Beeson, Cecil T.

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Antitrust: Limitations on a Company\u27s Control over Its Dealers

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Tulsa Law Review Volume 3 Issue 1 1966 Antitrust: Limitations on a Company's Control over Its Dealers Cecil T. Beeson Follow this and additional works at: https://digitalcommons.law.utulsa.edu/tlr  Part of the Law Commons Recommended Citation Cecil T. Beeson, Antitrust: Limitations on a Company's Control over Its Dealers, 3 Tulsa L. J. 84 (2013). Available at: https://digitalcommons.law.utulsa.edu/tlr/vol3/iss1/15 This Casenote/Comment is brought to you for free and open access by TU Law Digital Commons. It has been accepted for inclusion in Tulsa Law Review by an authorized editor of TU Law Digital Commons. For more information, please contact megan-donald@utulsa.edu. TULSA LAW JOURNALrelated topic of the right of the accused to refuse to answer questions ithas been said: "the county attorney... should always caution a prisonerthat any statement he might make could be used against him."183On the other hand, the Oklahoma courts have stated on several occa-sions that the fact the defendant was under arrest and in jail, and wasnot warned that any statement made by him might be used against him,will not affect the admissibility of any voluntary statement made by him,which would othewise be competent1 9From these statements it appears that the feeling of the Oklahomacourts on this subject is fairly indefinite. However, if they follow thepresent trend to a more liberal interpretation of an accused's rights priorto trial, they will probably arrive at a decision similar to the Californiacourts in the cases previously cited.The overall effect of these new liberal decisions cannot be deter-mined immediately. Whether other states will follow the lead of the Cali-fornia courts is another question which can only be answered in time. Itshould be recognized, however, that California has long played a dominantrole in American jurisprudence, and it would not be surprising to seeother states beginning to conform to these decisions.Police officers and prosecuting attorneys will be forced to watchtheir actions more'carefully at all times to avoid mistakes which mightbe interpreted as violations of the defendant's rights.Liberal interpretations of these rights are needed to insure that dueprocess will be followed and to eliminate the danger of a police state.The courts should, however, adopt a position which is reasonable enoughto assure that the process of criminal investigation and prosecution willnot be too greatly entangled in procedural requirements which must bemet and satisfied in the enforcement of our law. We must keep in mind'that if the courts are overly protective of the rights of one person or classof persons they are slighting the rights of another.Casey CooperANTITRUST: LIMITATONS ON A COMPANY'S CONTROLOVER ITS DEALERSThe decision of the United States Supreme Court in Atlantic Refin-ing Co. v. FTC1 invalidated the sales-commission agreements that are socommon between oil marketers and manufacturers of tires, batteries andaccessory equipment (TBA). The sales-commission agreement of Good-Is Sholes v. State, 97 Okla. Cr. 158, 163, 260 P.2d 440, 446 (1953).19 Prather v. State, 76 Okla. Cr. 385, 137 P.2d 249 (1943); Mays v. State,19 Okla. Cr. 102, 197 P. 1064 (1920); Anderson v. State, 8 Okla. Cr. 90, 126 P.840 (1912).1 381 U.S. 357, 85 S.Cr. 1498, 14 LEd. 443 (1965).tVol. 3, No, I1Beeson: Antitrust: Limitations on a Company's Control over Its DealersPublished by TU Law Digital Commons, 1966NOTES AND COMMENTSyear Tire and Rubber Co. and Atlantic was found to be an unfair methodof competition in violation of section 5 of the Federal Trade CommissionAct.2 Under a typical sales-commission plan, the oil company sponsors thesale of the TBA manufacturer's products to its wholesale and retail outletsand receives a commission on all sponsored TBA items sold through itsoutlets. The TBA manufacturer sells directly to the oil marketer's whole-salers and dealers for resale; it bears all the cost of distribution throughits warehouses, stores, and other supply points. The oil company and TBAcompany carry on a joint sales promotion program.In the initial proceeding of this case, the FTC hearing examiner en-joined the use of direct methods of coercion on the part of Atlantic to-ward its dealers in the promotion of the sales-commission plan with Good-year,3 but the Commission went much further. The Commission stressedthe evidence showing that Atlantic used coercive practices such as orallyadvising dealers that they would place their status as Atlantic dealers andlessees in jeopardy if they failed to purchase sufficient quantities of spon-sored TBA products.4 Considering the coercive practices to be sympto-matic of a more fundamental restraint of trade, the Commission foundthe sales-commission plan illegal in itself as "a classic example of the useof economic power in one market ... to destroy competition in anothermarket . . ."5 The Commission found that two restraints on competitionflowed from the sales-commission contract itself. Wholesalers and manu-facturers of competing brands of TBA were foreclosed from the Atlanticmarket. Goodyear and Firestone Tire and Rubber Co., with whom At-2 Federal Trade Commission Act 5 5, 38 Star. 719, 15 U.S.C. S 45 (1964)provides in pertinent part:"(a) (1) Unfair methods of competition in commerce, and unfair ... actson practices in commerce, are declared unlawful.(6) The Commission is empowered and directed to prevent persons, partner-ships, or corporations ... from using unfair methods of competition in commerceand unfair... acts or practices in commerce.(b) Whenever the Commission shall have reason to believe that any suchperson, partnership, or corporation has been or is using any unfair method of com-petition or unfair ... act or practice in commerce, and if it shall appear to theCommission that a proceeding by it in respect thereof would be to the interest ofthe public, it shall issue and serve upon such person, partnership, or corporation acomplaint stating its charges in that respect and containing a notice of a hearingupon a day and at a place therein fixed at least thirty days after the service of saidcomplaint .. .. If upon such hearing the Commission shall be of the opinion thatthe method of competition or the act or practice in question is prohibited by (thisAct), it shall make a report in writing in which it shall state its findings as to thefacts and shall issue and cause to be served on such person, partnership, or corpora-tion an order requiring such person, partnership, or corporation to cease and desistfrom using such method of competition or such act or practice .... After the ex-piration of the time allowed for filing a petition for review, if no such petition hasbeen duly filed within such time, the Commission may at any time, after noticeand opportunity for hearing, reopen and alter, modify, or set aside, in whole orin part, any report or order made or issued by it under this section, whenever inthe opinion of the Commission conditions of fact or of law have so changed as torequire such action or if the public interest shall so require .... "3 Goodyear Tire & Rubber Co., 58 F.T.C. 309, 322 (1961).4 Id. at 342.5 Id. at 367.196632Tulsa Law Review, Vol. 3 [1966], Iss. 1, Art. 15https://digitalcommons.law.utulsa.edu/tlr/vol3/iss1/15TULSA LAW JOURNALlantic also had sales-commission agreements, were excluded from sellingto Atlantic's dealers in each other's territories.The order of the Commission, which was approved by the SeventhCircuit Court of Appeals and the Supreme Court, prohibited Atlanticfrom participating in any such commission arrangement and forbadeGoodyear from continuing the arrangement with Atlantic or any otheroil company.6 In the first paragraph of the majority opinion, delivered byMr. Justice Clark, the Supreme Court seems to be agreeing with the Com-mission that the sales-commission plan is inherently illegal and,, if this isso, the Court has either given birth to anotherpe offense, in thefield of antitrust law or broadened an existing category. But, in the lastparagraph of the majority opinion, the Court said that Goodyear was notnecessarily prohibited from making contracts with companies not pos-sessed of economic power over their dealers. If the Court meant to implythat resort to economic statistics must be had to show economic powerover dealers before a sales-commission plan amounts to an unfair methodof competition, then it stopped short of holding such plans to be illegalper se. In Northern Pacific R.R. Co. v. United States,8 which was a tyingarrangement case, the Court pointed out that where the seller has no con-trol or dominance over the tying product so that it does not represent aneffectual weapon to pressure buyers into taking the tied item, any re-straint of trade would obviously be insignificant. The Court expresslystated that the Goodyear-Atlantic contract was not a tying arrangement,but it found that the cea Le characteristic was the same, name-ly, the utilization of economic power in -cfn-rk~etb -u tail competitionin-another. If the Court was invoking the quantitative substantiality__estby a eqifin showing-of econom -uthen der-the rationale of theNorheiFiPailic case, sales-commission plans are illegal pesi. Since theCourt found that tying arrangements and ales-commission plans have the6 For the complete text of the Commission's order see Id. at 369, or see foot-notes 2 and 3 of the principal case, 381 U.S. at - , 85 S.Cr. at 1502, 14 L.Ed.2dat 488.7 In Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S.Ct.502, 55 LEd. 619 (1911), the Court declared the rule of reason to be the stand.ard for determining whether a particular act unduly restrains competition in viola-tion of the Sherman Act. The Court said the prior cases of United States v. Trans-Missouri Freight Association, 166 U.S. 290, 17 S.Ct. 540, 41 L.Ed 1007 (1897),and United States v. Joint Traffic Association, 171 U.S. 505, 19 S.Ct. 25, 43 L.Ed. 259 (1898), were correctly decided even though the rule of reason was notapplied. Both prior cases involved formal agreements among railroads of dominantregional importance calling for the fixing of rates, the setting of joint rates andrate divisions. The Court said the nature and character of the contracts created aconclusive presumption which brought them within the Sherman Act, and theycould not be taken out of that category by resort to the rule of reason. Those actswhich are conclusively presumed to unreasonably restrain competition are the so-called unreasonable per se offenses. The Court in the principal case considered theCommission's use of recognized violations of the anjitrust laws as a guideline tobe entirely appropriate.8 356 U.S. 1, 78 S.Ct. 514,2 L.Ed.2d 545 (1958).9 For a discussion of the quantitative substantiality test see Standard Oil Co.of California v. United States, 337 U.S. 293, 69 S.Ct. 1051, 93 L.Ed. 1371(1949).(Vol. 3, No. I3Beeson: Antitrust: Limitations on a Company's Control over Its DealersPublished by TU Law Digital Commons, 196619661 NOTES AND COMMENTS 87same competitive characteristics it seems reasonable to consider that therule holding tying arrangements to be illegal per se has been broadenedto include arrangements having the same competitive characteristics astying arrangements.Exactly what constitutes economic power over dealers was not statedby the Court. However, three indicia of economic power were listed;namely, (1) lease and equipment loan contracts with their cancellationand short term provisions, (2) control of the supply of gasoline and oilto the wholesalers and dealers, and (3) extensive control of advertisingon the premises of dealers. In Simpson v. Union Oil Co.,'0 the Courtstressed the economic power inherent in short term leases subject totermination by either party because the oil company stands to be dam-aged less by a lease cancellation than does the dealer who would be putout of business. In Osborn v. Sinclair Refining Co.,"x the Court of Appealsconsidered a sales-commission plan to be a tying arrangement and saidthat if the seller is of sufficient size to exert some power and the amountof commerce restrained is not insignificant, the standard of illegality ismet.It would appear reasonable to conclude that any petroleum marketerwith more than a few dealers is precluded from entering into or main-taining a sales-commission plan with any TBA manufacturer or supplier.'Where more than a few dealers are involved there is a "not insubstantial"amount of commerce involved' 3 and some economic power will be foundto exist 14 so that illegality results under the rationale of the Atlantic case.The hearing examiner found, as a matter of fact, that it is to themutual interest of the oil marketer and the dealer to have the dealer en-gaged in the sale of TBA because it builds a stronger dealer organizationand increases the sale of gasoline.' 5 This being so, oil marketers can beexpected to seek some acceptable plan to sponsor TBA purchasing by theirdealers to increase the profits of both the dealer and the oil company.Some oil marketers are still using the purchase-resale plan that Atlanticused prior to adoption of the sales-commission plan. Companies using thepurchase-resale plan purchase TBA items from the manufacturers, ware-house them, and resell them to their wholesalers and dealers.It cannot be stated with certainty whether the Commission will at-10 377 U.S. 13, 84 S.Ct. 1051, 12 LEd. 98 (1964).11 286 F.2d 832 (4th Cir. 1960).12 Not all observers agree on this point. See OIL AND GAS JOURNAL, Vol. 63,No. 23, p. 77; OIL AND GAS JOURNAL, Vol. 63, No. 24, p. 72 (two articles).But see National Petroleum Refiners Association, Washington Bulletin No. 65-17,October 6, 1965, p. 11.13 In Northern Pacific R.R. Co. v. United States, 365 U.S. at 6, 78 S.Ct. at519, 2 LEd.2d at 550, the Court pointed out by way of illustration that it is notconcerned with de minimis restraints on competition.14 The Court said, 'They (Atlantic and its dealers) simply do not bargainus equals." 381 U.S. at -, 85 S.Ct. at 1505, 14 L.d. at 452. This seems to sug-gest that showing disproportionate size of the marketer with respect to his dealersis enough to show economic power of the marketer.15 Goodyear Tire & Rubber Co., 58 F.T.C. at 313.4Tulsa Law Review, Vol. 3 [1966], Iss. 1, Art. 15https://digitalcommons.law.utulsa.edu/tlr/vol3/iss1/15TULSA LAW JOURNALtack purchase-resale plans under section 5. Mr. Justice Goldberg in hisdissenting opinion took the position that the Commission enjoined At-lantic from using any sales-commission plan but expressly excepted fromthe injunction the use by Atlantic of a purchase-resale arrangement. At-lantic also took the position that the Commission's order permitted thereinstitution of the purchase-resale plan. The majority of the Court feltthat this position flowed from the language of the order which prohibitsAtlantic's receipt of anything of value in connection with the sale of TBAby any marketer other than Atlantic. However, the Court expressly de-dined to pass on the merits of the purchase-resale plan because the meritsof that plan were not before the Commission.The sales-commission plan was found to be illegal in itself as aclassic example of the use of economic power in one market to destroycompetition in another market. The purchase-resale plan might be re-garded as a near-classic example since both plans have some of the sameanticompetitive effects. For example, an oil marketer has at least someeconomic power over its dealers whether a sales-commission or purchase-resale plan is used for marketing TBA. An oil marketer has a pecuniaryinterest in the sale of TBA by its dealers whether the TBA is sold to thedealer by the marketer or sold to the dealer by the manufacturer who paysthe marketer a commission. Under either plan, the dealer will or shouldrealize that good relations with the oil company depend at least to someextent on the profits the oil company receives from the dealer's TBAsales. This is a simple fact of business life and actual coercion is not neces-sary to impress it on the dealer's mind.Mr. Justice Stewart rationalized in his dissenting opinion that theCommission's order could be understood as a measure to prevent the ex-dusion of competition in TBA marketing by taking a step toward thetotal elimination of Atlantic from the marketing of tires, batteries andaccessories. If the sales-commission plans disappear and purchase-resaleplans again become prevalent, an attack directed at purchase-resale plansby the Commission would lend credence to Justice Stewart's view.The full impact of this decision on the marketer-dealer relationshipmay be more discernible when the Supreme Court renders a decision inthe appeal of Brown Shoe Co. v. FTC.Y The Brown Shoe case may bepart of an apparent trend to severely limit the control of a company overits dealers; a trend that started with Simpson v. Union Oil Co. 17 In theSimpson case the Court struck down a consignment agreement by whichUnion Oil Company controlled the retail prices of gasoline sold by itsdealers. The Court stated that the consignment agreement, no matter howlawful it might be as a matter of private contract law, must give way be-fore the federal antitrust policy318 In the Brown Shoe case, the Eighth Cir-cuit Court of Appeals set aside the Commission order that enjoined BrownShoe Company from using its franchise plan to foreclose competitors from10 339 F.2d 45 (8th Cir. 1964).17 Simpson v. Union Oil Co., supra note 10.18 Id. at 18, 84 S.Ct. at 1055, 12 LEd. at 103.[Vol. 3, No. I5Beeson: Antitrust: Limitations on a Company's Control over Its DealersPublished by TU Law Digital Commons, 1966

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Antitrust: Limitations on a Company\u27s Control over Its Dealers

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