Mr. DINGELL. What is the impact on the small businessman or on the retailer? Mr. DIXON. Well, geographically Mr. DINGELL. That is, geographically. Mr. DIXON. One price under that authority could be maintained where he would make very little, whereas in another, he would, probably, maintain it where he would make a lot more. It would be like what we call, under section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, a primary line price discrimination-an area price discrimination. Mr. DINGELL. As a matter of fact, you had considerable difficulty or have had in the milk case, did you not, on price? Mr. DIXON. We are having considerable difficulty in that field, sir. A great deal of our resources are used in investigating this type situation. Mr. DINGELL. What is your finding as to this kind of variable price discrimination-well, with regards to different retailers who are afflicted by the practice? Mr. DIXON. It could be said in all area price discrimination cases that the small, localized competitor can be driven right to the wall because he operates only in one region, whereas a large national manufacturer may be operating in all of the United States. And in this one area, where there is one competitor, he could lower the boom, so to speak, and the price goes down there. Under this bill that could be done. Mr. DINGELL. Let us relate the language on line 3 we have just been referring to, to the language on line 14 of the same page where it states: All rights and remedies provided in paragraphs (7) to (17), inclusive, of this subsection, the owners of a brand, name, or trademark, shall be also available to any owner of a brand, name, or trademark who, in the sale of goods identified by such brand, name, or trademark, shall compete, at any level of distribution, with any reseller offering such goods. This offers the manufacturer, the trademark owner, the opportunity to not only fix different prices in different geographical areas, but to control the prices of all of his competitors in all of these areas, and further it permits him in the process of such control to engage in area price discrimination, does it not? Mr. DIXON. I agree with that conclusion. Mr. DINGELL. What is the impact of the combination of these two sections on the small businessman who might be differently situated in one area or another? Let us say, particularly with reference to the drug wholesaler. The manufacturer might be able to fix the retailer's profit margin in one area at a low profit margin, so low in one area that he would not be able to stay in business and handle this particular commodity; am I correct? Mr. DIXON. It could be under that. Mr. DINGELL. In this particular section, or, under it, he might also be able to utilize this to achieve control of the wholesale market in a particular area, might he not? Mr. DIXON. He could, sir. Mr. DINGELL. And having so done, he then would be able to have control of the market, to dominate the market, and to continue the discrimination, pricewise on area lines, and different prices in different parts of the country, and so, ultimately, achieve control of the whole of the wholesale distribution of large parts of the wholesale pharmaceutical industry, might he not? Mr. DIXON. That is correct, sir. One of the primary things that I see wrong with this whole approach is that this is a turnover, a delivery to the trademark owner, justifiable rights, to do pretty well as he sees fit. He can play it like a piano or a pipe organ anyway he wants to play it. Mr. DINGELL. In other words, under these two statutes he can destroy any small retailer or small wholesaler if he chooses to do so, might he not? Mr. DIXON. Anyone in his line, he can destroy them and eliminate them. Mr. DINGELL. And he might, conceivably, destroy the whole line, might he not? Mr. DIXON. If he was in concert, we would hope that we would be able to discover that and that action would be taken under the Sherman Act or the Federal Trade Commission Act. We have an increasingly difficult time determining when people are in concert. What constitutes agreement, conspiracy, collusion, is one of the hardest problems in antitrust enforcement. Follow the leader; acting independently. The law says collusion, conspiracy: there must be evidence from which a common plan can be inferred. But if you happen to act independently, just like somebody else, you may get the same results. Mr. DINGELL. I would like you to refer to another section of the bill which your comments bring to mind, that is, the language on page 2 of H.R. 3669, line 12, which reads, "If goods usable for the same general purpose are available to the public from sources other than the owner of such brand, name, or trademark," et cetera. We had a colloquy on this point yesterday with one of the witnesses, wherein our discussion lead us to a consideration of a number of items, in the marketing of a particular commodity which raised a question of a certain small segment in relationship to the commodity problem which we have in the manufacturing end. There might be as many as eight and as few as four. I wonder what your comments are on this particular section. Mr. DIXON. If there are only three or four in open competition, is this, Mr. Chairman, your question, your observation? Mr. DINGELL. With regard to what constitutes free and open competition. It occurs to me if we have four manufacturers who produce 80 to 100 percent of the commodity on the market, we do not have free and open competition. Is that your construction of that? Mr. DIXON. It certainly restricts them. The economists use the words that it has the characteristics of an oligopolistic type of competition. If anything, it is not monopolistic, but it has all of the characteristics of oligopoly. It is not truly competitive, either. It is rather limited. Mr. DINGELL. That would be your statement that it does not constitute free and open competition? Mr. Dixon. It is a very serious question. Mr. DINGELL. In the market? Mr. DIXON. It certainly is a very serious question, sir. It is not classical competition. It is very different from classical competition. Mr. DINGELL. As a matter of fact, it is your feeling that it should be most strictly construed? Mr. DIXON. I think that it should be, sir, because our laws, the antitrust laws are very hard to apply in the oligopolistic situation. To open this kind of a door to this type of situation, could eliminate price competition, and permit sellers to follow and move along on a horizontal level. Then you would have four people moving right straight down the line, marching together. Mr. DINGELL. I recognize my good friend, Mr. Van Deerlin. Mr. DINGELL. We are very grateful to you for your presence here today. I presume you will want to submit then other comments on behalf of the Federal Trade Commission with regard to H.R. 3669, am I correct? course. Mr. DIXON. We are preparing those now. They will come in due I am rather chagrined that they are not here now so that I would be freer and more erudite in the questions that you have put to me, because we had just gotten through with H.R. 457, and I would finish on H.R. 3669. Mr. DINGELL. I am sure that your comments will be equally pointed. I am very grateful to you. I hope you will accept the thanks of not only myself, but, also, of those present for the help you have given us. Mr. DIXON. Thank you very much. Mr. DINGELL. The Chair will now recognize Mr. John A. Gosnell. STATEMENTS OF JOHN A. GOSNELL, GENERAL COUNSEL, AND FRANK M. CRUGER, CHAIRMAN, NATIONAL SMALL BUSINESS ASSOCIATION, WASHINGTON, D.C. Mr. GOSNELL. Mr. Chairman and members, I am John A. Gosnell, and I have with me Mr. Frank M. Cruger, of Indianapolis, who is chairman of the board of the National Small Business Association. He is, also, president of the Indiana Manufacturers Supply Co. of Indianapolis and he is past president of the National Industrial Distributors Association, of which he has been a member a long time. My statement is primarily addressed to the legal points, but Mr. Cruger, with a long background on distribution, may be able to throw some light on the current problems. Mr. DINGELL. You are both welcome. Mr. GOSNELL. Thank you. Mr. DINGELL. Do you desire to read your full statement? Mr. GOSNELL. In view of the sequence of the argument, Mr. Chairman, I think that I will be almost required to follow the written text generally. It is not too lengthy. Mr. DINGELL. Very well. Mr. GOSNELL. My name is John A. Gosnell. I am engaged in the general practice of law in the partnership of Gosnell & Durkin, 1145 19th Street NW., Washington, D.C. I am appearing here today as general counsel of the National Small Business Association of Washington, D.C. We appreciate the opportunity to further discuss the merits of this proposed legislation, the quality stabilization bill, H.R. 3669. At this stage of the proceedings all of us have the advantage of a degree of perspective on what has been said during the previous hearings. I assure you that I will not burden the committee with a repetitive summary of what has already been said. We have made an earnest effort to at least begin an objective and detached analysis of the problem before you. We hope that these reflections will throw constructive light on points which have not been examined at all, as well as those which obviously require deeper consideration. The testimony presented to this committee by an impressive number of responsible and informed witnesses does establish one uncontrovertible fact that a serious problem does exist-and that, for one or more reasons, there is trouble in a major segment of the competitive environment. As you gentlemen well know, no amount of persuasion or promotion could generate the volume and quality of testimony presented here unless there was in fact real and widespread concern over a genuine problem. It behooves us therefore, and particularly this committee, to thoroughly understand, not only the visible aspects of the problem, but to isolate and analyze the underlying pressures which have generated so much complaint from certain segments of distribution, and resistance by certain governmental agencies, to a legislative proposal which is relatively mild and restrained in scope. First, let me clear up some basic questions about what would happen if this proposal were enacted, and a company sought injunctive relief under the act. There is no difficulty with respect to such practices as bait merchandising, misrepresentation, and product substitution. In the case of these acts, you are merely extending the scope of the common law of unfair competition to cover modern offenses which are developed in the marketplace. The Federal Trade Commission acknowledges that these practices constitute unfair competition within the purview of section 5 of the Federal Trade Commission Act, but there is no reason why Congress should not also make available a private remedy in this area. This joint jurisdiction would interfere in no way with the function of the Federal Trade Commission in policing unfair acts of competition for the public good. In fact, they now operate under precisely the same condition with respect to those acts of unfair competition recognized by the Federal common law as actionable in private suits, and which are also violations of section 5 of the Federal Trade Commission Act. It would be impossible for the Federal Trade Commission to efficiently police the entire market, especially since it has no intrastate jurisdiction; furthermore, the Commission will not, as a matter of policy, attempt to seek redress for private wrongs. In fact, the Federal Trade Commission could not possibly handle the volume of private offenses in interstate commerce even if their force were doubled. In the case of a petition for injunction against price violations there appears to be a complete misunderstanding, both of the factual situation and of the operation of the legal process under this bill. In the first place, the public interest cannot be injured by efforts to maintain resale prices of national brands except in case of a monopoly product, and this bill has a specific provision preventing its use by the brand name manufacturer of a monopoly product. (That is in par. 8 of H.R. 3669, lines 12-15, p. 2.) The practical reason that the public cannot be injured under the quality stabilization bill is that competition forces prices to be competitive, and any manufacturer attempting to establish or maintain an arbitrary high price would soon be out of the market entirely. The bill does not interfere in any way with the thrust of the antitrust laws relating to horizontal price fixing, monopolies, restraints of trade, or price discrimination. Our Federal judges certainly are not stupid, and the structure of the suality stabilization bill would require close scrutiny by the court of such application for an injunction. No company could enforce a price policy if there was indication of a monopoly situation-nor if there was evidence or suspicion of collusive pricing of competing products-nor if there was indication or suspicion of any other possible violation of the antitrust laws. Bear in mind that the court would not have to be convinced of an antitrust violation. It could, and no doubt would, deny injunctive relief under the quality stabilization bill if not entirely satisfied that competition did exist, and that collusive parallel pricing, or other antitrust violation did not exist. You could hardly provide better assurance against antitrust abuses under the cloak of this bill. In my opinion, it is a gross misrepresentation for opponents to say that this bill authorizes price fixing, or that Congress is abdicating to industry its duty to regulate interstate commerce. In order to get at the roots of this problem it is necessary to be fully informed on the present state of distribution of trademarked goods. It does not appear to be realized that an increasing percentage-some say about 40 to 50 percent-of the total sales volume of branded merchandise is sold under controlled house brands. And these figures do not include foreign goods made for American distributors and sold under house brands. These are the trademarks owned by large distributing units, whether chains, mail-order houses, discount houses, giant wholesalers, cooperative buying units, or any other type of distributive organization. These are normal trademarks in every way except that, generally speaking, house brands are owned by distributing organizations rather than by manufacturers. In some cases these large distributors may own the manufacturing plant which produces the goods bearing the trademark; nevertheless, for purposes of this discussion such marks will be referred to as "controlled house brands". Most of these are either national in scope, or rapidly approaching national distribution. Now, why the term "controlled"? Again, generally speaking, these distributors have bridged the gap between the manufacturer and the retail customer. They maintain control of both the pricing structure and the geographical location of the outlets, so that in fact the merchandising policy is fully controlled by the owners of the trademark. |