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Purolator Products Inc. v. Federal Trade Commission

October 22, 1965

PUROLATOR PRODUCTS, INC., PETITIONER,
v.
FEDERAL TRADE COMMISSION, RESPONDENT



Hastings, Chief Judge, and Knoch and Swygert, Circuit Judges.

Author: Hastings

HASTINGS, Chief Judge:

On petition of Purolator Products, Inc., we have for review a cease and desist order issued by Federal Trade Commission following an administrative proceeding upon a complaint charging Purolator with violating Section 2(a) of the Clayton Act, as amended.*fn1

The complaint charged that Purolator's distribution system and its prices and discounts resulted in unlawful price discrimination. The charges relate only to the sale of Purolator's automotive replacement filters. These filters are sold as replacements for worn original equipment on automobiles, trucks and other motor vehicles in what is known as the "after market" or "replacement market."

In 1957, Purolator's business in this market exceeded $5,000,000 and its present share of the market is about 32%. It is in national competition with leading members of the automotive industry and regionally with numerous other concerns.

After a full hearing, the hearing examiner found against Purolator and issued his initial decision, including an order to cease and desist. Commission adopted the order entered by the examiner, after some modification of the initial decision. Commissioner Elman did not concur and filed a separate opinion.

The parties entered into an extended stipulation of facts and exhibits incorporated therein. Commission rested its case on the stipulation. Purolator presented testimony and documentary exhibits in support of its defense. In finding a violation of the Act, Commission relied principally on the stipulated record.

The factual background of this case is rather complicated. We find little dispute concerning the following statement.

PUROLATOR'S DISTRIBUTION SYSTEM

Purolator manufactures and sells its automotive replacement filters throughout the country. These are sold directly and only to independent warehouse distributors (WDs). WDs resell the filters to jobbers, fleet operators and to dealers (garages, service stations, etc.). Jobbers resell to dealers and fleet operators. Dealers resell to the consumer (the car owner). Fleet operators do not resell, but use the filters in their fleets (taxicabs, etc.). Purolator itself does not sell directly to jobbers, fleets, dealers or consumers. The channels of distribution may be shown as follows:

PUROLATOR

WAREHOUSE DISTRIBUTORS

JOBBERS

DEALERS FLEET OPERATORS

CONSUMERS

Some jobbers are affiliated with (i.e., own or control or are owned or controlled by) WDs, although they may be separate corporate entities. Most WDs with affiliated jobbers also sell to unaffiliated (independent) jobbers. Non-affiliated jobbers and independent WDs are in direct competition with WDs having affiliated jobbers.

Finally, some WDs with affiliated jobbers receive the replacement filters at a central warehouse and later reship them to their affiliates, while other WDs with affiliates have Purolator send the filters directly to their affiliated jobbers. Thus, distribution by WDs through their affiliates is in reality internal redistribution or double handling.

PUROLATOR'S PRICE STRUCTURE

The price which Purolator charges WDs for its filters depends upon the marketing channel through which the filters move to the ultimate consumer. Thus, if a WD sells to a jobber or a fleet operator, the WD receives a discount which he would not and does not receive on sales directly to dealers.

Purolator sells its automotive replacement filters to WDs according to the following discount schedule:

(1) to all WDs, a 5% discount on suggested resale prices to jobbers;

(2) to all WDs, a 15% discount on sales to unaffiliated jobbers;

(3) to WDs which distribute filters to affiliated jobbers, a discount equal to 4% of Purolator's suggested resale prices to jobbers.

On a hypothetical sales price to the ultimate consumer of $1.00, the suggested resale price to the jobber is 40 cents (or 34 cents when the jobber sells to a fleet operator). Purolator's prices to WDs, after discounts, would be as follows:

(1) to a WD without affiliated jobbers which sells to independent jobbers -- 32 cents (60% -- (5% 15%));

(2) to a WD which distributes filters to affiliated jobbers who in turn sell to independent jobbers -- 30.4 cents (60% -- (5% 15% 4%));

(3) to a WD without affiliated jobbers which resells directly to dealers -- 38 cents (60% -- 5%);

(4) to a WD which distributes filters to affiliated jobbers who in turn sell to dealers -- 36.4 cents (60% -- (5% 4%)).

(5) to a WD without affiliated jobbers which resells to a jobber reselling to a fleet operator -- 26 cents (60% -- (5% 15% 15%)).

(6) to a WD with affiliated jobbers who resell to fleet operators -- 24.4 cents (60% -- (5% 15% 15% 4%)).

Jobbers compete with WDs in selling to dealers and fleet operators. If jobbers can be legally considered to be purchasers from Purolator, then the following further price differences exist. In reselling filters to dealers, a jobber pays 40 cents for the filter while WDs without affiliates pay 38 cents and WDs with affiliated jobbers pay 36.4 cents. In reselling filters to fleet operators, jobbers pay 34 cents while WDs without affiliated jobbers pay 32 cents and distributing WDs with affiliated jobbers pay 30.4 cents.

Thus it is clear that WDs which redistribute to affiliated jobbers receive a 4% discount that WDs which do not redistribute to affiliated jobbers do not receive. This extra 4% discount is known as the internal redistribution discount. The 15% discount which all WDs receive on sales to jobbers is known as the external redistribution discount.

The foregoing pricing schedules, exclusive of fleet prices, may be more graphically portrayed as follows:

PUROLATOR

60%-5% ...


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