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Mr. GOSNELL. I do not think that per se amounts to price discrimination.

Mr. DINGELL. I did not say it becomes price discrimination, I just say it authorizes him to fix different prices in different parts of the country.

Mr. GOSNELL. Well, I would find nothing wrong with that provided there was no price discrimination involved.

Mr. DINGELL. Now, where is there protection in this bill against price discrimination?

Mr. GOSNELL. Because

Mr. DINGELL. Do not give me a "because"; where in the bill is there protection against price discrimination?

Mr. GOSNELL. It does not in any way, in my opinion, abate the Robinson-Patman Act.

Mr. DINGELL. I do not see anything in the bill that has any savings clause with regard to the Robinson-Patman Act. You show me the savings clause with regard to the Robinson-Patman Act in this bill. Mr. GOSNELL. On the other hand, it does not

Mr. DINGELL. Tell me, now, where is there a savings clause with regard to the Robinson-Patman Act in this bill?

Mr. GOSNELL. Frankly, I had not considered that one was needed. Mr. DINGELL. You tell me where one is.

Mr. GOSNELL. Well, the absence of it does not necessarily indicate that a savings clause is needed on the point, does it?

Mr. DINGELL. Just a minute.

At least we have a very ambiguous situation, am I correct? You and I sit here discussing this point, and we do not know whether a savings clause is necessary, and we do not know what the courts are going to do with this when they get it, do we?

Mr. GOSNELL. I can say with certainty that there was no intent to open that door, and if the language needs to be sharpened to cover the point, I think that can very easily be done.

Mr. DINGELL. In other words, you feel, then, that it is important that this committee take some action to protect the little businessman from price discrimination under their particular section; am I correct? Mr. GOSNELL. Well, the purpose of the bill is to produce

Mr. DINGELL. This is your bill, and I am just asking you a very simple question. I want you to tell me what the purpose of the bill is, and I want you to tell me whether or not it is important we put something in here-now, you are representing little businessmen, I assume. Mr. GOSNELL. Yes, that is right.

Mr. DINGELL. And when we have this kind of a dangerous ambiguity, I begin to be concerned about my little businessmen and wonder whether or not we ought not to protect them from the jeopardy that they apparently are faced with here.

Mr. GOSNELL. I apparently had not considered that the bill needed a savings clause in that direction or I would have suggested it myself. Mr. DINGELL. Does it not appear in view of our colloquy that, perhaps, it may very well now?

Mr. GOSNELL. It may well need to be explored.

Mr. DINGELL. Well, I would not say it needs to be explored; in fact, does it not need it?

Mr. GOSNELL. I would like to reflect on it a little further and make my comments later.

Mr. DINGELL. You are here as an expert witness, you are an attorney, I assume you have studied the bill.

Mr. GOSNELL. I certainly have.

Mr. DINGELL. It is a very simple question, and you have found here that there is a dangerous ambiguity; have you not?

Mr. GOSNELL. No; it did not seem so to me. Because I had considered that there was no question about price discrimination.

Mr. DINGELL. Now, you tell me where in the bill there is anything that either acts as a savings clause for the Robinson-Patman Act, or anywhere in this statute there is anything that says that a man may not engage in price discrimination.

Mr. GOSNELL. Before you need the savings clause, you have to be convinced that one is needed.

Mr. DINGELL. All right, you tell me where in the bill there is anything that outlaws price discrimination.

Mr. GOSNELL. There is none.

Mr. DINGELL. There is none.

Mr. GOSNELL. No.

Mr. DINGELL. And at least on the face of it this statute conflicts with Robinson-Patman; does it not?

Mr. GOSNELL. On the other hand, it seems to me

Mr. DINGELL. Just a minute.

At least on the face of the statute this bill conflicts with RobinsonPatman: does it not?

Mr. GOSNELL. Not to me.

Mr. DINGELL. It authorizes different prices in different geographic areas; does it not?

Mr. GOSNELL. Yes, but that may not be price discrimination.

Mr. DINGELL. Just a minute.

Robinson-Patman outlaws price differentials in different geographic areas; does it not?

You are an attorney, and I am sure you must have read RobinsonPatman.

Mr. GOSNELL. I am very familiar with it.

Mr. DINGELL. Robinson-Patman is that price discrimination in different areas is outlawed; is that not right?

Mr. GOSNELL. To the same class of customers.

Mr. DINGELL. To the same class of customers.

under Robinson-Patman.

That is forbidden

Now, this authorizes to the same class of customers situated differently, geographically, different prices to be fixed by the manufacturer; am I correct?

It is very simple. The answer is "Yes."

Mr. GOSNELL. It may be, but the point

Mr. DINGELL. It is not the maybe, it is simply yes, is it not?

Mr. GOSNELL. The point had not occurred to me, but if that door is open, then it should be closed.

Mr. DINGELL. As a matter of fact, to protect the little businessman, it must be closed; must it not?

Mr. GOSNELL. Yes.

Mr. DINGELL. Thank you very much.

Mr. CURTIN. With respect to this recent discussion, under the Patman Act there can be a different price in different localities if you take into consideration the transportation costs. It is well known that in Honolulu you can sell a product for probably three times what you can sell it in Philadelphia or New York City for. Now, that is not price discrimination, as I understand it. Is that your understanding? Mr. GOSNELL. That is correct, sir.

Mr. DINGELL. But this bill does not say that, does it; this bill says nothing about transportation. It just says you can fix different prices in different geographic areas; is that correct?

Mr. GOSNELL. Yes. You have a point there.

Mr. CURTIN. Mr. Witness, is it not also true that the term "price" is used without saying this price includes so much for the cost of the product and so much for the cost of transportation? So that the general price that is asked for a product in different localities must differ because of geographical location?

Mr. GOSNELL. Right.

Mr. CURTIN. That is all, Mr. Chairman.

Mr. DINGELL. Thank you. We appreciate it.

(The following letter was later received from Mr. Gosnell :)

Hon. JOHN D. DINGELL,

NATIONAL SMALL BUSINESS ASSOCIATION,
Washington, D.C., May 6, 1963.

Commerce and Finance Subcommittee, House Committee on Interstate and Foreign Commerce, House Office Building, Washington, D.C.

DEAR Mr. DINGELL: Pursuant to the commitment made during any testimony on the quality stabilization bill, I have given further serious and objective attention to the question of whether the definition of "currently established resale price range" insofar as it relates to the establishment of resale prices "within each marketing area determined by the owner of the brand, name, or "trademark" is a relaxation of the probihitions of the Robinson-Patman Act against price discrimination (lines 4, 5, 6, and page 8 of bill).

The question, therefore, is whether the language of the bill requires a so-called saving clause to make it clear that there is no congressional intent to place any limitation on Robinson-Patman proscription against price discrimination which is predatory in nature or which may injure competition. It is my considered opinion that the tone of the whole bill makes it abundantly clear that there is no intent to abate Robinson-Patman, and it seems to me that this would be clear to any court.

My opinion in this respect is partly based on the language beginning on line 20 of page 6, which provides that it shall be a defense for any defendant "(B) to establish that the plaintiff has sold the same kind of goods of like grade and quality as the goods involved in such proceeding to another person similarity situated under terms more favorable or at lower prices than those under which the plaintiff sold such goods to the defendant."

I fully realize that this language merely set up a defense and does not probihit the establishment of resale prices on a market-area basis; nevertheless, it does provide a significant form of reference to any court required to construe the bill.

It is a well-known fact that, generally speaking, normal market-area price differentials unaccompanied by antitrust violation have not been challenged. It is an accepted fact, also, that there are sound practical cost and competitive reasons why a different marketing area may be established "just across the river," without involving antitrust violation. Factors affecting this merchandising decision may include consideration of the nature of the goods sold, the competitive conditions of the market, lower operating costs, and other cost factors such as scattered outlets, credit, and delivery service, and market factors such as concentration of population, level of income, tastes, and buying habits of con

sumers, etc. The practical effect of these marketing forces are observable right here in the Washington area.

Any attempt toward literal enforcement of Robinson-Patman under such circumstances would certainly react against the best interest of consumers generally. It is significant that the pricing policies which have evolved in these situations have rarely run afoul of the antitrust laws except where there was an unmistakable predatory intent. There are very solid practical reasons why a trademark owner will not permit his market-area pricing policy to disrupt his distribution system. It seems to me that this is a point which has been overlooked in this legislation. One is apt to conclude that because this legislation confers certain rights upon owners of national trademarks that it can be identified as big business legislation. But one is confronted by the undeniable fact that thousands of small independent distributors are solidly behind the bill. Self-interest is the only possible motive that could generate this much support. They see in this measure not only some degree of protection against unethical pricing, but a chance of stabilizing their margins, at least to the same degree that this can be accomplished by the distributors of house-branded goods. Actually the primary benefit to the manufacturer is protection of his distribution system, and it should be noted that the finest trademark in the world has no value unless it can be moved through a distribution system which is economically and competitively sound.

As to when the establishment of resale prices on the basis of marketing areas would tend to become predatory or result in damage to competition, this is an exhaustive subject. Nevertheless it is not at all difficult to detect the presence of predatory intent. The method may assume many different guises (which is the fact that defeats statutory definition), but the fundamental nature of the antitrust offense remains the same and can be pinpointed by the courts with relative

ease.

I am sure that there was no intent in the drafting of this bill to crack the armor of Robinson-Patman. As far as I personally am concerned, I see no benefit nor any harm in making it clear that while the establishment of resale prices on a fair and uniform basis in selected marketing areas is not to be construed as a violation of Robinson-Patman, there is no intent to abate the full force and effect of Robinson-Patman (or any other antitrust statute) with respect to possible violations in setting up marketing areas, or arising out of related acts, which tend toward monopoly, or which tend to damage the competitive environment. This could be fully covered in the committee report without adding surplusage to the bill.

Sincerely,

JOHN A. GOSNELL, General Counsel.

Mr. DINGELL. Is there anyone here who desires to file his statement? Mr. CRUGER. Mr. Chairman, I do not have a statement to file, but I have some very brief remarks that will take about 2 minutes. May I make them?

Mr. DINGELL. Would you not like to submit them for the record? I hate to foreclose you, but we are short of time.

Mr. CRUGER. I just wanted to comment as a small businessman, and not as a professional witness.

Thank you very much.

(The statement of Mr. Cruger follows:)

STATEMENT OF FRANK M. CRUGER

Mr. Chairman, I appear before your committee as a small businessman of considerable experience gained as president of the Indiana Manufacturers Supply Co., Inc., of Indianapolis, Ind. I am also past president of the National Industrial Distributors Association of Philadelphia, and as you know, I am chairman of the board of the National Small Business Association of Washington, D.C.

I do not pretend to be an expert on the legal aspects of this legislation, but I certainly have plenty of first-hand practical knowledge of the problems affecting the distribution industry generally. I would like to point out first that industrial distribution does not follow the traditional pattern of manufacturer to

wholesaler to retailer. Industrial distribution generally moves from the point of origin, or manufacturer, to the distributor, and from the distributor to the ultimate purchaser, which is usually a manufacturer, or other industrial purchaser.

The product line includes many types of light machine tools, industrial equipment and supplies, and it is necessary for many of our salesmen to have training and experience in engineering. Obviously, therefore, this area of distribution does not have the usual retail complexion. For the past 10 years this industry has suffered declining profits, and I believe in 1962 the average profit for the Nation in industrial distribution amounted to less than three-fourths of 1 percent after taxes. As a rule, our manufacturer-suppliers do not deviate from their quoted prices to distributors.

The real tough competition exists among the distributors of industrial goods. Again, generally speaking, the manufacturers who supply the goods we handle make satisfactory profits. The distributor on the other hand, due to severe competition at the selling level, has almost no profit, as indicated above.

I would like to call your attention to the fact that so far as I am aware, this area of distribution is not beset by any of the types of unfair competition which appear in retail distribution, and which have been complained of during this hearing. Industrial distributors have naturally concentrated their efforts on efficiency of operation, minimum personnel, and modern methods of material handling, but despite this effort price cutting has reduced net profits to a very unhealthy basis.

I should mention here that, particularly in the last decade, the National Small Business Association has paid close attention to the distress which has appeared in distribution and wholesaling. We have received many complaints about manufacturers terminating their relationships with distributors who have represented them for years: also complaints that distributors' margins have been cut by increasing costs and competitive pressures to the point of distress. We have given each complaint the closest attention, and it has been very frustrating to find that almost in every case we have examined there is no violation of either law or ethical trade policy.

The association has also closely followed every suggestion made to alleviate these distribution problems, such as the legislative proposal to establish functional discounts, and so forth. We had some independent studies made of the subject, and after considerable deliberation, came to the conclusion that no function or service required in the manufacture and production of goods ought to be subsidized merely for the purpose of perpetuating that particular form of service. We believe that within our competitive process evolutionary improvement should be permitted to operate freely without any paternalistic effort to influence the direction of progress, or to interfere with trends toward more efficient methods of manufacture and distribution.

Now, we come to the real reason why we are in favor of this bill. We are convinced after close attention to the potential effect of this legislation, that it will tend toward greater stability in our distribution of industrial supplies without interfering with the free play of competition. This basic function which we perform is a service that must be rendered-at least no one has come up with a more efficient method. It is reasonable to expect, therefore, that those who perform the service are entitled to a reasonable return for the effort.

Now, there is certainly no need here for Federal regulation of prices. On the other hand we do believe there is a Federal duty to equalize the regulatory policy with respect to distribution of house brands and distribution of national brands. We believe that competitive products should be allowed to seek their own price level on the basis of product competition without the handicap of intrabrand price cutting imposed on one segment of distribution.

After thorough study of the quality stabilization bill, we believe that this phase of the problem will be greatly helped, if not largely eliminated, by this legislation. At the same time our competitive system will not suffer because the machinery of the bill cannot become operative unless product competition does exist. I do not see how we could devise a better way to protect the functioning of our competitive system, and at the same time promote a degree of order and stability in our markets.

I believe the lesson we are beginning to learn is that unrestrained competition, even though there may be no unfair competition, nor any violation of existing national policy, does not necessarily lead to the best interests of the national

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