Download Journal of Marketing, January, 1966 ing its judgment in determining

72
ing its judgment in determining the price of its new
product. How then could it really know whether it was
selling below cost? It could not, even though an
accounting firm might make some estimates of the firm's
minimum unit cost which showed the sales prices to be
below cost. The court found such latter evidence to be
insufficient since it was based on the inadequate data
provided by the manufacturer.
Proof of sales below cost may be prima facie evidence
of intent to injure competitors or destroy competition.
But even if actual sales below cost can be demonstrated,
can you prove the seller guilty? Not if he does not
know his own unit costs and is simply exercising his
judgment in pricing. So said this court.
4. Sales Below Cost, South Carolina, CCH 1[34,486
(June, 1965) and Washington, CCH 1135,286 (March,
1965). [M.C.H.]
The legislature of the State of Washington has
passed a law which puts a limitation on the amount of
fresh fruit that a buyer may purchase when the sale is
made at a price which is below the seller's cost. And
in the State of South Carolina selling milk below cost
with a limitation on the quantity that may be purchased
by a buyer now raises a presumption of intent to injure
competition and is therefore unlawful.
These two statutory changes appear to be inconsistent. But they undoubtedly have their own specific
objectives. Washington's placing a limit on the quantity of fresh fruit sold to any one buyer could prevent a
discriminatory sale of a product that a seller might
try to justify on the grounds that he was unloading a
perishable product.
South Carolina's legislative action might be explained, on the other hand, as an effort to inhibit lossleader selling. If a seller places a limit on the quantity
one consumer of milk can purchase at a below-cost
price, the loss-leader item can be assured of going
around to all possible buyers and thus effectively serving as a "come on" to many customers.
IV. REGULATION OF CHANNELS
OF DISTRIBUTION
B. Relations between Buyers and Sellers:
Exclusive Dealing Arrangements, etc.
Federal Trade Corrrniission v. Texaco, Inc., and B.
F. Goodrich Company, 85 S. Ct. 1798 (June, 1965).
[M.C.H.]
In this decision a sales-commission agreement between a major oil company marketer and a tire manufacturer is remanded to the Federal Trade Commission by the United States Supreme Court for further
proceedings. The Court of Appeals of the District of
Columbia had previously set aside a Commission order
condemning the agreement on the grounds that the
evidence had not been sufficient. It had gone even
further and remanded the case to the Commission with
instructions to dismiss the complaint. (See Texaco, Inc.
V. Federal Trade Commission and B. F. Goodrich Co.
V. Federal Trade Commission, this section, JOURNAL OF
MARKETING, January, 1965.)
In reopening this case the Supreme Court had in
mind its own recent decision supporting a Commission
order against a similar sales commission agreement between another oil marketer and another tire manufacturer. Within the context of that case, the agreement in this case was found to be an unfair method of
competition in violation of Section 5 of the Federal
Trade Commission Act. (See The Atlantic Refining
Journal of Marketing, January, 1966
Co. V. Federal Trade Corn-mission and The Goodyear
Tire & Rubber Company v. Federal Trade Commission,
this section, JOURNAL OF MARKETING, September, 1965.)
V. REGULATION OF UNFAIR
COMPETITION
A. Advertising
In re Cigarette Labeling and Advertising, CCH
1150,263, (June, 1965) ; 1150,266, (June, 1965) ; 1150,274,
(August, 1965); BNA ATRR No. 208 (July 6, 1965)
A-9; BNA ATRR No. 209 (July 13, 1965) A-13, X-4;
BNA ATRR No. 212 (August 3, 1965) A-2. [D.C]
The new Federal Cigarette Labeling and Advertising
Act (Public Law 89-92) passed on July 27, 1965, and
effective January 1, 1966, requires that every package
of cigarettes must display the following statement
conspicuously and legibly: "Caution: Cigarette Smoking May Be Hazardous to your Health." Violation of
this requirement is made a misdemeanor subject to a
fine of not more than $10,000.
The act prohibits the requirement of any other statement of caution by any federal, state, or local authority
and also provides that for a period terminating on
July 1, 1969, no such statement shall be required in
any cigarette advertising. Accordingly on August 3,
1965, the Federal Trade Commission vacated its Trade
Regulation Rule for the "Prevention of Unfair and
Deceptive Advertising or Labeling of Cigarettes in
Relation to the Health Hazards of Smoking" issued in
June, 1964, (see this section, JOURNAL OF MARKETING,
July, 1964) which required that both cigarette advertising and labeling contain an affirmative statement of the
health hazards of smoking.
The Commission, in vacating its order, hastened to
set forth in what respects the new act limits its authority and in what respects its responsibilities remain unimpaired. The act places a moratorium on any cautionary requirements in cigarette advertising for a
period of three years, ostensibly to permit the effectiveness of the packaging requirement to be evaluated.
The Commission noted that, except as specifically
provided, the FTC's authority with respect to unfair
or deceptive acts or practices in the advertising of
cigarettes is not affected. Moreover, particular attention will be paid by the Commission to "any advertisement which tends to negate the warning which must be
placed on the package in accordance with" the act.
Congressional policy on which this new law was
based may be summarized briefly as follows: "The
production, processing and distribution of cigarettes
. . . affect commerce and the national economy" and
Congress wishes to insure that "commerce and the
national economy may be . . . protected to the maximum
extent consistent with this policy." The act represents
an attempt to take appropriate remedial action concerning a health hazard. It purports to present the
individual with freedom of choice—the right to smoke
or not to smoke—and in addition provide him with
"the right to know that smoking may be hazardous to
his health." Since people have come to rely on the
federal government for cautionary labeling, it seemed
appropriate that Congress should take action.
Moreover, it seemed appropriate that a warning requirement be uniform so that a multiplicity of state
or local requirements do not create chaotic marketing
conditions; therefore, the bill precludes any other
authority from requiring a different statement. Furthermore, according to Congress, since the cigarette
manufacturing industry has set up its own advertising
Legal Developments
in Marketing
73
code, and since the Department of Health, Education
and Welfare is conducting informational and educational programs in the field of smoking and health, it
appeared unnecessary to require health warnings in
cigarette advertising.
The effects and effectiveness of this new law are yet
to be tested. However, a number of deficiencies appear
at the outset. An initial question may be raised as to
whether this act represents "remedial action against
a health hazard." Remedial action requires more than
just informative activities; it calls for the curtailment
of cigarette smoking. The fact that the cautionary
message must appear on the package of cigarettes only,
prescribes that at least one package must be purchased
before the message be read. Moreover, it has been
established that people perceive selectively (that is,
they may see what they wish to see), and a message
on a cigarette package can be easily overlooked—
particularly since the act does not designate the exact
place in which the message must appear.
The prohibitions against any other required affirmative disclosure notes on packages and the exemption of
advertising from all cautionary requirements seriously
limit the positive effects of the act. As one dissenter
to the proposed bill noted: "it would in effect make a
'sacred cow' out of the cigarette industry in the United
States commerce by shielding this industry from any
future requirements concerning health warnings in
tobacco and advertising which might be otherwise imposed by federal, state or local authorities."
A number of cigarette manufacturers have recently
announced plans for increased advertising expenditures,
which raises the issue as to the Federal Trade Commission's ability to prevent any "representations that
tend to undermine the warning placed on the package."
It seems that if this policy is to receive strict implementation, every advertisement must be viewed as having
the potential to undermine the warning that cigarette
smoking may be hazardous to health.
action. Section 5(a) of the Clayton Act deals with the
use of "a final judgment or decree" obtained "in any
civil or criminal proceedings" under the antitrust laws
as "prima facie evidence against such defendant" in
a subsequent damage action. Rather, the Court asserted
that Section 5(b)—which tolls the four-year statute
of limitations—assists the private litigant in that Section 5(b) takes effect regardless of whether a final
decree or judgment is ultimately entered. Therefore,
the Commission proceedings lengthen the time period
during which a private treble damage suit may be
instituted. Furthermore, the pleadings, transcripts of
testimony, exhibits, and documents used in the Federal
Trade Commission proceedings will be available to the
private-suit plaintiff in a treble damage action.
The practical illustration of this tolling process is
exemplified in the New Jersey Wood Finishing case
itself. New Jersey Wood instituted a treble damage
suit against Minnesota Mining and Manufacturing,
attacking its 1956 acquisition of another company and
alleging a violation of Section 7 of the Clayton Act
and Sections 1 and 2 of the Sherman Act. The suit was
not filed until November, 1961. Under Section 4(b) of
the Clayton Act this suit would have been barred by
the four-year statute of limitations. However, in 1960
the Commission had filed an anti-merger complaint
against Minnesota Mining and Manufacturing and was
able to secure a consent order. Prior to the New
Jersey Wood Finishing decision this case would have
been barred regardless of the Commission proceedings.
Now it becomes possible to institute the private treble
damage suit without difficulty.
Perhaps all this appears somewhat legalistic, but
the important point is that a private treble damage
suit plaintiff has now received a legthened time period
in which to institute his suit against an unwary defendant who has lost count of the days or who has been
involved in proceedings before the Federal Trade Commission on the same matter.
VI. PROCEDURAL AND MISCELLANEOUS
DEVELOPMENTS
1. Minnesota Mining and Manufacturing Co. v. New
Jersey Wood Finishing Co., 85 S. Ct. 1473 (May, 1965) ;
BNA ATRR No. 208 (July 6, 1965), B-1. [G.E.H.]
In the New Jersey Wood Finishing case the Supreme
Court has provided another weapon to plaintiffs in
private treble damage suits. The Court held that a Federal Trade Commission proceeding under the Clayton
Act suspends ("tolls") the running of the four-year
limitation for bringing a damage suit based on the same
violation. The Court noted that "the limitation provisions of Section 4(b) of the Clayton Act is tolled by
Commission proceedings to the same extent and in the
same circumstances as it is by Justice Department
actions." Justice Clark stated that it was necessary to
give the same tolling privilege for Commission proceedings as for Justice Department proceedings;
"otherwise the benefits flowing from a major segment of
the government's enforcement effort would in many
cases be denied to private parties."
It is not the purpose of this brief note to analyze
the complex legal problems inherent in the tolling section of the antitrust laws. Suffice it to note that the
private litigant in treble damage suits benefits greatly
from this Supreme Court decision.
The Supreme Court did not rule as to the use of
Federal Trade Commission proceedings as prima facie
evidence against the defendant in a subsequent damage
2. U.S. V. Pennsylvania Refuse Removal Association,
CCH 1171,488 (D.C. Pa., June, 1965); BNA ATRR No.
206 (June 22, 1965), A-13; A.B.T. Sightserirq Tmcrs,
Inc. V. Gray Line New York Tours, Corp., CCH 1171,477
(D.C. S. N.Y. June, 1965) ; BNA ATRR No. 2U5 (Jane
15, 1965), A-12; U.S. v. Bowling Proprietors' Association of America, Inc., CCH 1171,474 (D.C. S. N.Y. May,
1965) ; Cathay Mortuary-Wah Sang v. Funeral Directors of San Francisco, Inc., CCH 1171,505 (D.C. N.
Calif., June, 1965). [G.E.H.]
These four cases illustrate the widening of the definition of what constitutes interstate commerce. Since
the interstate commerce element is an important
jurisdictional factor in antitrust cases the scope of the
definition of interstate commerce becomes a crucial
factor. In the main, antitrust cases utilize two
theories in satisfying the interstate commerce jurisdictional requirement. One theory is based on the
occurrence of the acts in the "flow of commerce"; the
other theory contends that although the acts occurred
in intrastate commerce, nevertheless they substantially
affect interstate commerce. In the cases cited, both
theories were utilized.
The Pennsylvania Refuse Removal case involved
the "in commerce" theory. The court held that since
the refuse-removal business involves both the collection
and disposal of refuse the jurisdictional element was
satisfied. Since the trade association of trash collectors
collected the refuse in Pennsylvania but disposed of the
refuse in New Jersey, the activities of the association
were in commerce and subject to the Sherman Act.