advised Senator Hubert H. Humphrey and reiterated to your committee during these hearings that:
"It is significant that there are some fields in which small business concerns have been engaged in cooperative advertising containing prices for many years without any challenge to this practice by the Department of Justice. I see no reason at this time to change our past practice, or to employ different criteria than we have heretofore applied to such activities."
The following facts with respect to joint advertising programs by hardware dealers seem to us to clearly establish their legality.
The joint advertising programs are designed to enable small independent dealers to compete with their giant retail and chain store competitors and not in any sense to fix prices or to gain any unfair or illegal competitive advantage. Joint advertising programs have been conducted for many years by hardware dealers. This practice has been well known by the Federal Trade Commission and the Department of Justice. They have never challenged the legality of the practice.
Joint advertising by hardware dealers is absolutely essential to their continued existence in today's market.
No one has complained of the practice in the hardware industry and there is no basis for any change in enforcement policy in this area by either the Federal Trade Commission or by the Department of Justice.
The advisory opinion used by the Federal Trade Commission relating to a specific set of facts presented by the drug industry should not be related to programs of an entirely different nature in the hardware trade. It is our view that the opinion has been given by many press releases a possible application much broader than it deserves. It is our understanding that Paul Rand Dixon, Chairman of the Federal Trade Commission, and Mr. Lee Loevinger, Assistant Attorney General, Antitrust Division, Department of Justice, have in effect advised your committee during these hearings that they concur in this view.
Although we are confident that joint advertising programs as described above by hardware dealers are entirely proper and legal, we know that press releases pertaining to the Federal Trade Commission advisory opinion relating to the drug case have cast some gray shadows.
We, therefore, urge your committee to issue without delay a public statement correcting the erroneous and damaging reports indicating that there has been any change either in the intent of the law or in the enforcement policy of Federal antitrust agencies relating to joint advertising by independent retailers.
We wish to express appreciation to your committee for permitting us to present our views and, more importantly, for clarifying this confused situation in the interest of small independent businessmen of the Nation.
The CHAIRMAN. The American Newspaper Publishers Association has also been asked to submit a statement for the record. We are going to conclude our hearing at this time.
(Whereupon, at 3:45 p.m., the committee recessed, subject to the call of the Chair.)
(The statement referred to may be found on p. 154, immediately following the appendix.)
GEORGE S. ROUNTREE,
U.S. DEPARTMENT OF JUSTICE,
Chief, Division of Advisory Opinions and Guidance, Bureau of Industry Guidance, Federal Trade Commission, Washington, D.C.
DEAR MR. ROUNTREE: Pursuant to our October 23 telephone conversation concerning cooperative newspaper advertisements there are enclosed copies of our correspondence with the National Association of Retail Druggists and a copy of a September 7, 1962, letter from Brookhart, Becker & Dorsey, esquires, outlining a plan proposed by Marketing Programs, Inc. of New York City for the Lowell, Mass., Pharmaceutical Association. There is also enclosed a summary of information furnished to us orally by counsel for Marketing Programs, Inc., together with information gathered by the staff attorney who was considering this matter.
As agreed, please confer with us before recommending an advisory opinion for the Commission's consideration.
Your cooperation is appreciated.
Assistant Attorney General, Antitrust Division.
By LEWIS BERNSTEIN, Chief, Special Litigation Section.
Hon. LEE LOEVINGER,
Assistant Attorney General,
LAW OFFICES, BROOKHART, BECKER & DORSEY,
MY DEAR MR. LOEVINGER: This firm has been retained to represent Marketing Programs, Inc., a New York advertising concern, which has been appointed business manager for the Lowell (Mass.) Pharmaceutical Association for the purpose of negotiating advertising contracts on behalf of said association.
In previous conferences between this writer and attorneys of the Department of Justice, information as to the nature and scope of the advertising contracts has been provided. Essentially, the plan involves a cooperative advertising contract by each and every member of the Lowell Pharmaceutical Association to jointly advertise every week approximately 60 retail items in the line of toiletries, cosmetics, and proprietary medicines. No prescription drugs of any kind whatsoever will be advertised or attempted to be sold through this advertising plan. The problem facing the independent druggist in attempting to meet the intense competition of the discount houses and chain food markets has led these druggists to adopt the proposed plan. A single druggist cannot take advantage of the manufacturers' advertising allowances because of the relatively small volume of products which he alone merchandises. However, if such advertising allowances are pooled among a large number of independent druggists, sufficient moneys are available to buy a meaningful and effective amount of newspaper space. The sole intent underlying the plan is to allow these independent druggists, through cooperative advertising, to increase the customer traffic into their stores and thereby compete with the volume merchandising of the discount houses and food stores. An unavoidable concomitant of cooperative advertising is the establishment of a uniform price for the items being jointly sold during
the 4 or 5-day period in which the ads are run. The fact that only 40 to 60 products in an inventory of some 10,000 are being cooperatively sold completely negates any intention on the part of the druggists to achieve a uniform profit. The prices to be assigned the advertised items will be selected by an executive committee of the druggists' association. Generally speaking, the prices will range from 10 to 33% percent above the druggists' wholesale cost. It is anticipated that at least one of the products advertised each week will be a "loss leader." The principal criteria to be employed in selecting prices is for the independent druggists' products to be competitive with like items being sold by the discount houses and chain food stores.
There is an awareness on the part of the druggists' association that the Department of Justice is vitally concerned with the prevention of price fixing of prescription drugs, which do constitute approximately 40 percent of a druggist's total weekly business. In order to insure that the druggists' association's cooperative advertising plan does not provide a vehicle for established prices on prescription drugs, we propose to formalize the meetings of the executive committee to the extent of having a stenographic transcript of the proceedings kept and will make available such transcript to the Department of Justice on a regular basis.
It does not appear to us that the antitrust laws are violated by such a cooperative advertising plan when its only purpose and the reason for its adoption is to permit small independent druggists to compete with the larger chain merchandisers of products sold by the druggists. The degree of cooperation among the druggists extends almost solely to increasing a buyer's awareness that the independent druggists are selling products at prices competitive with those offered by the food stores and discount houses and will encourage increased customer traffic to the small druggist's store.
We trust that the Department, recognizing the economic disadvantages of the independent druggist, will find this plan a reasonable one which does not violate the spirit of the antitrust laws. We are prepared to provide any additional information which you may desire and will cooperate with you to the full extent in the resolution of any problems which are raised by our proposal. Sincerely yours,
F. MURRAY CALLAHAN.
LAW OFFICES OF ARENT, FOX, KINTNER, PLOTKIN & KAHN,
GEORGE S. ROUNTREE, Esq.,
DEAR MR. ROUNTREE: At its recent convention, the National Association of Retail Druggists, whom I serve as special antitrust counsel, resolved that the advice of the Federal Trade Commission be sought as to the legality of various cooperative advertising schemes proposed to groups of retail druggists.
Enclosed is a copy of the complete file on a proposal to the Iowa Pharmaceutical Association, made by Marketing Programs, Inc., of New York. The National Association of Retail Druggists would appreciate the Federal Trade Commission's advice on the legality of this program.
Since there are many other proposed cooperative advertising programs of a similar nature under consideration by both groups of druggists and by the Federal Trade Commission, and in light of the National Association of Retail Druggists convention action, I would appreciate being kept advised of the Commission's views generally on such programs, to the extent such advice may properly be given to the National Association of Retail Druggists.
Mr. EARL W. KINTNER,
EARL W. KINTNER,
THE NATIONAL ASSOCIATION OF RETAIL DRUGGISTS,
OFFICE OF THE SECRETARY,
DEAR EARL: I am enclosing a letter and information that I have received from Robert Gibbs, executive secretary of the Iowa Pharmaceutical Association.