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Nuarc Co. v. Federal Trade Commission.

April 19, 1963

THE NUARC COMPANY
v.
FEDERAL TRADE COMMISSION.



Author: Swygert

Before SCHNACKENBERG, KILEY and SWYGERT, Circuit Judges.

SWYGERT, Circuit Judge. We are asked to review a cease and desist order issued by the Federal Trade Commission, in a proceeding charging petitioner, The Nuarc Company, with having violated Section 2(d) of the Clayton Act, as amended by the Robinson-Patman Act.*fn1 15 U.S.C. ยง 13(d).

The question is: Does Section 2(d) prohibit a supplier of products and commodities from advertising in an advertising medium which is owned, controlled, and operated by one who also owns, controls and operates a business that is a customer of the supplier if the advertising medium prints advertising on equal terms for competitors of the supplier and also the customer, and neither indicia in the publication nor method of its distribution suggests to the public the nexus between the publication and the customer, and further if there is no evidence that fair, non-discriminatory advertising rates paid the publication by the supplier were intended to, or did, benefit the customer qua customer, or that the advertising benefited the customer more than it did the customers' competitors?

The basic facts are not in dispute. They may be summarized as follows.

Petitioner, The Nuarc Company, an Illinois corporation, is engaged in the manufacture and distribution of equipment used in printing, offset printing, and lithography. Its products include carbon arc lamps, light tables, dark room lights, and many similar items. Total sales for its 1959 fiscal year exceeded $1,200,000.Petitioner markets its products nationwide through approximately four hundred dealers on a non-exclusive basis.

Foster Type and Equipment Company, Inc., a Pennsylvania corporation, is located in Philadelphia. Since 1955, it has engaged in retailing printing equipment and supplies. It is a Nuarc dealer, reselling petitioner's products in the Philadelphia-New Jersey trade area. It purchased over $11,000 of such products from petitioner in 1958, and almost $9,000 in 1959. Nuarc's total sales in that area approximated $80,000 and $220,000 for those years respectively.

Foster Publishing Company, Inc., is also a Pennsylvania corporation located in Philadelphia. It was organized in April, 1958, and is engaged in publishing a monthly trade paper called "Printing Impressions." There is a national edition of this paper as well as a separate edition called "Printing Impressions-Delaware Valley Edition" intended only for local circulation in the Delaware Valley area. Nuarc advertised only in the national edition.In August, 1959, Foster Publishing Company changed its corporate name to "North American Publishing Company."*fn2

Until May 1, 1959, Irvin J. Borowsky was president and sole stockholder of Foster Type. His wife and brother were secretary and vice-president respectively. On or about May 1, 1959, Hans Weiss became vicepresident and secretary and Stephen Mucha became a vice-president. On August 1, 1959, Weiss was assigned 10% of the stock, Borowsky retaining 90%. Borowsky has always been president, treasurer, and sole stockholder of Foster Publishing. His wife is the secretary of that company.

In May, 1958, Borowsky circulated letters to suppliers, including Foster Type, soliciting advertising in "Printing Impressions."*fn3 The evidence shows that the recipients of these letters, including Nuarc, were disturbed by their contents and that Nuarc refused to place any advertising in "Printing Impressions" until the policies enunciated in the letters had been changed by Foster Publishing Company.

It is undisputed that since June, 1958, commencing with the first national edition of "Printing Impressions," and in each edition published monthly thereafter, "Printing Impressions" accepted advertisements from all competitors of Foster Type as well as all suppliers of competitors of Foster Type, charged standard advertising rates to Foster Type, and received full payment from Foster Type for all such advertisements. "Printing Impressions" did not identify itself anywhere in the publication as being in any way associated with Foster Type. In fact, the name of Foster Type appeared in "Printing Impressions" only in paid advertisements of Foster Type and never appeared in the ads placed by Nuarc. Foster Type and Equipment Company, Inc., and North-American Publishing Co., filed separate tax returns, maintained separate payrolls, books, and records, leased separate space, and loaned no funds or employees to each other.

In January, 1959, six months after "Printing Impressions" commenced publication and some seven months after the above mentioned letters were sent, Nuarc placed its first advertisement in the national edition of "Printing Impressions." From January, 1959, through February, 1960, Nuarc placed fourteen monthly advertisements of its products in "Printing Impressions" at standard advertising rates and paid North American for said advertisements a total of $3,290. In 1959, Nuarc advertised in seventeen different trade publications at a total cost of more than $32,000.

The Commission found that during the period January 1, 1959, to February 1, 1960, Nuarc did not offer or otherwise make available any advertising or promotional payments to any of its other customers in the same trade area who were reselling Nuarc Products in competition with Foster Type. The Commission found as a fact that Borowsky so dominated Foster Type and Foster Publishing that neither was able to formulate policy independently, and that in practical effect the entire operation constituted but a single Borowsky enterprise. It found that Nuarc was put on notice of this fact by Borowsky's letters of May, 1958, and that Nuarc could not in good faith have believed that these two corporations had attained separate and distinct identities prior to the commencement of Nuarc's advertising payments. The Commission further found that Nuarc's payments to Foster Publishing were payments to Borowsky's business as a whole, including the Foster Type segment thereof which purchased and resold Nuarc products.*fn4

The Commission's contentions may be summarized as follows: (1) Section 2(d) absolutely forbids payments "to" a customer for advertising services unless similar payments, on proportionally equal terms, are made available to other customers competing in the distribution of the supplier's products or commodities. Viewed in this manner, the Commission urges that the question of "benefit" to the customer is immaterial. (2) Realizing that in order to support their first contention it is necessary that a showing be made that the payment was made directly or indirectly to a customer, the Commission equates and merges the identity of Foster Type and Foster Publishing in the person of Borowsky, the controlling stockholder of both enterprises.*fn5

We believe that the finding of the Commission relating to the identity of Foster Type and Equipment Company and Foster Publishing Company (North American Publishing Co.) is not substantiated by the record as a whole and, if permitted to stand, would lead to a result which is neither supported by case law nor ...


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