Mr. BLUNT. A delivered price will eliminate competition if one concern wishes to use their tremendous volume to sell merchandise in one area at a loss through the delivered-price system. That is the same as selling it cheaper. If you sell it to a man for $8.40 in Denver, and it cost you $3.50 to get it there, if you sell to another store in Chicago at $8.40, you are selling to the man in Denver much cheaper. You are selling to him $3.50 cheaper. You take some of the profit away from the Chicago store to pay the freight on that merchandise that went to Denver.

Right now they are selling this bottle right here in Kansas City cheaper than I care to sell it to the Kresge store right here in Kansas City. I have sold those stores for 25 or 30 years I have not, but my partner and I together have.

I went to New York City recently, just after this merger-I did not tell you about the merger. I got away from that, but I would just as soon tell you about that.

Chairman PLOESER. Yes.

Mr. BLUNT. The old Midway Chemical Co. was located in Chicago. They did business with these chain stores on an f. o. b. Chicago business basis. We were located right here in Kansas City. There is another firm in Cleveland, there was the Superior Products Co. at Dalas. We all sold the chain stores this product f. o .b. Kansas City. It went into the territory where the freight rate was favorable to them, all on a competitive basis.

The Midway Chemical Co. built up a considerable line of items, probably 50 different items, including all household supplies. And, of course, they went after that business and they went after it hard. So they merged with the Old English Co., the A. S. Boyle Co. of Jersey City, and called themselves Boyle-Midway. In New York City there was a holding company formed called the American Home Products Corp.

I read in an Associated Press article where they bought up 38 different manufacturing and packaging concerns throughout the United States, including cosmetics, pharmaceuticals, and all the common commodities that are everyday household items.

They went to the Woolworth Co. and these general stores and buyers of wholesalers, all types of buyers, and told them they would give them a delivered price all over the United States. They went to the Woolworth Co. and said:

If you put this merchandise in your stores all over the United States we will make you a delivered price on the whole thing all over the United States regardless of the points to which it may mean a loss.

So, immediately my contract with the Woolworth Co. was canceled in 1945. I understand the contract of the Superior Products was canceled. You can go to Seattle, Boston, Atlanta, and Dallas and find this bottle of polish there for 10 cents. This is a published price list of $8.40. They use this, and there is evidence of it to expedite the sale of some other items.

Here is another item that they manufacture. It is in the same bottle exactly, it has got the same cap on it. It is the same size, so far as the label is concerned. The only possible difference in the cost of production of the item would be the contents of the bottle. The contents of this bottle is oil. While it is low in quality, it is all oil.

This is 80 percent water. The price of this is $12.96 a gross delivered, but the price on this is $8.40 delivered.

Mr. BALLINGER. What are the remainder of the contents.

Mr. BLUNT. It is colored, probably some acetone, or alcohol, or something that will cut grease off of glass, that is all you need. When you say on a label, "glass cleaner," that means something that will clean glass. Anything that will clean glass is a glass cleaner. Water is one of the best glass cleaners known, so if you color some water and put on the label, "glass cleaner," it is all right. They put in a little alcohol there so if there is some greasy film on the glass it will

take that off.

Mr. BALLINGER. It would cost less to produce that than the other? Mr. BLUNT. I would say so. You see, it is not consistent. The price of the merchandise is not consistent. They wanted to get all of the business and they have almost got it.

Another thing I would like to say to you is that there is no question but what the delivered-price system, the absorption of freight costsyou will find this is the idea held by all local industries-is the most vicious system in the world because it allows the manufacturers to discriminate in prices. It allows them to take the profits that arise from one area and use them to defray the expense of pushing their merchandise into other areas.

This product is used in proportion of the population of the United States. They do not use it on the desert in the West. There is not anything to put it on. But where the population is heavy, north of the Ohio and east of the Mississippi Rivers, it is used in a larger proportion. I would say that probably 60 percent of the polish sales in the United States is in that area. That would leave only 40 percent in the rest of it.

Over there where the distances are short, and the volume is heavy, they can make a good profit on it at that price, and they say, "Suppose we do lose money on one item that goes into Denver or Seattle, what difference does it make?"

It simply means that the only people who make any money out of it is the railroad company who haul it out there, which was not necessary at all in the first place.

If they had to revert to the f. o. b. pricing system, immediately all of these stores out here in the western country would be looking for the closest source of supply. I submit to you, Mr. Chairman, it is economically unsound to haul a bottle of water half way across the United States or clear across it.

Here is another thing: Oil bubbles up down here in Kansas. I do not think anybody here could procure today a much closer source of supply. To ship a bottle of this oil that costs as much to produce as it does to retail at such a low price from Chicago to Wichita is economically unsound. Furthermore, it is a waste of the natural resources to burn up coal and the labor necessary to do it.

If there is one system that would decentralize industry and make it possible for a local manufacturer to have some market for his product, it would be the f. o. b. pricing system. They can make it just as cheap as they want to in Chicago and if they can make it for $3.50 a gross cheaper than I can and ship it right through Kansas City, I will salute them for it, but I think they cannot do it.

They take the profits out of the East and use them to absorb losses in the West.

Chairman PLOESER. Do these bottles contain a description of the contents?

Mr. BLUNT. It says, "Red Oil Furniture Polish."

Chairman PLOESER. That is like the glass cleaner. Does that tell what it consists of?

of.

Mr. BLUNT. It says it contains "X2 light." Did you ever hear of it? Chairman PLOESER. NO.

Mr. BLUNT. Neither did I.

Chairman PLOESER. But there are a lot of things I have never heard

Mr. BLUNT. "A new ingredient that leaves the glass surface sparkling clean."

Chairman PLOESER. They are not compelled under the law to describe it as long as it is not taken internally.

Mr. BLUNT. It is like irium. Do you know what it is?

I do not know and most people do not, but they leave the impression it has some miraculous qualities, made in the shade and stirred by a spade.

Mr. FORISTEL. Do you think that there are adequate laws on the books today to bring about a remedy for you?

Mr. BLUNT. I have been trying to find out for some time, is it illegal to sell merchandise at less than cost?

Mr. FORISTEL. It is.

Mr. BLUNT. In order to eliminate a competitor?

They would say they were not doing it; that they were trying to distribute their merchandise nationally, but in doing that they automatically eliminate a competitor.

Mr. FORISTEL. It is unlawful.

Mr. BLUNT. I submit that the United States Government prosecute them. We can go down here and find out about this. It is a common thing to find these price lists. All you have to do is pull a man in court. All you have to do is to pull a man in court and ask him, "How much does it cost to make this?"

He cannot lie about it.

Chairman PLOESER. Yes, he can.

Mr. BLUNT. It can be proven.

Chairman PLOESER. How much do they sell the glass cleaner for?
Mr. BLUNT. Fifteen cents retail.

Mr. COLE. The effort is less on it?

Mr. BLUNT. I think it is probably the same.

Chairman PLOESER. This is heavier than the other.

Mr. COLE. The freight would be less?

Mr. BLUNT. The same.

Chairman PLOESER. Is this heavier than the other?

Mr. BLUNT. It will be a little bit heavier, but I doubt if there is very much difference. It is approximately the same. I was told at one time that if the Government would prosecute this firm I would have damage suit against me.

Mr. BALLINGER. Triple damages.

Mr. BLUNT. Triple damages. They have damaged me at least $75,000 in the last 10 years.

Mr. BALLINGER. You have to wait until the Government prosecutes. Mr. BLUNT. Yes. I certainly do not have the funds to finance any prosecution of any case of that kind.

Mr. BALLINGER. You would not have to.

Chairman PLOESER. That is the Government's obligation.

Mr. BALLINGER. You have a recourse without prosecution. But when you have a record of the prosecution you take that into court.

Mr. BLUNT. Yes. I told Senator Kem about it. I gave him a letter about it.

Chairman PLOESER. We are grateful to have this information. (Witness excused.)

Mr. FORISTEL. Mr. Chairman, I have a copy of a speech made in Chicago by Milton Quint, attorney at law, associated with the firm of Buckley & Danzansky, of Washington, D. C., which scholarly and succinctly covers the present Supreme Court decisions regarding antitrust laws. In my opinion it contributes to our present study. May it be made a part of the official transcript?

Chairman PLOESER. It may be made a part of the record. (The speech above referred to follows:)

ADDRESS OF MILTON QUINT, OF BUCKLEY & DANZANSKY, GENERAL COUNSEL OF THE NATIONAL ICE CREAM MIX ASSOCIATION, CHICAGO, ILL., AUGUST 13, 1948

As Ed Koepenick, your executive vice president, pointed out to you in his statement, my function here is to give you a summary of the cases recently decided by the United States Supreme Court dealing with basing points and quantity discounts. These were the now famous Morton Salt and Cement Institute cases. I will not burden you with an extensive legal treatise on the subject, but will try to express my views in such terms as will enable you to understand how the Court's decision affects or involves your particular method of operation. It is probably true that most businessmen are not too concerned over what law the Government may use as a basis for any action it might bring, but unless they keep in mind the differences between the various laws under which so-called antitrust or unfair practice violations are commenced, a clear understanding of the Supreme Court's decisions will not be possible. I have talked with a great many businessmen about these different laws, and, in fact, to a great many lawyers, and was greatly surprised to learn that many of them do not have a clear idea of what the various laws seek to accomplish.

The principal laws involved are the Sherman Antitrust Act, the Clayton Act, as amended by the Robinson-Patman Act, and the Federal Trade Commission Act.

The Sherman Antitrust Act is aimed at two evils, (1) restraint of trade and (2) monopolies. Section 1 of the act which deals with restraint of trade states in part, "Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several States is hereby declared to be illegal."

Section 2 states in part that "Every person who shall monopolize or attempt to monopolize, or combine or conspire with any other person or persons to monopolize any part of the trade or commerce among the several States, shall be guilty of a misdemeanor."

The applicable penalties under each section are (1) fines not exceeding $5,000 and (2) imprisonment not exceeding 1 year. In addition to the criminal penalties, the act provides for treble-damage actions to be brought by "any person who shall be injured in his business or property by any other person or corporation, by reason of anything forbidden or declared to be unlawful by the act." It may be of some interest to know that the jail penalty imposed by the act has very seldom been applied. One of the reasons, but not the only one, is that most defendants have been corporations, and you just can't put a corporation in jail.

That, briefly, is the Sherman Antitrust Act-agreements in restraint of trademonopolies both banned.

Now let us turn to the Clayton Act as amended by the Robinson-Patman Act with particular emphasis on section 2.

Section 2 (a) states in part that it shall be illegal for any person engaged in commerce either directly or indirectly to discriminate in price between different purchasers of commcdities of like grade and quality, where either or any of the purchasers involved in the discrimination are in commerce and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination or with customers of either of them. There is a proviso in that section which states that it is not intended to prevent differences which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are sold or delivered. The burden of establishing justification for the price differentials is thrown upon the person charged with the violation, and that includes a showing by a seller that his lower price was made in good faith to meet an equally low price of a competitor. This last statement should be kept in mind when we discuss the Cement case.

There are other prohibitions in the Clayton Act, but I believe that for our purposes the part we have just mentioned is the most important. The act also specifically states that it shall be unlawful for any person engaged in commerce knowingly to induce or receive a discrimination in price which is prohibited. The act makes provision for criminal penalties and also provides for the same type of treble-damage action as has been mentioned under the Sherman Antitrust Act.

There is one portion of the Robinson-Patman Act which, although not involved In the decisions we will discuss, should be of great interest to businessmen : that is, the provision in section 3 of the Robinson-Patman Act which prohibits the selling of goods at unreasonably low prices for the purpose of destroying competition or eliminating a competitor. It is the considered opinion of most lawyers that a violation of the provision just read does not serve as the basis of a treble-damage action, but is enforced by fines or imprisonment, or both.

Now let us turn to the Federal Trade Commission Act. The important part of that act is section 5. Very briefly, it states that unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce are declared unlawful. One of the reasons for the enactment of the Federal Trade Commission Act, particularly section 5, was to provide some means whereby unfair practices not falling under the Robinson-Patman Act or the Sherman Act could be attacked. It was the belief of Congress that so many different schemes and practices would be conceived that it would be impossible to write specific legislation banning each and every such practtice; that a general prohibition against unfair practices, and one which could be enforced by a commission specially set up for that purpose, would be most effective.

The courts have said that a violation of the Sherman Antitrust Act may, at the same time, be a violation of section 5 of the Federal Trade Commission Act; and, therefore, could be enforced by action of the Commission. The courts have also said that a violation of the Federal Trade Commission Act does not necessarily assume the proportions of a violation of the antitrust laws.

I hope that I have not confused you too much and that you now have a reasonably clear conception of the laws involved.

With that bit of background, let us turn to a discussion of the Morton Salt case, which was decided by the Supreme Court a few months ago. That action, which was brought by the Federal Trade Commission, was based on a violation of section 2 (a) of the Clayton Act as amended by the Robinson-Patman Actthe price discrimination section. The facts, briefly stated, are that the salt company had a standard quantity-discount system available to all customers. There were different prices applicable to less-than-carload purchases, carload purchases, 5,000-case purchases in any consecutive 12 months, and 50,000-case purchases in any consecutive 12 months. There was a finding, and this is very important, that only five companies, all large retail chain stores, ever bought enough to get the benefit of the top discount; the 50,000-case discount. The result of this was that these large companies were able to sell the salt, at retail, . cheaper than wholesalers could sell to independent retailers, many of whom competed with the chain stores. The court held that those discounts were discriminatory within the meaning of the act.