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the Government should aid, counsel, assist, and protect insofar as is possible, the interests of small business concerns in order to preserve free competitive enterprise.
The act also provides for certain joint research and development activities by small business. Approval of the activities as consistent with the antitrust laws is required by the Attorney General.
Thus, Congress and the Supreme Court, in the recent White Motor decision and at a much earlier date, in the Chicago Board of Trade decision, had recognized that certain activity, although having the surface appearance of technically violating certain broadly stated rules of law, may after examination be found to promote competition in the context of the use of the practices and that it will not serve antitrust objectives to apply rigid mechanistic rules in situations where it is apparent that the evaluation of the reasonableness and effect of the practices must be undertaken.
The Commission's cooperative advertising opinion implies that all joint advertising of prices, terms, or conditions of sale, is automatically illegal or subject to challenge. A group of liquor stores in Washington, D.C., known as the "Thrifty Liquor Stores" each week jointly advertises the prices at which group members will sell products. However, in the "Thrifty Liquor" ad, although the members of the group are listed, each item which is price advertised is purportedly sponsored by only one of the group members. Thus, on the face of the ad, at least, it is not certain that the members of the group have agreed to advertise and sell items at the same price. This type of joint advertising was not involved in the proposal which National Association of Retail Druggists submitted on behalf of the Iowa association, and at least on its face appears to be consistent with antitrust laws, yet the broadness of the Commission's opinion appears also to outlaw this type of joint advertising, although I add again that I do not believe that the Trade Commission intends to challenge this type of advertising, nor do I in the foreseeable future expect that either agency will so challenge.
In a recent Federal Trade Commission decision in which the related problem of the availability of advertising allowances were considered by the Commission, it thoroughly analyzed the realities of competition and held contrary to its past decisions that direct-buying chain retailers are in competition with wholesalers and the small independent retailers to whom they sell. Thus, the Commission, in its Fred Meyer decision, in construing section 2(d) of the Robinson-Patman Act, rendered a decision which will have a tendency to permit small businessmen to compete with their direct-buying chainstore rivals by permitting their wholesalers to demand and receive advertising allowances from manufacturers when such allowances are also made available to the direct-buying chainstores. Most joint advertising which is undertaken by small retailers is supported at least in part by wholesalers or manufacturers. I have discussed this decision's importance to the independent retail druggist in the National Association of Retail Druggists bulletin which is attached to this statement. This may well be recognized in the future as one of the Federal Trade Commission's landmark decisions. I applaud my former agency for its recognition in this case of the realities of the marketplace and willingness in this important instance to exercise the expertise and flexibility which Congress undoubtedly expected when it created the Federal Trade Commission.
The CHAIRMAN. You are speaking about the Fred Meyer case?
Mr. KINTNER. Yes, sir.
The CHAIRMAN. Proceed.
Mr. KINTNER. I hope that there will be many other instances. We tried, when I was there, to use that expertise and use it wisely. We didn't always succeed.
I hope that this Commission will have many other decisions showing its wisdom and breadth of thinking and intent to harmonize the facts of the marketplace with the protection of small independent business.
In conclusion, I would repeat the opinion which I have given to the NARD that I do not believe that either the Federal Trade Commission or the Department of Justice as presently constituted are inclined to file actions against groups of independent retail druggists who engage in joint advertising of prices, terms, or conditions of sale. However, the FTC advisory opinion does cloud the use of such joint cooperative advertising by small businessmen. There is an inherent risk in undertaking such activity, for such policies of enforcement can change in the future, although I again reiterate that I do not think this is likely in the foreseeable future. It is a factor, however, which should be considered. Therefore, although I believe that existing law can permit the use of joint price advertising by small businessmen, if the Commission's advisory opinion is not clarified and harmonized with Department of Justice views, legislation may be necessary to permit small retailers to advertise jointly with assurance of legal safety. Many groups of retail druggists have delayed plans to engage in joint advertising pending a clarification of the uncertainties raised by the Commission's advisory opinion. I notice that legislation to this end has already been introduced in Congress. I am referring to S. 1320 introduced by Senator Humphrey.
I hope I have been of help to this committee in its inquiry. The Meyer decision does definitely underscore the necessity for an early and thoughtful solution to the problem which is the subject of your committee's inquiry today. I have no doubt-with the appreciation both at the Department of Justice and at the Federal Trade Commission of the essential role of independent small business in our ecoonmy-that men of good will in both Government and business can find practical legal solutions, and I think the practical solution lies in the enforcement policy.
Although some of these proposals may technically violate the antitrust laws, both agencies have a responsibility in selecting the cases which they bring to harmonize that casework with the overall objectives of the antitrust laws, and I understand that one of the most overriding objectives of all is the preservation of independent small business in our free enterprise system.
(The documents referred to follow :)
SPECIAL NARD BULLETIN
THE NATIONAL ASSOCIATION OF RETAIL DRUGGISTS,
From: Office of the executive secretary, Willard B. Simmons.
At the 1962 NARD meeting in New York a resolution was adopted directing that advice be sought from the Federal Trade Commission with regard to the legality of various cooperative advertising schemes proposed to groups of inde
pendent retail druggists. Thereafter, Marketing Programs, Inc., of New York sought the advice of the Department of Justice as to the legality of a cooperative advertising program designed by that firm for the Iowa Pharmaceutical Association. In view the NARD convention resolution, the Iowa Association requested that the NARD have the same program reviewed by the Federal Trade Commission. As a result the Federal Trade Commission reviewed the proposed program, in consultation with the Department of Justice.
Several other proposed cooperative advertising programs have been sent to me for advice by retail drug groups. I have referred these programs to Earl W. Kintner, NARD's special antitrust counsel, for study and comment. Mr. Kintner has made preliminary observations in each instance but withheld final comment until the Federal Trade Commission should complete it review of the Marketing Programs-Iowa proposal.
We have just received the Federal Trade Commission's advisory opinion on the Marketing Programs-Iowa plan.
The advisory opinion contains these principal rulings:
1. Joint institutional advertising by local associations or groups of independent retail pharmacists is lawful under the antitrust laws.
2. Members of local associations or groups of independent retail pharmacists may combine advertising allowances legally made available to them by suppliers to publish advertisements promoting specific brands of products offered for sale without violating the antitrust laws, provided that no reference is made to the prices, terms, or conditions of sale of a product in such advertisements.
3. Over the vigorous dissent of Commissioner Elman, a majority of the Commissioners ruled that the dissemination of an advertisement by a group of retail pharmacists containing any selling price for a specific product "raises a serious question whether the members of the group have agreed to and will sell at those prices" and that any such group may be charged with price fixing.
Some knowledge of the proposal submitted on behalf of the Iowa Pharmaceutical Association is required in order properly to assess the impact of the ruling on price advertising by the Commission majority. The proposed program developed for the Iowa Pharmaceutical Association by Marketing Programs, Inc., of New York City contemplated full-page newspaper advertisements listing the names and address of all pharmacies participating in the advertising program. The proposal contemplated that such advertisements shall list specific prices for specific products, thus permitting the inference that all participating stores would charge the same price for all advertised products. Under one variation of the program proposed to the Iowa Association, it was contemplated that the following disclaimer would appear in each advertisement: "Prices shown on this page are only manufacturers' suggested selling prices. In each store listed in the column listed as left, your pharmacist sets his own price-usually lower, never higher." This, then, is the ambit of the proposal placed before the Federal Trade Commission on behalf of the Iowa Association.
The proposal submitted did not include the method of advertising that Earl W. Kintner, special antitrust counsel for the NARD, refers to as the "Thrifty Liquor Stores" plan. Under that plan, a voluntary group of independent liquor stores in the Washington, D.C., area has engaged in extensive advertising programs featuring prices for commodities for some time. So far, this group has not been challenged by the Antitrust Division of the Department of Justice or the Federal Trade Commission. The advertisements of the Thrifty Liquor group do not suggest a unified pricing system because each item featured in each advertisement is sponsored by an independent store in the group. The advertisements are divided into distinct boxes and the name of a store sponsoring a particular commodity appears in the box in which the commodity appears.
The language of the Federal Trade Commission majority with respect to price advertising by groups of independent retail pharmacists is quite broad. The majority opinion stated that "a program of cooperative advertising by (group) members would be subject to question under the laws administered by the Commission unless *** use of the program would not involve any understanding or agreement, expressed 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. * [Emphasis supplied.]
Commissioner Elman forcefully dissented from this ruling. After pointing out that small independent retail businessmen can compete effectively against 97902636
large chains only by placing joint advertisements which quote selling prices, Commissioner Elman goes on to state that "it begs the question, the answer to which necessarily depends on the particular facts, to hold that the appearance in a joint advertisement of any prices, terms, or conditions of sale of any of the items' establishes, without more, the per se illegality of the advertising plan." Commissioner Elman stated his understanding of the issues in this manner: "What is proposed here, as I understand it, is not an agreement among competing retailers to fix prices, which of course is a per se violation of the antitrust laws, but an agreement among independent retailers in different neighborhoods, and who therefore do not compete with each other in any practical sense, to combine their advertising allowances, to which they are legally entitled under the Robinson-Patman Act, for the purpose of advertising cooperatively. In its advisory opinion here, the Commission flashes a red light on such cooperative advertising by small businessmen. I think the Commission is making a great mistake. Preservation of small independent businessmen is a central objective of every statute the Congress has directed this Commission to enforce; and unlike my colleagues, I find nothing manifestly illegal per se in the proposals submitted."
Commisisoner Higginbotham, in a separate statement, opined that on the facts presented, it must be assumed that pharamacists engaging in joint price advertising are engaging in price fixing and that once this assumption is made, the conclusion follows from established legal principles that such joint price advertising is illegal per se. In the opinion of Commisioner Higginbotham, this conclusion precludes any examination into competitive circumstances or the laudable motives of the participating pharmacists. He concludes that: "In view of the uncertainty and the substantial risks inherent in civil or criminal prosecution, no administrative agency should give this plan the 'green light.'" Commissioner MacIntyre has expressed his agreement with the ruling of the Federal Trade Commission majority on the price advertising question in a separate statement. In his view, the Commission's duty to assist small businessesmen is best served by a warning that engagement in joint price-advertising programs may result in prosecution.
Commisioner Anderson explained his reluctant adherence to the majority view with respect to price advertising by pharmacists groups in a separate statement. Commissioner Anderson stated that his sense of justice was offended by the fact that small businessmen are unable to avail themselves of the benefits enjoyed by their large competitors but he feels that the program of joint price advertising submitted would probably be in violation of law. Commissioner Anderson quotes a cautionary comment by Mr. Kintner before the recent meeting of the National Drug Trade Conference in his statement. Careful attention must be given to the broad context of Mr. Kintner's remarks, which are printed in full in the April 1, 1963, issue of the NARD Journal. He referred only to advertisements which list a single price for a product that will be charged by all participating stores with no explanation or disclaimer as to price variations between stores. Nor did Mr. Kintner's comment embrace the so-called Thrifty Liquor Stores example.
I refer again to Commissioner Elman's dissent. It appears to me that the ultimate question that must be resolved is whether joint price advertising by a group of independent pharmacists necessarily implies that such pharmacists are engaging in a price-fixing conspiracy. It seems clear to me that independent small businessmen who have no desire to fix prices but who do desire to compete effectively against giant chains which conduct massive advertising campaigns with cooperative advertising allowances furnished by manufacturers should have effective means of joint advertising available to them. This goal is consistent with the spirit and purpose of the Robinson-Patman Act.
In summary, the Federal Trade Commission advisory opinion appears to hold: 1. Any joint advertising sponsored by independent retail pharmacists which states specific uniform prices, terms, or conditions of sale for products subjects the participating pharmacist to danger of prosecution for price-fixing.
2. The Federal Trade Commission is not disposed otherwise to challenge joint institutional advertisements by groups of retail pharmacists.
3. In addition to avoiding inferences of price-fixing, groups of retail pharmacists participating in joint advertising programs must be careful to comply with the Robinson-Patman Act prohibitions against inducing discriminatory allowances from manufacturers.
Mr. Kintner is now actively considering many requests for advice on particular joint advertising programs which were placed in suspense pending receipt of the Federal Trade Commission advisory opinion. The NARD will undertake
to refer any additional requests for advice to Mr. Kintner as a part of its service to its members.
Mr. Kintner is now preparing a special bulletin for NARD members commenting upon certain specific alternatives in other plans which were not submitted to the Federal Trade Commission for its opinion, and which may be available to pharmacists desiring to participate in joint advertising programs. He also will elaborate upon the Robinson-Patman aspects of such plans.
The advisory opinion of the Federal Trade Commission does not mark the end of the search for effective competitive weapons for small businessmen but rather a beginning. The advisory opinion of the Federal Trade Commission leaves many questions unresolved. We at the NARD have embarked on an exhaustive study of the implications of the Federal Trade Commission opinion and the statements of the various Commissioners. Copies of the Federal Trade Commission opinion and the statements of the various Commissioners are attached to this bulletin for your study. You may be sure that the NARD will continue to exert every effort in this area of concern on behalf of the best interests of independent pharmacists, including seeking amendatory legis lation, if such is necessary to permit the independent retail druggists to compete successfully against the cooperative advertising programs of the giant chains.
WILLARD B. SIMMONS,
OCTOBER 24, 1962.
GEORGE S. ROUNTREE, ESQ.,
Chief, Division of Advisory Opinions and Guides, Bureau of Industry Guidance, Federal Trade Commission, Washington, D.C.
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. Sincerely,
EARL W. KINTNER.
FEDERAL TRADE COMMISSION,
In re: File No.
EARL W. KINTNER, Esq.,
Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C.
DEAR MR. KINTNER: 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