§ 203.11 [Reserved]

§ 203.12 Statement with respect to providing services and facilities at stockyards on a reasonable and nondiscriminatory basis.

(a) Section 304 of the Packers and Stockyards Act (7 U.S.C. 205) provides that: "All stockyard services furnished pursuant to reasonable request made to a stockyard owner or market agency at such stockyard shall be reasonable and nondiscriminatory and stockyard services which are furnished shall not be refused on any basis that is unreasonable or unjustly discriminatory

(b) Section 305 of the Act (7 U.S.C. 206) states that: "All rates or charges made for any stockyard services furnished at a stockyard by a stockyard “owner or market agency shall be just, reasonable, and nondiscriminatory

(c) Section 307 (7 U.S.C. 208) provides that: "It shall be the duty of every stockyard owner and market agency to establish, observe, and enforce just, reasonable, and discriminatory regulations and practices in respect to the furnishing of stockyard services * * *"

non

(d) Section 312(a) (7 U.S.C. 213(a)) provides that: "It shall be unlawful for any stockyard owner, market agency, or dealer to engage in or use any unfair, unjustly discriminatory, or deceptive practice or device in connection with determining whether persons should be authorized to operate at the stockyards, or with the receiving, marketing, buying, or selling on a commission basis or otherwise, feeding, watering, holding, delivery, shipment, weighing or handling, in commerce, of livestock."

(e) Section 301(b) (7 U.S.C. 201(b)) defines "stockyard services" as any "services or facilities furnished at a stockyard in connection with the receiving, buying, or selling on a commission basis or otherwise, marketing, feeding, watering, holding, delivery, shipment, weighing, or handling, in commerce, of livestock."

(f) It is the view of the Packers and Stockyards Administration that it is a violation of sections 304, 307, and 312(a) of the Act for a stockyard

owner or market agency to discriminate, in the furnishing of stockyard services or facilities or in establishing rules or regulations at the stockyard, because of race, religion, color, or national origin of those persons using the stockyard services or facilities. Such services and facilities include, but are not limited to, the restaurant, restrooms, drinking fountains, lounge accommodations, those furnished for the selling, weighing, or other handling of the livestock, and facilities for observing such services.

(g) If the Packers and Stockyards Administration has reason to believe that any stockyard owner or market agency has so discriminated in the furnishing of stockyard services or facilities, consideration will be given to the issuance of a complaint charging the stockyard or market agency with violations of the Act.

(Sec. 407(a), 42 Stat. 159, 72 Stat. 1750; 7 U.S.C. 228(a). Interprets or applies secs. 304, 307, 312, 42 Stat. 161 et seq., as amended, 7 U.S.C. 205, 208, 213)

[33 FR 17621, Nov. 26, 1968]

§ 203.13 [Reserved]

§ 203.14 Statement with respect to advertising allowances and other merchandising payments and services.

(a) The Packers and Stockyards Administration has received complaints during the past several years concerning payments made to customers or retailers by packers subject to the Packers and Stockyards Act, purportedly for advertising allowances and other promotional services. Investigations were conducted of these complaints, some of which disclosed apparent violations of the provisions of the Packers and Stockyards Act. It was found in some cases that there was no relationship between the payment made and the cost of furnishing the services. The investigations further disclosed that the terms of the contract were not always complied with in that the payments received by customers were not used for the purposes specified.

(b)(1) In view of the importance of this problem in the industry, it was determined that a policy statement should be issued to provide guidelines

for the industry in order to assist firms in complying with the provisions of the Packers and Stockyards Act. This statement applies to any meat packer subject to the Packers and Stockyards Act, when such packer either directly or through an intermediary pays for or furnishes services to a customer who competes with any other customer in the resale of the packer's products of like grade and quality.

(2) The following statement of general policy has been developed after extensive consultations with members of the trade and represents the views of the Packers and Stockyards Administration with respect to the use of advertising allowances and other promotional services in connection with the sale of the packer's products.

THE GUIDELINES

1. Who is a customer? (a) A "customer" is a person who buys for resale directly from the packer, or through the packer's agent or broker; and in addition, a customer is any buyer of the packer's product for resale who purchases from or through a wholesaler or other intermediate reseller.

NOTE: In determining whether a packer has fulfilled his obligations toward his customers, the Packers and Stockyards Administration will recognize that there may be some exceptions to this general definition of "customer." For example, the purchaser of distress merchandise would not be considered a "customer" simply on the basis of such purchase. Similarly, a retailer who purchases solely from other retailers, or one who makes only sporadic purchases, or one who does not regularly sell the packer's product or who is a type of retail outlet not usually selling such products will not be considered a "customer" of the packer unless the packer has been put on notice that such retailer is selling his product.

(b) "Competing customers" are all businesses that compete in the resale of the packer's products of like grade and quality at the same functional level of distribution, regardless of whether they purchase direct from the packer or through some intermediary.

Example: A packer sells directly to some independent retailers, sells to the headquarters of chains and of retailer-owned cooperatives, and also sells to wholesalers. The direct-buying independent retailers, the headquarters of chains and of retailerowned cooperatives, and the wholesalers' independent retailer customers are customers of the packer. Individual retail outlets

which are part of the chains or members of the retailer-owned cooperatives are not customers of the packer.

2. Definition of services. "Services" are any kind of advertising or promotion of a packer's product, including but not limited to, cooperative advertising, handbills, window and floor displays, demonstrators and demonstrations.

3. Need for a plan. If a packer makes payments or furnishes services, he should do so under a plan that meets several requirements. If there are many competing customers to be considered, or if the plan is at all complex, the packer would be well advised to put his plan in writing. Briefly, the requirements are:

(a) The payments or services under the plan should be available on proportionally equal terms to all competing customers.

(b) The packer should take action designed to inform all of his competing customers of the existence of and essential features of the promotion plan in ample time for them to take full advantage of it.

(c) If the basic plan is not functionally available to (i.e., suitable for and usable by) some customers competing in the resale of the packer's products of like grade and quality with those being furnished payments or services, alternatives that are functionally available should be offered to such custom

ers.

(d) In informing customers of the details of a plan, the packer should provide them sufficient information to give a clear understanding of the exact terms of the offer, including all alternatives and the conditions upon which payment will be made or services furnished.

(e) The packer should take reasonable precautions to see that the services are actually performed and that he is not overpaying for them.

4. Proportionally equal terms. The payments or services under the plan should be made available to all competing customers on proportionally equal terms. This means that payments or services should be proportionalized on some basis that is fair to all customers who compete in the resale of the packer's products. No single way to proportionalize is prescribed, and any method that treats competing customers on proportionally equal terms may be used. Generally, this can best be done by basing the payments made or the services furnished on the dollar volume or on the quantity of goods purchased during a specified period. Other methods which are fair to all competing customers are also acceptable.

Example 1: A packer may properly offer to pay a specified part (say 50 percent) of the cost of local advertising up to an amount equal to a set percentage (such as 5

percent) of the dollar volume of purchases during a specified time.

Example 2: A packer may properly place in reserve for each customer a specified amount of money for each unit purchased and use it to reimburse those customers for the actual cost of their advertising of the packer's product.

Example 3: A packer should not select one or a few customers to receive special allowances (e.g., 5 percent of purchases) to promote his product while making allowances available on some lesser basis (e.g., 2 percent of purchases) to customers who compete with them.

Example 4: A packer's plan should not provide an allowance on a basis that has rates graduated with the amount of goods purchased, as for instance, 1 percent of the first $1,000 purchases per month, 2 percent on second $1,000 per month, and 3 percent on all over that.

Example 5: A packer should not identify or feature one or a few customers in his own advertising without making the same service available on proportionally equal terms to customers competing with the customer or customers.

Example 6: A packer should not offer to pay a straight line rate for advertising if such payment results in a discrimination between competing customers; e.g., the offer of $1 per line for advertising in a newspaper that charges competing customers different amounts for the same advertising space.

(The straight line rate for advertising is an acceptable method for allocation of advertising funds, if the packer offers an alternative to retailers that pays more than the lowest newspaper rate which enables small retailers to obtain the same percentage of the cost of advertising as large retailers. Example: A packer's straight line rate of payment of $1 per line is based on 50 percent of the newspaper's lowest contract rate of $2 per line. The packer should offer to pay 50 percent of the newspaper advertising cost of the smaller retailers who established by invoice or otherwise that they paid more than the lowest contract rate of $2 per line for advertising.)

Example 7: A packer should not refuse to participate in the cost of ads that feature prices other than the packer's suggested prices. (See Item 6.)

5. Packer's duty to inform. The packer should take reasonable action, in good faith, to inform all his competing customers of the availability of his promotional program. Such notification should include all the relevant details of the offer in time to enable customers to make an informed judgment whether to participate. In the alternative, such notification should include a summary of the essential features and a specific source to contact for further details on a specific promotion. Where such one-step no

tification is impracticable, the packer may, in lieu thereof, maintain a continuing program of first notifying all competing customers of the types of promotions offered by the packer and a specific source for the customer to contact in order to receive full and timely notice of all relevant details of the packer's promotions. Such notice should also inform all competing customers that the packer offers advertising allowances and/or other promotional assistance that are usable in a practical business sense by all retailers regardless of size. When a customer indicates his desire to be put on the notification list, the packer should keep that customer advised of all promotions available in his area as long as the customer so desires. The packer may make the required notification by any means he chooses; but in order to show later that he gave notice to a certain customer, he is in a better position to do so if it was given in writing or a record was prepared at the time of notification showing date, person notified, and contents of notification.

If more direct methods of notification are impracticable, a packer may employ one or more of the following methods, the sufficiency of which will depend upon the complexity of his own distribution system. Different packers may find that different notification methods are most effective for them.

(a) The packer may enter into contracts with his wholesalers, distributors or other third parties which conform to the requirements of item 10, infra.

(b) The packer may place appropriate announcements on product containers or inside thereof with conspicuous notice of such enclosure on the outside.

(c) The packer may publish notice of the availability and essential features of a promotional plan in a publication of general distribution in the trade.

Example 1: A packer has a plan for the retail promotion of his products in Philadelphia. Some of his retailing customers purchase directly, and he offers the plan to them. Some other Philadelphia retailers purchase his products through wholesalers. The packer may use the wholesalers to reach the retailing customers who buy through them, either by having the wholesalers notify those retailers in accordance with item 10 or by using the wholesalers' customer lists for direct notification by the packer.

Example 2: A packer has a plan for the retail promotion of his products in Kansas City. Some of his retailing customers purchase directly and he offers the plan to them. Others purchase his products through wholesalers. The packer may satisfy his notification obligations to them by

undertaking, in good faith, one or more of the following measures:

(a) Placing on a shipping container or a product package in time to enable them to participate in the program a conspicuous notice of the availability and essential features of his proposals, identifying a specific source for further particulars and details. In lieu of identifying a source for further particulars, brochures describing the details of the offer may be included in the shipping containers. If it is impracticable to include the essential features of the proposal on or in the shipping container, the packer may substitute in the notice, as stated above, a summary of the types of promotions offered (e.g., allowances for advertising in newspapers, handbills, or envelope stuffers; allowances for radio or television advertising; short term display allowances, etc.) and a statement that such promotions are usable in a practical business sense by all retailers regardless of size.

(b) Including the materials within the product container, if a promotional plan simply consists of providing retailers with display materials.

(c) Advising customers from accurate and reasonably complete mailing lists.

(d) Placing an announcement of the availability and essential features of promotional programs, and identifying a specific source for further particulars and details, at reasonable intervals in publications which have general and widespread distribution in the trade and which are recognized in the trade as means by which packers announce the availability of such programs.

Example 3: A packer has a wholesaler-oriented plan directed to wholesalers distributing his products to retailing customers. He should notify all the competing wholesalers distributing his products of the availability of this plan, but the packer is not required to notify retailing customers.

Example 4: A packer who sells on a direct basis to some retailers in an area, and to other retailers in the area through wholesalers, has a plan for the promotion of his products at the retail level. If the packer directly notifies not only all competing direct purchasing retailers but also all competing retailers purchasing through the wholesalers as to the availability, terms and conditions of the plan, the packer is not required to notify his wholesalers.

Example 5: A packer regularly engages in promotional programs and the competing customers include large direct purchasing retailers and smaller customers who purchase through wholesalers. The packer may encourage, but not coerce, the retailer purchasing through a wholesaler to designate a wholesaler as his agent for receiving notice of, collecting, and using promotional allowances for him. If a wholesaler or other intermediary by written agreement with a re

tailer is actually authorized to collect promotional payments from suppliers, the packer may assume that notice of and payment under a promotional plan to such wholesaler or intermediary constitutes notice and payment to the retailer.

(A packer should not rely on a written agreement authorizing an intermediary to receive notice of and/or payment under a promotional plan for a retailer if the packer knows, or should know, that the retailer was coerced into signing the agreement. In addition, a packer should assume that an intermediary is not authorized to receive notice of and/or payment under a promotional plan for a retailer unless there is a written authorization signed by such retailer.)

6. Availability to all competing customers. The plan should be such that all types of competing customers may participate. It should not be tailored to favor or discriminate against a particular customer or class of customers but should, in its terms, be usable in a practical business sense by all competing customers. This may require of fering all such customers more than one way to participate in the plan or offering alternative terms and conditions to customers for whom the basic plan is not usable and suitable. The packer should not, either expressly or by the way the plan operates, eliminate some competing customers, although he may offer alternative plans designed for different customer classes. If he offers alternative plans, all of the plans offered should provide the same proportionate equality and the packer should inform competing customers of the various alternative plans.

With respect to promotional plans offered to retailers, the packer should insure that his plans or alternatives do not bar any competing retailer customers from partici. pation whether they purchase directly from him or through a wholesaler or other intermediary.

When a packer, in good faith, offers a basic plan, including alternatives, which is reasonably fair and nondiscriminatory and refrains from taking any steps which would prevent any customer, or class of customers, from participating in his program, he shall be deemed to have satisfied his obligation to make his plan functionally available to all customers, and the failure of any customer or customers to participate in the program shall not be deemed to place the packer in violation of the provisions of the Packers and Stockyards Act.

Example 1: A packer offers a plan of short term store displays of varying sizes, includ

1Allowances that have little or no relationship to cost or approximate cost of the Continued

ing some which are suitable for each of his competing customers and at the same time are small enough so that each customer may make use of the promotion in a practical business sense. The plan also calls for uniform, reasonable certification of performance by the retailer. Because they are reluctant to process a reasonable amount of paperwork, some small retailers do not participate. This fact is not deemed to place a packer in violation of Item 6 and he is under no obligation to provide additional alternatives.

Example 2: A packer offers a plan for cooperative advertising on radio, television, or in newspapers of general circulation.2 Because the purchases of some of his customers are too small, this offer is not “functionally available" to them. The packer should

service provided by the retailer may be considered to be in violation of section 202 of the Act, such as an allowance of $1 per case of goods purchased if the retailer furnishes a display or provides specific shelf space, or a promotional allowance of 10 percent of purchases during a specific period of time if the retailer places an ad of at least 3 column inches in a newspaper. In addition, a customer, subject to the Act, that induces such allowances may be proceded against under section 202 of the Act. Also, the purchase of display or shelf space, whether directly or by means of so-called allowances, may be considered an "unfair practice" in violation of section 202 of the Act.

"In order to avoid the tailoring of promotional programs that discriminate against particular customers or class of customers, the packer in offering to pay allowances for newspaper advertising should offer to pay the same percentage of the cost of newspaper advertising for all competing customers in a newspaper of the customer's choice, or at least in those newspapers that meet the requirements for second class mail privileges. Examples of promotional plans that may discriminate against small retailers are: (1) a plan that offers to pay 75 percent of the cost of advertising in daily newspapers, which are the regular advertising media of the packer's large or chain store customers, and only 50 percent of the cost of advertising in other newspapers that may be used by small retail customers; and (2) a plan that pays allowances for advertising in daily newspapers, which are the regular advertising media of the packer's large or chain store customers, but does not pay allowances for advertising in semi-weekly, weekly, or other newspapers that may be desirable to small retail customers, who are offered, as an alternative to advertising in daily newspapers, services such as envelope stuffers, handbills, window banners, etc. (See item 4.)

offer them alternative(s) on proportionally equal terms that are usable by them and suitable for their business.

7. Need to understand terms. In informing customers of the details of a plan, the packer should provide them sufficient information to give a clear understanding of the exact terms of the offer, including all alternatives, and the conditions upon which payment will be made or services furnished.

8. Checking customer's use of payments. The packer should take reasonable precautions to see that services he is paying for are furnished and also that he is not overpaying for them. Moreover, the customer should expend the allowance solely for the purpose for which it was given. If the packer knows or should know that what he pays or furnishes is not being properly used by some customers, the improper payments or services should be discontinued.

A packer who, in good faith, takes reasonable and prudent measures to verify the performance of his competing customers will be deemed to have satisfied his obligations under the Act. Also, a packer who, in good faith, concludes a promotional agreement with wholesalers or other intermediaries and who otherwise conforms to the standards of Item 10 shall be deemed to have satisfied this obligation. If a packer has taken such steps, the fact that a particular customer has retained an allowance in excess of the cost, or approximate cost if the actual cost is not known, of services performed by him shall not alone be deemed to place a packer in violation of the Act.

(When customers may have different but closely related costs in furnishing services that are difficult to determine, such as the cost for distributing coupons from a bulletin board or using a window banner, the packer may furnish to each customer the same payment if it has a reasonable relationship to the cost of providing the service or is not grossly in excess thereof.)

9. Competing customers. The packer is required to provide in his plan only for those customers who compete with each other in the resale of the packer's products of like grade and quality. Therefore a packer should make available to all competing wholesalers any plan providing promotional payments or services to wholesalers, and similarly should make available to all competing retailers any plan providing promotional payments or services to retailers. With these requirements met, a packer can limit the area of his promotion. However, this section is not intended to deal with the question of a packer's liability for use of an area promotion where the effect may be to injure the packer's competition.

10. Wholesaler or third party performance of packer's obligations. (a) A packer may, in good faith, enter into written agreements