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STATE WHOLESALE GROCERS v. GREAT ATLANTIC & P. TEA

July 25, 1957

STATE WHOLESALE GROCERS, A CORPORATION; ZEIGMUND WHOLESALE GROCERY CO., INC., A CORPORATION; RALPH C. BERG, D/B/A BERG'S FOOD STORE; LEO BERNARD, D/B/A LEO'S FOOD MART; BERNARD BRUSKI, D/B/A UNITED MEAT MARKET; EPH GOLDSTEIN, D/B/A GOLDSTEIN'S PROGRESSIVE FOODS; EARL LARSON AND WARREN LARSON, CO-PARTNERS, D/B/A FRANKLIN GROCERY AND MARKET; JACK LEVIN AND HARVEY BEREBITSKY, CO-PARTNERS, D/B/A HARVEY'S SUPERMART; O.V. MAKELA, D/B/A MAKELA'S FOOD STORE; JOHN L. MALEVITI'S, D/B/A FRUITLAND FOODS; JACK E. MARKUS, D/B/A ALLIANCE MEAT SHOP; CARMEN MASTRI, D/B/A CICERO LAKE FOOD MART; STEVEN J. MINARIK, D/B/A NORWARD PARK I.G.A.; HENRY E. MUIR AND HUGH A. MUIR, CO-PARTNERS, D/B/A FIFTH AVENUE FOOD MART; STANLEY PIEKARZ, D/B/A STEVEN'S CERTIFIED SUPER MARTS; ANTHONY RACZ, D/B/A SAVE-WAY FOOD MART; EDW. J. SCHUETZ, D/B/A SCHUETZ'S I.G.A. SUPER-MARTS; JOSEPH D. STONE, D/B/A CLOVER FOOD MART; ROBERT M. WAGNER AND ELIZABETH WAGNER, CO-PARTNERS, D/B/A WAGNER GROCERY AND MARKET; ATLAS MARKET COMPANY, A CORPORATION; DOMINICKS FINER FOODS, INC., A CORPORATION; CARL A. SCHLETZ, INC., A CORPORATION, PLAINTIFFS,
v.
THE GREAT ATLANTIC AND PACIFIC TEA COMPANY, A CORPORATION; WOMAN'S DAY, INC., A CORPORATION; GENERAL FOODS CORPORATION, A CORPORATION; HUNT FOODS, INC., A CORPORATION; MORTON SALT COMPANY, A CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Campbell, District Judge.

  This is a private action for treble damages and injunctive relief brought under Sections 4 and 16 of the Clayton Act.*fn1 Plaintiffs are twenty retail and two wholesale grocers located in the Chicago Metropolitan Area who bring this action on behalf of themselves and all retail and wholesale grocers similarly situated as an alleged class suit under Rule 23(a)(3) of the Federal Rules of Civil Procedure, 28 U.S.C.A. Defendants are The Great Atlantic and Pacific Tea Company (New Jersey), Woman's Day, Inc., General Foods Corporation, Hunt Foods, Inc., and the Morton Salt Company.

The Great Atlantic and Pacific Tea Company (New Jersey), hereinafter referred to as A&P (New Jersey), is a wholly owned subsidiary of The Great Atlantic and Pacific Tea Company of America, hereinafter referred to as A&P (Maryland). A&P (New Jersey) operates the A&P retail stores in the Chicago Metropolitan Area and is one of the three A&P companies which operate retail grocery stores throughout the United States. Where distinction between these two companies is not material, they will be referred to herein, individually or collectively, as "A&P."

Woman's Day, Inc., publishes Woman's Day, a women's magazine which is issued monthly and sold to A&P operating companies, including A&P (New Jersey), for resale only through A&P stores. Woman's Day, Inc. is a wholly owned subsidiary of A&P (Maryland).

General Foods, Hunt Foods and Morton Salt are food product manufacturers whose brand name products are sold throughout the United States by practically all retail grocers, including the plaintiff retailers and A&P (New Jersey). These three food manufacturers will hereinafter be referred to collectively as the defendant suppliers.

By the Court's memorandum and order of June 21, 1956 the issue of liability, including the issue of the fact of damages, was severed for trial from the issue of the amount of damages, the issue of the amount of damages having been reserved for reference to a Master when and if the issue of liability was resolved in favor of the plaintiffs. Subsequently, through the efforts of able and experienced counsel representing all the parties to this action, the issue of liability was tried on facts agreed upon and exhibits admitted into evidence pursuant to stipulations entered into by and between the respective parties in many pre-trial conferences. The interpretation and legal effect to be accorded these facts were argued by the parties in written briefs, and the issue of liability was taken under advisement by the Court.

Plaintiffs anchor their claim upon Sections 2(d) and 2(e) of the Clayton Act as amended by the Robinson-Patman Act.*fn2,*fn3. Additionally, however, plaintiffs, in an attempt to hold A&P (New Jersey) liable under Section 2(f) of the Act, 15 U.S.C.A. § 13(f), assert that the practices of the defendant suppliers, which the plaintiffs claim violate Sections 2(d) and 2(e), violate Section 2(a) as well.*fn4 Specifically and in capsule form, plaintiffs complain that the defendant suppliers advertise their various products in Woman's Day without making these "services" or "facilities" available to the plaintiffs on proportionally equal terms. This activity, plaintiffs argue, violates Sections 2(d) and 2(e) of the Act and, as a consequence, Section 2(a) as well.

Sections 2(d) and 2(e) of the Clayton Act as amended by the Robinson-Patman Act provide as follows:

    "(d) It shall be unlawful for any person engaged in
  commerce to pay or contract for the payment of
  anything of value to or for the benefit of a customer
  of such person in the course of such commerce as
  compensation or in consideration for any services or
  facilities furnished by or through such customer in
  connection with the processing, handling, sale or
  offering for sale of any products or commodities
  manufactured, sold, or offered for sale by such
  person, unless such payment or consideration is
  available on proportionally equal terms to all other
  customers competing in the distribution of such
  products or commodities."
    "(e) It shall be unlawful for any person to
  discriminate in favor of one purchaser against
  another purchaser or purchasers of a commodity bought
  for resale, with or without processing, by
  contracting to furnish or furnishing, or by
  contributing to the furnishing of, any services or
  facilities connected with the processing, handling,
  sale, or offering for sale of such commodity so
  purchased upon terms not accorded to all purchasers
  on proportionally equal terms."

It seems clear, upon a study of these sections, that Sections 2(d) and 2(e) are companion sections and that distinctions between them should not be drawn merely because of the differences in terminology employed in each section. These sections are companion sections to the extent that they have the same purpose and seek to eliminate the same evil; but although they have the same purpose, each section achieves the same result by proscribing different methods of attaining the common result condemned. Thus, while Section 2(d) prohibits payment by the seller for services or facilities undertaken by the buyer, Section 2(e) proscribes services or facilities furnished by the seller to the buyer. I shall first consider whether the evidence establishes that the defendants have violated Section 2(e) of the Act.

The Section 2(e) Issue

Here plaintiffs argue, in effect, that food suppliers, of whom the defendant suppliers are but three, furnish, or contribute to the furnishing of, Woman's Day magazine to A&P (New Jersey) since their payments for advertisements in Woman's Day recoup for A&P a substantial part of the annual cost necessary to produce Woman's Day. It has been stipulated that the annual cost of producing Woman's Day exceeds $9,000,000. Of that sum, less than one-quarter is recovered through the sale of copies, the remaining three-quarters being recovered from the sale of advertising space. The advertisers in Woman's Day are categorized as either "suppliers" or "non-suppliers." Supplier advertisers are manufacturers, such as the defendant suppliers, whose products are sold in A&P stores; conversely, non-supplier advertisers are manufacturers whose products are not sold in A&P stores. It has been stipulated that in 1954, 73.3 per cent of the advertising revenue, or $6,905,021, was received from supplier advertisers as against 26.7 per cent, or $2,508,822 received from non-supplier advertisers. In 1955, 65.5 per cent, or $6,073,693 was received from suppliers while 34.5 per cent, or $3,205,488 was received from non-suppliers. These figures, plaintiffs argue, conclusively show that Woman's Day magazine is "made possible" by the paid advertisements of food suppliers, such as the instant defendant suppliers. Plaintiffs reason that without the payments for the advertising of the food suppliers, Woman's Day magazine could not exist, unless this multimillion dollar cost expenditure was assumed by A&P itself. Plaintiffs conclude, therefore, that the defendant suppliers furnish, or contribute to the furnishing of, a service of facility, Woman's Day magazine, "to or for" the benefit of A&P (New Jersey).

It is, of course, true that, in a loose sense, a patron of a store, an advertiser in a magazine or newspaper, "makes" that particular business "possible." However, it seems that this is a clear case of the proverbial tail wagging the proverbial dog. Business patrons, whether the purchaser or the advertiser, are attracted by the quality of the business entity with which they place their patronage. For example, a leading department store, such as one of the several that we have in the Chicagoland area, is not made possible by the customers that patronize that store — it is made possible by such things as the quality and variety of merchandise offered for sale, pleasant shopping facilities and salespeople, liberal charge and exchange policies, eagerness to stand behind the products offered for sale at its store, and all such factors which contribute to the successful operation of any business. The store's success is made possible by the policies adopted and executed by its management. Thus, it is the store itself, through the expertise of its management, that makes the business of its customers possible, and it is not the customers that make the store possible.

And so it is with any leading newspaper or magazine, such as Woman's Day. Advertisements placed in these media are made possible or attracted by the quality of the medium itself. Thus, prescinding from the fact that A&P (Maryland) must have made a substantial investment in Woman's Day at the very beginning, if not later, and prescinding also from the fact that the direct copy sales of Woman's Day and the advertising of the non-suppliers, together, comprise a substantial percentage of the cost of producing Woman's Day (not to mention the supplier advertisers whose products, perhaps, are not handled by the plaintiffs), it seems quite obvious that Woman's Day magazine, and the advertisements therein, are "made possible" by the admitted high quality of the magazine itself, which high quality, in turn, is "made possible" by the expertise of the management of Woman's Day, Inc. There is a considerable amount of ingenuity, skill, creativeness and perseverance which goes into the publishing of any high quality magazine much the same as these qualities go into the successful operation of any business in a highly competitive business world. These qualities, apparently, are possessed by the management of Woman's Day, which, admittedly, is a high quality magazine, having been, for 14 years, among the top ten national magazines in circulation and among the top twenty-five in advertising revenue. Thus, it is the high quality of Woman's Day, reflected by its editorial content, that sells the magazine to the public — these sales, in turn, attract the advertising revenue of such manufacturers as the defendant suppliers. It seems manifestly clear that a magazine the public will not buy cannot earn advertising revenue and it seems equally clear that the public does not buy a magazine for its advertisements but for its editorial content. As counsel for A&P and Woman's Day argue, the advertiser's payment and all other revenue of the publishing entity lose all identity in the process of publishing the magazine.

Thus, the conclusion is inescapable that the defendant suppliers do not furnish or contribute to the furnishing of Woman's Day magazine to A&P within the meaning of Section 2(e) of the Act. What we have here are advertisements placed by food suppliers in a top ranking magazine which is published by a wholly owned subsidiary of A&P (Maryland). Both the magazine and the advertisements therein contained are furnished by A&P (Maryland) through Woman's Day, Inc. The evidence fails to reveal that the defendant suppliers have furnished, or have contributed to the furnishing of, any services or facilities to or for the benefit of A&P. If plaintiffs can be heard to complain of any activity on the part of the defendant suppliers, it is the payments by these suppliers for their advertisements which they place in Woman's Day magazine. Therefore, if plaintiffs have a cause of action at all it is for possible violations of Section 2(d) which prohibits payment by the supplier for services furnished by the purchaser.

For the reasons stated, I hold that the plaintiffs have failed to prove that the defendant suppliers have furnished, or have contributed to the furnishing of, any service or facility to A&P within the meaning of Section 2(e) of the Clayton Act, as amended by the Robinson-Patman Act.

The Section 2(d) Issue

In discussing Section 2(d), it becomes necessary to examine the methods employed by each of the defendant suppliers in determining the medium in which each should advertise, and particularly whether each should advertise in Woman's Day magazine.

General Foods

General Foods is a large food merchandising company which handles more than 50 different grocery store products. In its 1956 fiscal year it sold $759,200,000 worth of grocery products and spent more than $75,180,000 in advertising them.

General Foods is comprised of eleven operating divisions. The marketing function of each division selling grocery store products is in charge of a marketing manager who is responsible for the advertising and selling of all the products of that division. Reporting to the marketing manager are the product group managers or the particular product managers. Product group managers and product managers are responsible for the development and execution of marketing plans, including advertising plans, for the specific products assigned to them. Both the initial and final decision on the contents of a marketing plan are made by the product group manager or product manager, subject to the approval of his superiors. The responsibility of selecting and recommending the specific advertising media within the framework of the marketing plan rests with the particular advertising agency retained by the company.

In determining what medium should be used to advertise a particular product (whether magazines, newspapers, outdoor posters, car cards, radio or television), General Foods' advertising agencies take many factors into consideration. These factors include the stated objectives of the advertising program; the nature and strength of the competition; who are the prospective purchasers of the products — i.e., men, women, children, age, income bracket, educational level; the locality where these prospects live — i.e., in small towns and rural communities, in cities, in metropolitan centers, in which geographical areas of the country; and the distribution pattern of the particular product.

If the agency retained by General Foods determines that an advertising effort or part of any advertising effort should be through magazines, the selection of the magazines, or of a particular magazine, requires the weighing of many considerations, such as circulation, geographical distribution of readers, cost per thousand circulation, number of readers for each copy, characteristics of the magazine and its readers, education and income level of the magazine's audience, the prestige of the magazine, and the nature and quality of its editorial material.

Applying these general considerations to the case at bar, it has been stipulated that the criteria considered by General Foods in determining whether or not Woman's Day was to be included in a media schedule for a particular product were the same criteria that were considered by General Foods in the selection of any other magazine or medium.

Hunt Foods

Hunt considers many criteria and factors in selecting publications in which to advertise its products. Among these factors are the publication's circulation, and all aspects thereof including not only the total figure but also the pattern of this circulation by geographical areas. Hunt also considers the cost of using the publication, and specifically, the base page rate and quantity and frequency discounts. Another criterion that Hunt considers is the audience statistics such as the relation of men to women readers and how large the total audience becomes as a result of secondary and pass-along readership. Hunt also considers the editorial policies of the publication and its mechanical quality, such as the process by which it is printed and the quality and size of its paper. Hunt gives primary consideration to an adequate "national" advertising program using media whose circulation figures bear a proper relationship to the national population pattern. After providing for national coverage, Hunt then considers those media which have a more regional than national influence.

The extent of Hunt's advertising in any particular medium is determined by the amount of money which can be allocated to advertising in a given period and by selecting the medium that it feels best reaches the potential customers of its products and also best serves its designated purposes.

In deciding to advertise in Woman's Day magazine, Hunt has used and considered the same factors and criteria which it considered in determining to advertise in any other publication.

Morton Salt Company

Morton Salt is a substantial producer of various salt products. In 1955 Morton sold 7,327,672 units of salt products and spent $2,342,619 in advertising them. Morton's advertising program is the result of consultations and deliberations between Morton's advertising agency and Morton's advertising department.

In determining whether to advertise in a particular publication, Morton considers that publication's total circulation; its cost per thousand circulation; its gross cost; the characteristics of the publication's readers according to age, education, etc.; the publication's geographical circulation and circulation in terms of population density both as compared with Morton's sales and total grocery store sales; and, finally, Morton also considers the quality of the printing reproduction. In deciding to advertise in Woman's Day, Morton has been guided by the same factors that it considered in determining to advertise in any magazine.

In summation, viewing the processes which the defendant suppliers utilized in choosing to advertise in Woman's Day magazine, the evidence is clear that these defendants chose to advertise in Woman's Day after having weighed the same criteria that they considered before advertising in any medium and, more specifically, in any magazine. Woman's Day magazine met the test to which each of the defendant suppliers placed any magazine, passed it, and, as a consequence, each of the defendant suppliers placed their advertisements therein. Thus, there is no evidence of any ulterior motive on the part of the defendant suppliers in advertising in Woman's Day nor does it appear that the defendant suppliers had intended to favor A&P (New Jersey) over any of its other customers. It is also interesting to note that it has been stipulated that the extent to which A&P promotes or merchandises the products of its suppliers is and has been in no way affected by the fact that such suppliers do or do not advertise in Woman's Day or by the extent of such advertising if there is any. Additionally, the evidence also reveals, through the testimony of Harry B. George, National Director of Purchases of A&P, that whether manufacturers or processors of grocery store products do or do not advertise in Woman's Day is never considered in any manner by A&P in deciding whether, or to what extent, to purchase their products for resale in A&P retail stores. George also testified that the advertising in Woman's Day by such manufacturers or processors has no effect on the prices paid by A&P for products purchased for resale in A&P retail stores. Plaintiffs, however, attach no significance to this evidence, which they do not dispute, but argue that, nonetheless, the Act has been violated, if equal payments have not been afforded to them.

Nor do the plaintiffs attach any significance to the evidence which clearly reveals that the defendant suppliers receive full value for their payments for their advertisements in Woman's Day. Woman's Day is, admittedly, a high quality magazine enjoying a substantial circulation. This fact, when considered with the fact that the advertising rates charged by Woman's Day, Inc. to all advertisers in Woman's Day, including the defendant suppliers, for advertisements in said magazine are comparable to and competitive with the rates charged and prices paid per thousand circulation in magazines of comparable national circulation, makes the conclusion inescapable that the defendant suppliers receive full value for their advertisements in Woman's Day. Plaintiffs do not contend otherwise but argue that whether the defendant suppliers receive full value is immaterial in view of the fact that like payments by the defendant suppliers were not made available to the plaintiffs on proportionally equal terms.

In support of their position, plaintiffs cite a passage from Congressman Utterbach's speech which was given just before the adoption of the Act. Congressman Utterbach stated:

    "The existing evil * * * is, of course, the grant
  for discriminations under the guise of payments
  for * * * services which, whether or not * * *
  actually rendered as agreed, result in an advantage
  to the customer so favored as compared with others
  who have to bear the cost of such services
  themselves." (Emphasis plaintiffs'.) 80 Cong. Rec.
  9418.

Plaintiffs emphasize the words, "whether or not * * * actually rendered as agreed," as indicating that it does not matter that the supplier receives value for his payments for such "services." This reasoning, however, is clearly untenable for it is manifest that Congressman Utterbach was speaking there of services which, of their very nature, were designed primarily to benefit the customer. Thus, if the service paid for is designed primarily to benefit the customer then it matters little if the services are rendered or not — on the one hand, the customer is benefited by the services which the supplier pays for, and on the other hand, the customer, instead of having the services performed, is benefited by keeping the money given him by the supplier. Either way, the customer is benefited and the Act is violated if the service to be rendered is designed primarily to benefit the customer.

Thus, in the Senate and House Committee Reports, it is stated:

    "Still another favored medium for the granting of
  oppressive discriminations is found in the practice
  of large buyer customers to demand, and of their
  sellers to grant, special allowances in purported
  payment of advertising and other sales-promotional
  services, which the customers agree to render with
  reference to the seller's products, or sometimes with
  reference to his business generally. Such an
  allowance becomes unjust when the service is not
  rendered as agreed and paid for, or when, if
  rendered, the payment is grossly in excess of its
  value, or when, in any case the customer is deriving
  from it equal benefit to his own business and is thus
  enabled to shift to his vendor substantial portions
  of his own advertising cost while his smaller
  competitor, unable to command such allowances, cannot
  do so." (Emphasis

  added.) Senate Report No. 1502, p. 7; House
  Report No. 2287, p. 15; 74th Cong. 2d Sess. 1936.

It is apparent, therefore, from a study of this section, as well as from a study of the entire legislative history of the Act, that where there is a service paid for by the supplier, and the service is actually rendered and the amount so paid is not in excess of the value of the service, it is necessary to determine: 1) whether the service would benefit only the supplier; 2) whether the service would benefit only the customer; or 3) whether the service would benefit both the supplier and his customer. If a service can be said to benefit only the supplier or if the service benefits only the customer, there is no difficulty, as in the one case the Act is violated while in the other it is not. However, where it is conceivable that a service might benefit both the supplier and the customer, then, and only then, it becomes necessary to determine whom the services were primarily designed to benefit. If the services were primarily designed to benefit the supplier, the Act has not been violated; if the services were primarily designed to benefit the customer, then the Act has been violated unless proportionally equal treatment has been given that customer's competitor. If it is made to appear that equal benefits accrued to both the supplier and his customer from the service, then also the Act has been violated; and in determining whether the customer receives equal benefit, it must be made to appear that the customer has been able to shift to his supplier "substantial portions of his own advertising costs." It becomes necessary, therefore, to examine the nature and extent of the benefits flowing from the defendant suppliers' paid advertisements in Woman's Day magazine.

As has been indicated, the advertisements in Woman's Day of each of the defendant suppliers were the result of a careful evaluation of Woman's Day as an advertising medium, each defendant supplier, through its advertising department and advertising agency, employing the same criteria in choosing to advertise in Woman's Day that it considered in choosing to advertise in any medium. Woman's Day is a high quality magazine of national prominence and it is considered an excellent advertising medium as attested by the list of nationally prominent advertisers (both food suppliers and non-food suppliers) that place their advertisements regularly in Woman's Day. And it is manifest that the defendant suppliers receive full value for their payments for their advertisements in Woman's Day. These facts, when considered with the absence of any evidence tending to establish any purpose or intent on the part of the defendant suppliers, individually or collectively, to favor A&P (New Jersey) over the defendant suppliers' other customers, clearly establish that each of the defendant suppliers' advertisements in Woman's Day was a component part of each supplier's advertising program which was designed only to promote public acceptance of the product advertised and, as such, was designed primarily to benefit each of the defendant suppliers. Indeed, there is no evidence of any ulterior motive on the part of any defendant supplier in advertising in Woman's Day.

Plaintiffs seem to suggest that the advertisements of each of the defendant suppliers in Woman's Day were A&P advertisements. To answer this, it is necessary to distinguish between grocery store advertising and national brand advertising of groceries. Grocery store advertising is designed and intended to bring people into a particular store and features the price of the product and the location of the store. National brand advertising, conversely, mentions no price and does not mention the name or location of any store or stores — it merely attempts to acquaint the reader with the desirability of trying a particular nationally known, brand name product.

That the advertisements of the defendant suppliers in Woman's Day were not A&P advertisements but national brand name grocery product advertisements with the benefits accruing to A&P being incidental to the benefits accruing to the defendant suppliers, is also established by the evidence that conclusively shows that the defendant suppliers' product advertising in Woman's Day aids in the sale of the advertised products by all grocers who carry the product advertised. This finding is based on several facts, the most important of which is that purchasers of food products do substantial shopping in more than one store. Indeed, the plaintiffs themselves, in attempting to show competition between A&P stores and independent retailers, argue, in their briefs, that the A&P and the independent are competing for the trade of the same customer "who interchanges his patronage."

The document entitled Bench Marks for the Next Five Years in Grocery Selling (Morton's Ex. 11), which was an address given to the National-American Wholesale Grocers Association, on September 13, 1955 by Curtis C. Rogers, Executive Vice President of the Market Research Corporation of America, contains some rather illuminating statistics concerning store loyalty of shoppers. On page 5 of this document, Rogers states, with respect to Chart VI appearing on that page:

    "But families don't shop in just one grocery store.
  The average family shops in 3.7 stores per month. The
  families shopping in independent stores average 2.6
  stores per month, while the exclusive chain store
  families shop in nearly 2 stores per month. But
  remember that 2/3 of all of the families shop in both
  chains and ...

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