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consulting with me, settlement of those cases. There were some of them subsequently litigated and held by the courts to be justified under the Sherman Act.
Mr. ROBISON. Were they on prescription items, Mr. Kintner, mostly? Mr. KINTNER. Prescription items and other items, but primarily prescription drugs. The principle applied to both prescription drugs and other drugs, and article sold in the drugstores.
The CHAIRMAN. Did any of these cases involve cooperative advertising?
Mr. KINTNER. No, sir. They were statewide price-fixing cases, according to the decisions of the courts, but I state this to explain my role.
I was employed by the NARD to engage in an educational program which would bring the druggist in compliance with the law, educate him so that he could avoid further involvement with his Government. This I have been asiduously attempting to do in the period of my employment.
I had been in informal contact with the staff of the Federal Trade Commission and was aware that the staff was giving careful consideration to the whole problem of cooperative advertising by groups of independent retail druggists.
The record here in documents submitted by the Trade Commission indicates that the Marketing Programs, Inc., may have represented to the Iowa association that there had been a clearance of its program by the staff of the Federal Trade Commision, and I soon ascertained my informal discussions at the Trade Commission at the staff level that this may not have been the fact, at least from the standpoint of the staff, and this clouded the whole issue further in the minds of the druggists.
As a matter of fact, I believe that the Marketing Programs, Inc., subsequently sent a letter to the druggist associations, as the record will show, stating expressly that there had not been clearance, although there had been an earlier representation of staff clearance. I think the staff of the Federal Trade Commission was operating in the utmost good faith in this matter.
From industry sources, I was informed that such consideration was the result of several requests to the Federal Trade Commission for advice on cooperative advertising plans of such groups.
I also learned from industry sources that Marketing Programs, Inc., had submitted a request to the Department of Justice for clearance or what is commonly known as a railroad release on the cooperative advertising plan which it had recommended to several State and local pharmaceutical associations, so that we had here a further factor which disturbed the druggists, that there were apparently submittals to both agencies, first on an informal basis at the Trade Commission, with the representation that the Trade Commission staff had approved the plan, and then a request for a railroad release to the Department of Justice.
It looked like a bit of seesawing, and the druggists were not too happy about this, particularly since the plans submitted seemed to be changing contours, and this clouded the matter further, and in the light of the educational program that the druggists were engaged in, in light of the antitrust cases that were flowing through the courts
involving State associations of pharmacists, the druggists understandably were quite hesitant about engaging in these plans.
At the convention of the National Association of Retail Druggists in September 1962, a resolution was passed stating that the association should seek an advisory opinion from the Federal Trade Commission on certain joint advertising plans. Subsequently, the Iowa Pharmaceutical Association requested the National Association of Retail Druggists to submit the joint advertising plan which Marketing Programs, Inc., had recommended to the Iowa association to the Federal Trade Commission for an advisory opinion. At the direction of the National Association of Retail Druggists, whom I serve as special antitrust counsel, I forwarded the Iowa association proposal to the Commission.
I understood from marketing sources, industry sources, that there were other proposals before the Federal Trade Commission prior to the submittal made by the NARD on behalf of the Iowa association. I, myself, had in my files many of such proposals, but I submitted only one, hoping to get some clarification, and then rule on the other proposals in my capacity as antitrust counsel to the NARD.
I felt it would place too heavy a burden upon the staff of the Commission to attempt to submit this whole range of proposals, and I felt quite confident once the air was cleared, to rule myself on the other proposals.
The CHAIRMAN. Judge, do you think the air has been cleared?
Mr. KINTNER. Yes, sir, I do. There is a letter attached to my statement addressed to Mr. Willard B. Simmons, which was circulated to the drug associations, and dated April 12, and I might-it is very short-read it.
The CHAIRMAN. Proceed with your statement. We see the genesis of it, that the Iowa association at convention passed a resolution asking for an opinion, and you as their counsel presented this to the Commission.
Mr. KINTNER. I told the druggists at that time, after the opinion had been rendered, that:
As I further consider the Federal Trade Commission's advisory opinions, it seems clear that the agency majority has laid down some hard principles on cooperative advertising without too much reference to individual factual situations.
Of course, as Judge Loevinger has pointed out, the staff of the Commission and I were dealing with a particular factual situation, the one that he described, and I would agree wholeheartedly that on the facts of that one situation, that there probably was illegality, and I understood that to be the staff's view.
The CHAIRMAN. As a former Chairman of the Federal Trade Commission and as an expert antitrust counsel, you presented to the Commission one of the hardest cases that you selected from your files, anticipating the kind of opinion that was received.
Mr. KINTNER. Anticipating a kind of opinion that I thought the staff would give, but not the opinion which was received.
As I will indicate later, I think that the opinion cuts with too broad a swath. Had it dealt only with the factual situation in the Iowa plan, I do not believe that there would have been any appearance of difference of opinion between the Commission and Judge Loevinger.
The CHAIRMAN. You could have presented to the Commission other applications or other requests or other situations, but you chose to select and send to the Commission the case upon which there had been passed a resolution at the druggists' convention and in which all these facts were presented which you are aware of, recognizing that it was a most borderline or perhaps a hard case.
Mr. KINTNER. As a matter of fact, I would have preferred not to have submitted the request for an advisory opinion.
In 2 years of my practice, I have heretofore not done so, feeling quite capable of ruling on these questions myself, although I do consult very often with the staff of the Commission to find out the trend of staff thinking on cases that have been adjudicated.
This is very helpful to a lawyer practicing before the Commission, and I think that these advisory opinions can be most helpful in many instances.
However, in this situation our hands were somewhat forced by the fact that these other interests had contacted both the Department of Justice and the Trade Commission with plans of varying character, and also by the fact that the druggists were quite concerned, due to this history that I have detailed, and had adopted a resolution, so that we felt compelled to at least submit one of the plans, and there was a request from the Iowa association, and we did submit that plan. But I had no intentions of submitting any further plans.
The CHAIRMAN. Proceed with your statement if you will, please. Mr. KINTNER. I state in this letter of April 12, that:
In all these matters, the facts of a particular situation can be all important, often far more critical than the applicable general principles of law. For example, in a cooperative advertising program, do the facts of that particular plan and the surrounding circumstances indicate that the plan is merely a pricefixing scheme? Or do the facts indicate that the cooperating independent druggists are merely trying to compete on a like basis with large commonly owned chains of drugstores?
Finally I said to the druggists:
It is my personal conviction, based upon current informationthis was after the rendering of the Commission's advisiory opinionavailable to me, that the Federal enforcement agencies will continue to be reluctant to challenge the legality of cooperative advertising programs involving efforts by groups of independent druggists to take advantage of promotional allowances to which they may be entitled but cannot individually use as a competitive weapon against their large competitors.
Then I conclude:
Any enforcement in this area is likely to be left to the Federal Trade Commission. As a practical matter, I believe that the Federal Trade Commission will be as reluctant to challenge the joint advertising programs of groups of independent druggists, as it has been over the years in challenging similar programs of groups of independent retail grocers.
The Loevinger letter with which I am familiar and the testimony of the Chairman of the Federal Trade Commission convinces me more than ever that as a matter of enforcement policy there is no intention on the part of either the Federal Trade Commission or the Department of Justice to challenge cooperative advertising as such, where price is mentioned.
In requesting an advisory opinion from the Federal Trade Commission, I was mindful of the fact that technically, joint price advertising might raise an inference of joint price fixing, but that the Commission in exercise of the discretion which Congress delegated to it
in the Federal Trade Commission Act, could recognize the economic realities of the independent druggists' situation, and therefore, consistent with the public interest, could examine the reasonableness of the druggists' proposal in such contexts.
In this connection, your committee may wish to consider the flexible approach to antitrust recently exemplified by the U.S. Supreme Court in United States v. White Motor Co., in which the Court refused to apply the per se rule to a situation which was closely analogous to price fixing but instead required that a trial be held to determine the reasonableness of the practice in the context of their use.
The Federal Trade Commission seems to have adopted the same flexible approach in the recent Fred Meyer, Inc., decision. Reversing its prior position, the Commission ruled on the basis of detailed examination of business realities that wholesalers who resell to independent retailers are customers of manufacturers who compete with the directbuying chainstore retailers and, therefore, are entitled to proportionally equal advertising allowances. I think this is an enlightened decision which is in accordance with the objectives of the Robinson-Patman Act, and I shall hereafter make further comment on it.
The Commission replied to the request for advisory opinion by letter dated March 29, 1963. I note in passing that there were several letters, one sent to the druggists, and perhaps others to certain Congressmen and other interested parties at the same time.
It not only refused to give clearance to the plan proposed by Marketing Programs, Inc., but also indicated that all joint price advertising may be illegal. Attached to the Commission's letter were three separate statements, one each from Commissioners Anderson, MacIntyre, and Higginbotham, and also a dissenting statement by Commissioner Elman.
The Commission, in its letter, stated that group advertisements of an institutional nature, if consistent with the provisions of the RobinsonPatman Act, would give the Commission
no reason to challenge * * [such group advertising] under the laws entrusted to the Commission.
The Commission, however, also stated that—
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.
Therefore, the Commission indicated that such price advertising— would be open to challenge *** [and] the Commission is in no position to give its approval to any plan which would contain a basic flaw such as that.
In addition, the Commission reasoned that any joint advertising which contained price or any terms or conditions of sale of any of the items of the advertising would constitute an understanding or agreement among the members of the group concerning the retail prices at which they would sell the advertised products, or in other words, any joint price advertising would constitute price fixing.
This I do not understand to have been the precise situation in the Iowa plan. The facts in the Iowa plan as I understood them were those stated by Judge Loevinger, when he testified just before me, and I thought that the staff of the Trade Commission held that precise view that Judge Loevinger expressed with respect to those plans. I know that I held such a view.
Commissioners Anderson, MacIntyre, and Higgenbotham, in their separate statements, expressed sympathy for the difficult business position of the small retail druggists but nevertheless in effect stated that the antitrust laws are not flexible enough to recognize the economic realities of the situation presented by the druggests' proposal and, therefore, application of the per se rule could not be avoided.
Commissioner Elman, in dissent, discussed the economic realities of the small retail businessman, and recognized that although the per se price-fixing rule is as unimpeachable as Pythagoras' theorem, its use should be limited to those situations where the activities involvedbecause of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm caused or the business excuse for their use (Northern Pacific Ry. Co. v. U.S., 356 U.S. 1, 5).
Commissioner Elman feels that price fixing may not necessarily result from the plan submitted for an advisory opinion, and that the facts should be examined. I am enclosing copies of bulletins reporting and describing the Commission's action which were prepared and sent by the National Association of Retail Druggists to the State and metropolitan pharmaceutical associations.
My own opinion is that one version of the Marketing Programs, Inc., plan may involve a technical agreement to advertise at a uniform price by druggists who may or may not be competitors and that this may imply an agreement to sell at the advertised price.
In this respect I am testifying in the same manner as Judge Loevinger on the facts that he gave to this committee.
However, most important, the effect of permitting druggists the opportunity of effectively competing against the large chains through joint price advertising is to promote competition rather than to hinder it. I do not believe that the present state of the law requires a mechanical applicaion of the per se rule to the druggists' proposals, but rather an evaluation should be made of the reasonableness of the proposals in light of antitrust policies. In this connection, I note that section 5 (b) of the Federal Trade Commisison Act (15 U.S.C. par. 45(b)) provides that the Commission is authorized to issue a complaint only if it believes (1) that the parties are using unfair methods of competition; and (2) that a proceeding against such parties would be in the public
That I think offers a solution to this problem, simply that the enforcement policy of both agencies does not justify enforcement action being taken in these cases.
I should note at this point that Congress, and I think this is the attitude of both the Commissioners of the Federal Trade Commission and Judge Loevinger, recognized in the Small Business Act of 1958 that certain joint ventures by small businessmen may have the effect of promoting competition and stimulating our economy. In the Small Business Act (15 U.S.C., sec. 631, et seq.) it is provided that
the President is authorized to consult with representatives of small business concerns with a view to encouraging the making by such persons with the approval of the President of voluntary agreements and programs to further the objectives of this * * [act] (15 U.S.C., sec. 540 ( a )).
The objectives of the act (15 U.S.C., sec. 631 (a)) in part are stated to be that