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The CHAIRMAN. Is Mr. Bison here? Mr. Bison, we will be pleased to hear your statement. You may proceed as you wish. Do you have a statement that you wish to read?
TESTIMONY OF HENRY BISON, JR., GENERAL COUNSEL, NATIONAL ASSOCIATION OF RETAIL GROCERS
Mr. BISON. Mr. Chairman, I do have a statement.
The CHAIRMAN. You may proceed.
Mr. BISON. For the record, my name is Henry Bison, Jr., with offices at 1317 F Street NW., Washington, D.C.
I am an attorney, and a member of the Bar of the District of Columbia and of the State of Maryland. I am general counsel of the National Association of Retail Grocers. I have been counsel for this association some 15 years.
Before proceeding, I should state that I am appearing here today at the committee's request. It is a difficult and delicate assignment, and I only wish that the events which produced this hearing had never taken place. It may be that others share this feeling.
For several weeks there have been recurring press reports that the Federal Trade Commission has ruled in an advisory opinion that all joint advertising mentioning prices by independent retailers operating in the same market is illegal regardless of any other considerations.
The consternation and confusion in the food distribution industry caused by these reports has been more considerable than many realize. This is not surprising when one considers the extent to which joint advertising is used by independent food dealers and its vital importance to their economic existence.
For over 30 years local food merchants have banned together in various kinds of groups to advertise jointly. This has provided them with a method of reaching consumers through the most effective media available. The cost of individual advertisements is obviously beyond the reach of independent food merchants on an individual basis.
As the growth of corporate food chains has progressed, the need by independents for joint advertising programs increased all the more. Independents found it necessary to affiliate in retailer-owned cooperative groups and in wholesaler-sponsored voluntary groups in order to meet competition. Increased use of the automobile and the growth of supermarkets made affiliation by independents an economic necessity. To survive, many of them had to join together in their buying and advertising activities. Through affiliation, they have been able to obtain many of the same types of services chain headquarters perform for their stores. By means of this innovation, independents have been able to remain competitive. It is an undisputed fact that had independent grocers been prohibited from joining together in this conduct of their business, most of them would have disappeared from the market by now.
Despite the benefits provided by group activities, independent food retailers still have many competitive disadvantages in competing with corporate chains. To understand this, one must realize that
notwithstanding their affiliation in various kinds of groups, their stores remain individually owned and operated. They are independent businessmen in every sense of the word.
As such, they must operate their outlets at a profit. They cannot finance the operation of their stores at a loss over a long period of time in one market by siphoning profits from operations in other markets. Very often, independents are excluded from leasing prime store locations, such as in regional shopping areas, because insurance companies and other financial institutions refused to loan money to an owner or developer of commercial property if the supermarket lease is signed by an independent. Independents have considerable disadvantages in acquiring long-term capital for expansion purpose. Normally, they are compelled to rely to a very large extent on their earnings after taxes. Entering the capital market for long-term financing at favorable rates is not possible for them. Neither are thev able to capitalize their long-term credit-such as through leaseback arrangements. They do not have either the financial strength or the economic power possessed by their larger competitors.
In the face of these facts, it is no wonder that independent grocers were shocked and alarmed to read recent press reports concerning cooperative advertising. Those with whom I have discussed the matter found the situation completely incomprehensible. They cannot understand what reasons could possibly justify applying a law against trust and monopolies to stop independent grocers from participating in joint advertising programs, as they have done without challenge for many years, when depriving them of this merchandising process will surely result in a monoply of retail food distribution in most markets by corporate chains.
Indeed. if independent food retailers are stopped from advertising jointly, the same may be applied to their joint purchasing activities. Under these frightening conditions, they could only escape extinction by merging their stores into existing or newly formed corporate chains. But even this avenue of escape could also be barred. For if the antitrust laws can be used with such venegance against independents to stop joint advertising, it would be only one small step further to apply the antimerger section of the Clayton Act against them also. This could prevent their merging and would leave them with no alternative but to go out of business. Can anyone contemplate such a prospect without complete dismay. Under such conditions, the antitrust laws would constitute not a protection for small businesses but a reign of terror against their very existence. Laws created to prevent monopoly would be used to promote it. The weak would be attacked, while the strong are given assistance. Such absurdity can only arise when the application of the law becomes separated from the reason which prompted its enactment.
It is interesting to note that the present perplexing situation arose, not under the Robinson-Patman Act-a favorite whipping boy of a few vociferous critics-but in connection with the universally accepted Sherman Act, and with respect to the per se rule against price fixing by competitors. Neither is the issue here one of protecting small business from the forces of competition as some like to allege in calling for a weakening of the antitrust laws, especially the Robinson-Patman Act. Indeed, quite the opposite appears to be the case in terms of the situation which gave rise to these hearings.
But before we rush into hasty ill-advised action by what might appear as alarming implications of the Commission's advisory opinion, it is important to consider that the present predicament is not the product of an adversary proceeding subject to due process of law and no court has rendered an opinion which can be cited as causing the problem. Indeed, the Supreme Court in recent opinions, such as in Brown Shoe Co. v. United States (370 U.S. 294.344 (1962)), has given support to a philosophy stating that the antitrust laws call for "the protection of viable, small, locally owned business."
These comments lead to the observation that it is most unfair to have the Commission's advisory opinion applied in any manner whatever to joint advertising programs by independent food retailers. The proceedings before the Commission prior to its opinion were conducted without our knowledge. We were not afforded an opportunity to be heard or to offer any evidence in the matter. We did not request the opinion, and played no part in connection with it.
To apply the Federal Trade Commission's advisory opinion, either directly or indirectly, to joint advertising programs in food distribution is highly objectionable. It violates the most fundamental standard of justice to judge a program, followed for over 30 years by thousands of independent food retailers, illegal as a result of secret ex parte proceedings which no food retailer had any knowledge of. We seriously question the fairness of advisory opinions if they are applied in any way against those who are not a party to them. The manner in which such opinions are expressed should be carefully considered so they are not used to prejudge cases not presented.
With respect to the legality of joint advertising followed by independent food retailers, six facts are of key importance.
One, the basic antitrust law involved is the Sherman Act. It has been in effect for nearly three-quarters of a century.
Two, joint advertising by local food retailers began in the 1920's and has rapidly expanded since then. It is now used by many thousands of independent grocers in hundreds of communities across the land.
Three, in the long history of this practice in the food industry, no Federal antitrust agency has ever challenged its legality. They know and have known that such practice is carried on, and have not proceeded against it.
Four, such programs followed by independent food dealers are not subsidized by illegal discriminatory advertising allowances paid by manufacturers.
Five, joint advertising by independent grocers is absolutely essential to their continued existence as a factor of any significant importance in the market. If they cannot join together in advertising their products and prices, most of them will be driven out of business. This will result in monopolistic concentration which the antitrust laws are designed to prevent. Vigorous competition in retail food distribution which consumers in this country now enjoy is the product in large measure of independents being able to compete on effective terms with large food chains. It would be the summit of absurdity to apply for antitrust laws against joint advertising by independent food merchants.
Six, there is no basis for complaint from the food industry with respect to the enforcement policy followed in this area by both the
Department of Justice and the Federal Trade Commission. They have permitted independent food retailers to pursue the practice. Consumers have benefited from the competition which has resulted.
In concluding this statement, I close with a plea that we not give this advisory opinion an importance it does not deserve. Let us continue as we have in the past, and devote our attention to how antitrust law and policy can be improved to preserve competition. Let us concentrate our attention on ways and means for strengthening the ability of independents to improve their position in the market.
If this is not done and the unfortunate series of events which preceded this hearing are allowed to foment hostile reaction against the antitrust laws, the result will certainly be a substantial weakening of these laws. This is one of the greatest dangers we face. If the reason which gives these laws their public purpose is disregarded in their application, support for them will be seriously undermined.
Before I conclude, Mr. Chairman and gentlemen, I would like to say a few words about the per se doctrine which I heard referred to many times this morning. This will be very brief.
First of all, we don't understand the per se doctrine as some kind of immutable rule that requires the antitrust agencies to act without discretion in slaying the innocent with the guilty, the weak with the strong, the just with the unjust so that no one can be spared.
The purpose and the end of antitrust laws are to preserve competition. Are we to understand that the per se rule requires the antitrust enforcement agency to prosecute blindly without regard to the nature and character of the trade practice involved, that they must close their eyes to the circumstances of the parties involved, or the effects on the market and other factors, and that they must follow a policy of prosecution for prosecution's sake, even to the extent that the aim and the intent of the antitrust laws are completely distorted? We don't think the per se rule has ruled out of antitrust enforcement policy sound judgment and commonsense reasoning in applying the antitrust laws, and neither has it ruled out the cardinal rule that the facts and the circumstances of each case must govern the application of the law.
Reference has been made to the opinion in the Socony Vacuum case by the Supreme Court in 1940. May I point out that in that case the oil companies charged with violating the law were selling 83 percent of all the gasoline sold in the midwestern area. It was because of this power that their price-fixing agreement violated the act.
The independent retailers battling with their backs to the wall to stay alive in a vigorously competitive market, where they have substantial and numerous disadvantages, could not exercise power to control the market or fix unreasonable prices.
The CHAIRMAN. A very good statement, Mr. Bison. Thank you. You very forcefully present the issue in this antitrust law matter. You state that for over 30 years local food merchants have been pursuing this type of practice, and now they are confronted with a situation of alarm and dismay. You state:
The cost of individual advertisements is obviously beyond the reach of independent food merchants on an individual basis.
If they had been pecluded years ago from participating in joint advertising, many of them would undoubtedly have disappeared from business long ago.
In your view the very decision which the Commission has rendered, the advisory opinion, places small, independent business, hardware merchants, druggists, other retailers, at a competitive disadvantage contrary to, as you interpret it, the spirit and intent of the antitrust laws.
Mr. BISON. On that point, Mr. Chairman, it is my understanding, having listened to Mr. Dixon this morning, that the Commission's advisory opinion was given with respect to the proposal made to them, the proposal submitted to the Commission.
I have no knowledge as to that proposal, but I understand that the opinion related to those facts only, and with that we have no objection because we in the food industry
The CHAIRMAN. You are appealing that if there are any adverse decisions rendered against your industry, that you at least be given an opportunity to be heard and to present facts.
Mr. BISON. Precisely, Mr. Chairman. That we would like very much to do.
The CHAIRMAN. You state that laws created to prevent monopoly are now being used to promote it in your view, and you very well cite from the Brown Shoe Co. case, which was cited this morning, to give another point of view that there is a statement by the Court that one of the principal philosophies of the antitrust laws is, "For the protection of viable, small and locally owned business." It is your view that this opinion violates the most fundamental standards of justice which you have been following for over 30 years. You very well point out six ways to look at this matter.
I wish you, with your experience and with your association of independent businessmen, would come forward later with some specific recommendations as to how your independent businesses could be able, in your view, to operate such as an amendment to the antitrust laws.
Mr. BISON. On that point, Mr. Chairman, let me say that the association I represent here has no position on that as of now, but may I point out, as the record will show, that independent grocers have carried out this practice for over 30 years. It has never been challenged. No court has ever held it to be illegal.
The CHAIRMAN. You point out the constructive notice that is generally known. You can take judicial knowledge of the fact that this practice has gone on in the course of advertising. See if you can come up with some recommendations for it. Are there any questions?
Mr. McCULLOCH. Yes, I have a question or two, Mr. Chairman. Might I correctly conclude, Mr. Bison, that your faith in the advisory opinions of the FTC is considerably shaken by the opinion in
Mr. BISON. Mr. McCulloch, let me say this: That we supported the idea of an advisory opinion when it was first announced by the Federal Trade Commission.
Mr. McCULLOCH. And when was that?
Mr. BISON. Over a year ago.
Mr. McCULLOCH. Yes.