Letters from-Continued Dixon, Paul Rand, to James W. Lyons, answer to letter dated Sep- Page 140 Iowa Pharmaceutical Association, to George Gale, August 13, 1962__ National Association of Retail Druggists, Willard Simmons to Earl 104 Shea, Joseph W., to F. Murray Callahan, answer to letter dated Sep- 139 Shea, Joseph W., to Earl W. Kintner, answering letter of October 29, 138 News release, April 16, 1963: "FTC announces advisory opinion," 144 Flyer, announcing sponsorship of cooperative advertising pro- 109 List of manufacturers from whom advertising allowances have 120 List of products which have been or will be listed in pharma- 119 Membership bill and dues schedule___ 120 Return envelope (address and name printed). FTC ADVISORY OPINION ON JOINT ADS FRIDAY, MAY 3, 1963 HOUSE OF REPRESENTATIVES, SELECT COMMITTEE TO CONDUCT A STUDY AND Washington, D.C. The committee met, pursuant to call, at 10 a.m., in room 304, Cannon House Office Building, Hon. Joe L. Evins, chairman, presiding. Present: Representatives Evins, Kluczynski, Dingell, McCulloch, Avery, and Robison. Also present: Richard L. Mitchell, general counsel; Jane M. Deem, administrative assistant; Myrtle Ruth Foutch, clerk; and John J. Williams, minority counsel. The CHAIRMAN. The committee will come to order. We have with us this morning the Chairman and the Commissioners, our friends of the Federal Trade Commission. May I say in a personal way that, having one time been on the staff of the Commission and having a great respect for this Commission, I believe this is the first time in a number of years that there might have been any discussion concerning a controversy over a decision of the Commission by this Committee. But we do this in the interest of clarification of the law and in a spirit of helpfulness and service to small business. I want to present a statement before we present the Chairman of the Federal Trade Commission. OPENING STATEMENT Our hearing this morning relates to certain problems associated with the issuance of a formal advisory opinion by the Federal Trade Commission which appears to interpret existing law to mean that independent retailers may not informally band together for the purpose of publishing joint advertisements if those advertisements disclose the prices at which the merchandise will be offered by the participating retailers. The issuance of advisory opinions is a new development at the Commission. They have been available only since last June. Without doubt this willingness of the Commission to provide guidance and interpretations of the law to businessmen seeking such help constitutes a major stride forward in the determination of the Commission to better serve the business community. Under this program any businessman who has doubt regarding the legality of a proposed course of competitive action can resolve these doubts by obtaining from the Commission the official views of the agency regarding the problem. 1 The Commission has received widespread praise from Members of Congress, as well as the business community, for making this new service available to business management. I might say in the past the Commission has been criticized for its slowness at times, because of the legal process and administrative process, of resolving the issue, and so the new Chairman and the Commission determined upon a more speedy method of giving opinions in the spirit of helpfulness-this advisory opinion procedure. It has been commended for this. However, in less than a year one opinion seems to have caused this difficulty. The advisory opinion handed down by the Commission with regard to retailer cooperative advertising has evoked considerable discussion and a measure of controversy, to say the least. This development, however, must not be permitted to prejudice the continued availability of the valuable services being supplied to the business community by the Commission. Retailers who have been using cooperative advertising contend that the pooling of advertising resources is essential if they are to meet the competition of large, well-financed chains. The Commission's majority, in reaching its decision, believes that the ruling was unavoidable under portions of the antitrust laws which prohibit price-fixing conspiracies. Nevertheless, the actual state of the law seems to be somewhat confused. One member of the Commission has dissented from the Commission's ruling and expressed a different legal theory. The Chief of the Antitrust Division of the Department of Justice has issued a more guarded statement. Under these circumstances, we see that a state of confusion exists. The small businessman can only wonder. He would be the last to want to weaken our antitrust laws. However, it is not a comfortable thing to be confronted with a situation where the antitrust laws appear to prohibit him from engaging in programs which he needs if he is to operate competitively. It is hoped that these hearings can establish (1) whether there is an adequate and safe course of action available within existing law; or (2) whether this form of promotional activity can be authorized by law without sacrificing essential safeguards against conspiracies and restraints. In any event, since it seems to be generally recognized that the privilege of advertising jointly is indispensable to the growth and expansion of many small and independent retailers, the committee wants to explore this situation with the view in mind of being of service to small business. I might state that I have read the advisory opinion, the concurring opinions, and the dissenting opinion, and I particularly like one reference by Commissioner Higginbotham when he said that this plan is certainly on the periphery of violative behavior. Mr. Chairman, I would have your opinion, the concurring statements, and the dissenting opinion placed in the record at this point, and also representative editorials from local papers and news journals throughout the country regarding the state of confusion that has resulted in the business community because of the issuance of this advisory opinion. (The documents referred to follow :) OPINION BY FEDERAL TRADE COMMISSION OFFICE OF THE SECRETARY, Washington, D.C. This is with reference to your letter dated October 24, 1962, concerning the legality of various cooperative advertising schemes proposed to groups of retail druggists by Marketing Programs, Inc., New York, N.Y. We interpret your letter to be primarily concerned with the legality of the participation in this program by the various local associations which belong to the National Association of Retail Druggists. You are advised that the Commission, as provided for in its advisory opinion procedures, has given careful consideration to the proposed plan. The Commission has concluded that there are several aspects of the plan which should be referred to separately. They include the following: 1. We comment upon that aspect of the plan which provides for the members of local associations to combine advertising allowances legally made available to them by suppliers and to utilize such advertising allowances in buying advertising space and in advertising through the utilization of that space the names and addresses of the cooperating members and the items, including brand names of the items they are offering for sale. To the extent this aspect of the plan would involve nothing more than is stated in the preceding sentence, the Commission has concluded that it sees no reason to challenge that aspect of the plan under the laws entrusted to the Commission. 2. To the extent that any aspect of the plan would involve a common understanding, agreement or approval by members of the group, express or implied, of any price, term, or condition of sale of any item advertised by the group, the plan would contravene laws entrusted to the Commission for enforcement. In this connection, it is the Commission's opinion that the group publication of an advertisement containing any selling price raises a serious question whether the members of the group have agreed to and will sell at those prices. Consequently, the cooperative consideration of any advertisement which would contain any price or prices or other terms or conditions of sale as indicated on the mockup which has been submitted would be open to challenge as part and parcel of price fixing by agreement. Thus, the Commission is in no position to give its approval to any plan which would contain a basic flaw such as that. 3. Another aspect of the plan which is worthy of comment is the amount of the advertising allowances involved and the manner in which they are secured. If the agent for the members of the group should induce or knowingly receive advertising allowances which from the viewpoint of the supplier would contravene either subsection 2(a), 2(d), or 2(e) of the Clayton Act, as amended by the Robinson-Patman Act, then all members of the group, as well as their agents, would be liable to charges of violation of either subsection 2(f) of the Clayton Act, as amended, or section 5 of the Federal Trade Commission Act, or of violation of both. In other words, the Commission is of the opinion that a program of cooperative advertising by the members would be subject to question under the laws administered by the Commission unless (a) The fund used by or on behalf of the participating group to purchase advertising space should consist solely of the aggregate of advertising allowances properly available to the members individually under the terms of section 2(d) of the Clayton Act, as amended by the Robinson-Patman Act; (b) Use of the program would not involve any understanding or agreement, express or implied, among the members of the group concerning the retail selling price or the terms or conditions of sale of any item advertised, which would mean, among other things, that no prices, terms, or conditions of sale of any of the items should appear in the advertising; and (c) Use of the program would not involve the inducement or knowing receipt by any of the members of the group, or by their agent, of prices or allowances, the granting of which by the suppliers would be unlawful under subsections 2(a), 2(d), or 2(e) of the Clayton Act, as amended by the Robinson-Patman Act. We appreciate your interest in this matter and if any questions remain we hope that you will feel free to contact us. By direction of the Commission, Commissioner Elman dissenting. (Signed) JOSEPH W. SHEA, Secretary. STATEMENT OF COMMISSIONER ANDERSON It goes without saying that the many small members of an industry should be able to compete on equal footing with its larger competitors. Unfortunately, there seem to be instances where that is not possible. I wish that I could dissent from what appears to be the majority in this case. I fear that for the individual industry members to join in an advertisement which would set out a single price to be charged by all those who participate in the advertisement would be looked upon with some suspicion. I call attention to the fact that the special counsel for the National Association of Retail Druggists has heretofore indicated his reluctance in the matter by stating to the annual meeting of the National Drug Trade Conference at New York, N.Y., on January 22, 1962, as follows: *** I venture the prediction that the antitrust enforcement agencies may frown upon a straightforward advertisement which lists a single price for a product that will be charged by all stores participating in the advertisement." It offends my sense of justice to find that the small industry members are unable to avail themselves of the same benefits as do their big brothers and so, for that reason, I would very much like to join Commissioner Elman in his dissent hereto, but I believe that the law and the decisions as they now stand preclude such "junction." It is, therefore, with reluctance that I am compelled to subscribe to the view that the program of cooperative advertising as contemplated by the inquirants would probably be in violation of law. STATEMENT OF COMMISSIONER MACINTYRE The Commission's advisory opinion in this important matter correctly advises the representatives of small business organizations regarding the application of Federal antimonopoly laws to their proposed plans. It is the duty of the Commission to so advise the representatives of these small business firms. We would do them a disservice if we should advise them otherwise. Of what benefit would we be to small business firms if we should advise them that the course of action they propose to take is approved and then they should find themselves in the toils of the law for having followed that course of action? Our duty is to assist business firms in avoiding any such result. The Supreme Court of the United States in recent cases brought by the U.S. Department of Justice against firms for engaging in price fixing in violation of the Sherman Act have made it clear that such course of action constitutes per se violation of the Sherman Act. (See U.S. v. Socony Vacuum Oil Co., et al. 310 U.S. 150, decided in May 1940.) In more recent cases in which small business firms were charged with violating the Sherman Act, the Department of Justice has insisted that prison sentences be given to those found guilty. As a result, some small businessmen in Ohio in recent years were ordered to serve prison terms for violation of the Sherman Act. We should do all possible to assist small businessmen in avoiding such a predicament. STATEMENT OF COMMISSIONER HIGGINBOTHAM This request today evokes a moment of truth for this Commission. With unquestioned sincerity, the able and distinguished dissenting Commissioner beseeches us to cast aside years of precedent in price-fixing cases. It was in 1940 and thus after its decision in Appalachian Coals, Inc., et al. v. United States (288 U.S. 344 (1933)), that the Supreme Court stated: "Thus for over 40 years this Court has consistently and without deviation adhered to the principle that price-fixing agreements are unlawful per se under the Sherman Act and that no showing of so-called competitive abuses or evils which those agreements were designed to eliminate or alleviate may be interposed as a defense" (United States v. Socony Vacuum Oil Co., Inc. 310 U.S. 150, 218 (1940)). The holding of this case remains undisturbed. We are not unaware of the legal maxim "Cessante ratione legis, cessat et ipsa lex," nor of the cases which rest on such reasoning. But the function of an |