Mr. KINTNER. This is addressed to the Honorable John W. Bricker, chairman, Committee on Interstate and Foreign Commerce, United States Senate, Washington, D. C. The letter is dated July 20, 1954. This is in response to your request of June 14, 1954, for such comments as this Commission may care to offer concerning S. 3596, 83d Congress, 2d session, a bill to amend the Federal Trade Commission Act with respect to certain contracts, agreements, or franchises to enable manufacturers of automobiles and trucks and their franchise dealers to protect their goodwill in the business of manufacturing and distributing automobiles and trucks made or sold by them by restricting franchise dealers from reselling to certain unauthorized persons. The proposed amendment to the Federal Trade Commission Act would provide that nothing contained in any of the antitrust acts shall render unlawful any contract, agreement, or franchise by which any franchised dealer agrees with the manufacturer by whom franchised not to resell any current model motor vehicle of that manufacture to any motor-vehicle dealer other than one franchised or authorized by that manufacturer. The proposal would further provide that nothing contained in any of the antitrust acts shall make it unlawful for a manufacturer of motor vehicles to enforce any agreement so authorized by refusing to sell to, or canceling the franchise of, any dealer who knowingly violates the agreement. The Sherman Antitrust Act expresses the national policy against permitting any contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade. The legislative proposal under consideration would create an exception to this policy in that it would authorize a restraint of trade by contracts or agreements between a motor-vehicle manufacturer and its dealers. The Commission believes it undesirable to create exemptions of this kind to the antitrust laws and the basic policy of free competition expressed therein. Passage of S. 3596 would be a signal for other segments of our economy to press for special dispensation of a similar nature and would initiate a piecemeal abandonment of our national policy of unencumbered competition. The right of a person engaged in trade to select his own customers is an important concept within the principles of the antitrust laws. This is demonstrated by the inclusion in section 2 of the Clayton Act of the proviso "That nothing herein contained shall prevent persons engaged in selling goods, ware, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade." This right of the individual to select his own customers was deemed so basic that its inclusion in the Clayton Act was over the protest of some proponents of the bill who thought its inclusion would weaken the act by providing a means whereby sellers might evade its provisions by refusing to sell to persons who insisted on their rights under that act. As explained in Senator Dirksen's statement accompanying the introduction of S. 3596, the bill was introduced at the suggestion of the National Automobile Dealers Association in an effort to prevent bootlegging new automobiles by authorized dealers to unauthorized persons for resale. This practice is asserted by the National Automobile Dealers Association to threaten the stability and integrity of the dealer structure throughout the country, and to have forced many dealers into liquidation or bankruptcy. It would appear reasonable to expect that franchised dealers would prefer to sell their new cars at the regular markup to consumers than to sell at little or no profit to unauthorized dealers. As a consequence any widespread practice by franchised dealers of bootlegging cars to unauthorized dealers is more likely than otherwise to result from the fact that they have more cars than they can dispose of in their regular course of trade. It would appear, therefore, that S. 3596 is directed at a result, rather than the cause, of the situation that may exist in the automobile industry, and that its enactment would not serve the purpose of preventing bankruptcies of automobile dealers. The denial to dealers who are overstocked with new cars of the means of disposal through unfranchised dealers would not solve the financial dilemma in which those dealers may find themselves. This Commission has received complaints against manufacturer-dealer relationships in the automotive industry, including alleged practices of manufacturers forcing new cars on dealers in excess of what can be profitably handled. The Commission is not, however, currently informed as to this phase of the industry because, pursuant to cooperative liaison arrangements with the Department of Justice whereby duplication of effort is avoided, this Commission has, since 1950, confined its investigations in the automotive industry largely to practices affecting parts and accessories. However, it may be noted that the Commission's 1939 Report on Motor Vehicle Industry (printed as H. Doc. 468, 76th Cong., 1st sess.) concluded that forcing practices engaged in by motorvehicle manufacturers at that time resulted in dealers being obliged to cut cash prices or grant excessive trade-in allowances and in some instances led to financial failures of dealers. The Department of Justice's investigations of the automotive industry may throw light on the situation alleged to exist with respect to the dealer structure in that industry. Possibly violations of law may be uncovered which could be proceeded against to the end of relieving the situation in which dealers are said to find themselves. If the solution is not found in such proceedings and consideration of remedial legislation is deemed warranted, it is believed that a more complete factual background should first be obtained, because of other industry practices, including allegations of extensive control by manufacturers of their dealers, of which complaints have been made and further because of recent changes in the industry. In this connection your attention is invited to House Joint Resolution 484, 83d Congress, a resolution which has been referred to the Committee on Interstate and Foreign Commerce of the House of Representatives, which would direct the Federal Trade Commission to conduct an investigation of the automotive industry with the purpose of ascertaining the full facts, and among other things reporting what changes, if any, may be required in existing antitrust laws to cope with undesirable practices which may have arisen in the automotive industry. Under the fair trade acts now in existence in most States, a manufacturer of a trade-marked or branded commodity in competition with commodities in the same general class produced by others may contract with his dealer whereby the dealer may not sell the commodity below the price set by the manufacturer. The McGuire Act of 1952 amended the Federal Trade Commission Act to provide that nothing in the Federal Trade Commission Act or in any of the antitrust acts shall render unlawful any contracts or agreements prescribing minimum or stipulated resale prices for commodities bearing the trade-mark, brand, or name of the producer or distributor, when the commodity is in free and open competition with competing commodities of the same general class, when contracts or agreements of that description are lawful under the State law where the resale is to be made or in the State where the commodity is to be transported for such resale. Inasmuch as the practice of bootlegging cars depends upon sales by franchised to unfranchised dealers at prices substantially lower than the prevailing retail price, a motor-vehicle manufacturer is already in a position under the fair trade laws to stop bootlegging by contracting with its dealers whereby the dealers may not resell motor vehicles below prices set by the manufacturer. It is therefore difficult to see any urgent necessity, if in fact there is any need at all, for the legislation proposed. For the reasons stated above, the Commission recommends that S. 3596 be not enacted. By direction of the Commission. EDWARD F. HOWREY, Chairman. Mr. Chairman, I would like to offer this report to the subcommittee. Senator PURTELL. It will be accepted, and without objection, become a part of the record. (Letter dated July 20, 1954, from Edward F. Howrey, Chairman, to Hon. John W. Bricker, chairman, is as follows :) Hon. JOHN W. BRICKER, FEDERAL TRADE COMMISSION, Chairman, Committee on Interstate and Foreign Commerce, United States Senate, Washington, D. C. July 20, 1954. MY DEAR MR. CHAIRMAN: This is in response to your request of June 14, 1954, for such comments as this Commission may care to offer concerning S. 3596, 83d Congress, 2d session, a bill to amend the Federal Trade Commission Act with respect to certain contracts, agreements, or franchises to enable manu facturers of automobiles and trucks and their franchise dealers to protect their good will in the business of manufacturing and distributing automobiles and trucks made or sold by them by restricting franchise dealers from reselling to certain unauthorized persons. The proposed amendment to the Federal Trade Commission Act would provide that nothing contained in any of the antitrust acts shall render unlawful any contract, agreement, or franchise by which any franchised dealer agrees with the manufacturer by whom franchised not to resell any current model motor vehicle of that manufacturer to any motor-vehicle dealer other than one franchised or authorized by that manufacturer. The proposal would further provide that nothing contained in any of the antitrust acts shall make it unlawful for a manufacturer of motor vehicles to enforce any agreement so authorized by refusing to sell to, or canceling the franchise of, any dealer who knowingly violates the agreement. The Sherman Antitrust Act expresses the national policy against permitting any contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade. The legislative proposal under consideration would create an exception to this policy in that it would authorize a restraint of trade by contracts or agreements between a motor-vehicle manufacturer and its dealers. The Commission believes it undesirable to create exemptions of this kind to the antitrust laws and the basic policy of free competition expressed therein. Passage of S. 3596 would be a signal for other segments of our economy to press for special dispensation of a similar nature and would initiate a piecemeal abandonment of our national policy of unencumbered competition. The right of a person engaged in trade to select his own customers is an important concept within the principles of the antitrust laws. This is demonstrated by the inclusion in section 2 of the Clayton Act of the proviso "That nothing herein contained shall prevent persons engaged in selling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade." This right of the individual to select his own customers was deemed so basic that its inclusion in the Clayton Act was over the protests of some proponents of the bill who thought its inclusion would weaken the act by providing a means whereby sellers might evade its provisions by refusing to sell to persons who insisted on their rights under that act. As explained in Senator Dirksen's statement accompanying the introduction of S. 3596, the bill was introduced at the suggestion of the National Automobile Dealers Association in an effort to prevent bootlegging new automobiles by authorized dealers to unauthorized persons for resale. This practice is asserted by the National Automobile Dealers Association to threaten the stability and integrity of the dealer structure throughout the country, and to have forced many dealers into liquidation or bankruptcy. It would appear reasonable to expect that franchised dealers would prefer to sell their new cars at the regular markup to consumers than to sell at little or no profit to unauthorized dealers. As a consequence any widespread practice by franchised dealers of bootlegging cars to unauthorized dealers is more likely than otherwise to result from the fact that they have more cars than they can dispose of in their regular course of trade. It would appear, therefore, that S. 3596 is directed at a result, rather than the cause, of the situation that may exist in the automobile industry, and that its enactment would not serve the purpose of preventing bankruptcies of automobile dealers. The denial to dealers who are overstocked with new cars of the means of disposal through unfranchised dealers would not solve the financial dilemma in which those dealers may find themselves. This Commission has received complaints against manufacturer-dealer relationships in the automotive industry, including alleged practices of manufacturers forcing new cars on dealers in excess of what can be profitably handled. The Commission is not, however currently informed as to this phase of the industry because, pursuant to cooperative liaison arrangements with the Department of Justice whereby duplication of effort is avoided, this Commission has, since 1950, confined its investigations in the automotive industry largely to practices affecting parts and accessories. However, it may be noted that the Commission's 1939 Report on Motor Vehicle Industry (printed as H. Doc. No. 468, 76th Cong., 1st sess.) concluded that forcing practices engaged in by motor-vehicle manufacturers at that time resulted in dealers being obliged. to cut cash prices or grant excessive trade-in allowances and in some instances led to financial failures of dealers. The Department of Justice's investigations of the automotive industry may throw light on the situation alleged to exist with respect to the dealer strucure in that industry. Possibly, violations of law may be uncovered which could be proceeded against to the end of relieving the situation in which dealers are said to find themselves. If the solution is not found in such proceedings and consideration of remedial legislation is deemed warranted, it is believed that a more complete factual background should first be obtained, because of other industry practices, including allegations of extensive control by manufacturers of their dealers, of which complaints have been made, and further because of recent changes in the industry. In this connection, your attention is invited to House Joint Resolution 484, 83d Congress, a resolution which has been referred to the Committee on Interstate and Foreign Commerce of the House of Representatives, which would direct the Federal Trade Commission to conduct an investigation of the automotive industry with the purpose of ascertaining the full facts, and among other things reporting what changes, if any, may be required in existing antitrust laws to cope with undesirable practices which may have arisen in the automotive industry. Under the "fair trade" acts now in existence in most States, a manufacturer of a trade-marked or branded commodity in competition with commodities in the same general class produced by others may contract with his dealer whereby the dealer may not sell the commodity below the price set by the manufacturer. The McGuire Act of 1952 amended the Federal Trade Commission Act to provide that nothing in the Federal Trade Commission Act or in any of the antitrust acts shall render unlawful any contracts or agreements prescribing minimum or stipulated resale prices for commodities bearing the trade-mark, brand, or name of the producer or distributor, when the commodity is in free and open competition with competing commodities of the same general class, when contracts or agreements of that description are lawful under the State law where the resale is to be made or in the State where the commodity is to be transported for such resale. Inasmuch as the practice of "bootlegging" cars depends upon sales by franchised to unfranchised dealers at prices substantially lower than the prevailing retail price, a motor-vehicle manufacturer is already in a position under the "fair trade" laws to stop "bootlegging" by contracting with its dealers whereby the dealers may not resell motor vehicles below prices set by the manufacturers. It is therefore difficult to see any urgent necessity, if in fact there is any need at all, for the legislation proposed. For the reasons stated above, the Commission recommends that S. 3596 be not enacted. By direction of the Commission. EDWARD F. HOWREY, Chairman. Senator PURTELL. Have you other prepared statements you wish to offer, or oral testimony? Mr. KINTNER. That completes my formal statement, Mr. Chair man. Senator PURTELL. I would like to ask, Mr. Kintner, are there other exemptions that you know of under the antitrust acts and laws such as this would be? Mr. KINTNER. The so-called fair-trade exemption granted by the Miller-Tydings Act, and in 1952 by the McGuire Act by an overwhelming sentiment of the Congress, is such an exemption. Senator PURTELL. Well, you feel, then, that relief should be found in State legislative acts rather than by this particular act, since there are 45 States, I believe, that have fair-trade acts, is that correct? Mr. KINTNER. That is correct. It is true that that is enabling legislation. Senator PURTELL. That is enabling legislation; yes. Mr. KINTNER. But, of course, it is the Federal Trade Commission's feeling that the Congress necessarily must have determined what the national policy should be before agreeing that the States could fair trade. Senator PURTELL. Of course, you already have it on the State statute books Mr. KINTNER. That is correct. Senator PURTELL. And it is perfectly legal, and the McGuire Act permits that? Mr. KINTNER. That is correct. Senator PURTELL. And you feel that other industries might resort to this legislation-I don't say you advocate it, but it is available, sir? Mr. KINTNER. It is available, sir; correct. Senator PURTELL. I had 1 or 2 other questions. I wonder how much progress has been made to effect the 1939 recommendations of the FTC, appearing in House Document 468, 76th Congress, 1st session, that you refer to, where it says that it is recommended that present unfair practices be abated to the end that dealers have: (a) less restriction upon the management of their own enterprises; (b) quota requirements and shipments of cars based upon mutual agreement; (c) equitable liquidation in the event of contract termination by the manufacturer; (d) contracts definite as to the mutual rights and obligations of the manufacturers and the dealersand so forth; I won't read the whole thing. Has much progress been made in that field? Mr. KINTNER. It is my understanding that after that report was released that there was considerable loosening up of the manufacturerdealer franchise arrangements. Of course, that loosening up occurred many years ago, and it is quite possible, indeed, it seems rather likely and logical that there would have been a change of circumstance in the intervening years. We have gone through a war since that period, and we are now in a buyer's market. Senator PURTELL. You feel, though, that if those recommendations had been carried out to a greater extent, perhaps this bootlegging and so-called gyp work in the automotive field would be less prevalent?. Mr. KINTNER. I believe so. I think they were sound then, and I know of no reason why they are not sound today. Senator PURTELL. Your testimony indicated-I believe it did that: you recognize that the so-called practice of new automobiles is having a serious effect upon the retail merchandising system of the automotive industry? Mr. KINTNER. Yes, Senator, the Commission has had complaints: along that line, and we recognize that inevitably it must have some adverse effect upon the dealers. Senator PURTELL. Are you still getting complaints-if this is a question you wish to answer-from dealers regarding the alleged requirements of the automobile manufacturer to take a certain quota of cars whether they feel they can dispose of them or not? Mr. KINTNER. Senator, we get very few complaints of that nature, for very obvious reasons. Senator PURTELL. What steps do you suggest that we take to meet this situation, which you recognize your statement indicates you do-as being of a very serious nature; what suggestions do you have |