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FEDERAL TRADE COMMISSION v. SINCLAIR REFINING CO., 261 U.S. 463 (1923)

U.S. Supreme Court

FEDERAL TRADE COMMISSION v. SINCLAIR REFINING CO., 261 U.S. 463 (1923)

261 U.S. 463

FEDERAL TRADE COMMISSION
v.
SINCLAIR REFINING CO.

SAME
v.
STANDARD OIL CO. (New Jersey).

SAME
v.
GULF REFINING CO.

SAME
v.
MALONEY OIL & MFG. CO.

Nos. 213, 637, 638, 639.
Argued March 8 and 9, 1923.
Decided April 9, 1923.

[261 U.S. 463, 464]   The Attorney General, and Messrs. Adrien F. Busick and Eugene W. Burr, both of Washington, D. C., for petitioner.

Mr. Roy T. Osborn, of Chicago, Ill., for respondent Sinclair Refining Co.

Mr. C. D. Chamberlin, of Cleveland, Ohio, for respondent Maloney Oil & Mfg. Co.

Mr. R. T. Batts, of Pittsburgh, Pa., for respondent Gulf Refining Co.

Mr. J. H. Hayes, of New York Ciry, for respondent Standard Oil Co. ( New Jersey).

Mr. Justice McREYNOLDS delivered the opinion of the Court.

In separate proceedings against 30 or more refiners and wholesalers, the Federal Trade Commission condemned and ordered them to abandon the practice of leasing [261 U.S. 463, 465]   underground tanks with pumps to retail dealers at nominal prices and upon condition that the equipment should be used only with gasoline supplied by the lessor. Four of these orders were held invalid by the Circuit Courts of Appeals for the Third and Seventh Circuits in the above entitled causes ( Sinclair Refining Co. v. Federal Trade Commission, 276 Fed. 686; Standard Oil Co. v. Federal Trade Commission, 282 Fed. 81), and like ones have been set aside by the Circuit Courts of Appeals for the Second and Sixth Circuits (Standard Oil Co. v. Federal Trade Commission, 273 Fed. 478, 17 A. L. R. 389; Canfield Oil Co. v. Federal Trade Commission, 274 Fed. 571). The proceedings, essential facts, and points of law disclosed by the four records now before us are so similar that it will suffice to consider No. 213 as typical of all.

July 18, 1919, the commission issued a complaint charging that respondent, Sinclair Refining Company, was purchasing and selling refined oil and gasoline and leasing and loaning storage tanks and pumps as part of interstate commerce in competition with numerous other concerns similarly engaged, and that it was violating both the Federal Trade Commission Act (38 Stat. 717 [Comp. St. 8836a-8836k]), and the Clayton Act (38 Stat. 730 [Comp. St. 8835a-8835p]).

The particular facts relied on to show violation of the Federal Trade Commission Act are thus alleged:

To show violation of the Clayton Act the complaint alleged: [261 U.S. 463, 467]   'Paragraph 3. That the respondent, for four years last past, in the conduct of its business as aforesaid, has leased and made contracts for the lease, and is now leasing and making contracts for the lease, of said devices and their equipments to be used within the United States, and has fixed and is now fixing the price charged therefor on the condition, agreement, or understanding that the lessees thereof shall not purchase or deal in the products of a competitor or competitors of respondent, and that the effect of such leases or contracts for lease, and conditions, agreements, or understandings, may be and is to substantially lessen competition and tend to create a monopoly in the territories and localities where such contracts are operative.'

Respondent answered and evidence was taken. In October, 1919, the commission announced its report, findings, and conclusions, the substance of which follows:

The Clayton Act provides:

Respondent's written contract does not undertake to limit the lessee's right to use or deal in the goods of a competitor of the lessor, but leaves him free to follow his own judgment. It is not properly described by the complaint and is not within the letter of the Clayton Act. But counsel for the commission insist that inasmuch as lessees generally- except garage men in the larger places-will not incumber themselves with more than one equipment, the practical effect of the restrictive covenant is to confine most dealers to the products of their lessors; and we are asked to hold that, read in the light of these facts, the contract falls within the condemnation of the statute. Standard Fashion Co. v. Magrane- Houston Co., 258 U.S. 346 , 42 Sup. Ct. 360, and United Shoe Machinery Corporation v. United States, 258 U.S. 451 , 42 Sup. Ct. 363, are relied upon.

In the Standard Fashion Co. Case the purchaser expressly agreed not to sell or permit sale of any other make of patterns on its premises. It had a retail store in Boston and sales elsewhere were not within contemplation of the parties. This court construed the contract as embodying an undertaking not to sell other patterns. In United Shoe M chinery Corporation v. United States, when speaking of certain 'tying' restrictions, this court said:

There is no covenant in the present contract which obligates the lessee not to sell the goods of another, and its language cannot be so construed. Neither the findings nor the evidence show circumstances similar to those surrounding the 'tying' covenants of the Shoe Machinery Company. Many competitors seek to sell excellent brands of gasoline and no one of them is essential to the retail business. The lessee is free to buy wherever he chooses; he may freely accept and use as many pumps as he wishes and may discontinue any or all of them. He may carry on business as his judgment dictates and his means permit, save only that he cannot use the lessor's equipment for dispensing another's brand. By investing a comparatively small sum, he can buy an outfit and use it without hindrance. He can have respondent's gasoline, with the pump or without the pump, and many competitors seek to supply his needs.

The cases relied upon are not controlling.

Is the challenged practice an unfair method of competition within the meaning of section of 5 of the Federal Trade [261 U.S. 463, 475]   Commission Act?2 Reviewing the circumstances, four Circuit Courts of Appeals have answered, No. And we can find no sufficient reason for a contrary conclusion. Certainly the practice is not opposed to good morals, because characterized by deception, bad faith, fraud, or oppression. Federal Trade Commission v. Gratz, 253 U.S. 421, 427 , 40 S. Sup. Ct. 572. It has been openly adopted by many competing concerns. Some dealers regard it as the best practical method of preserving the integrity of their brands and securing wide distribution. Some think it is undesirable. The devices are not expensive ($300 to $500), can be purchased readlly of makers and, while convenient, they are not essential. The contract, open and fair upon its face, provides an unconstrained recipient with free receptacle and pump for storing, dispensing, advertising, and protecting the lessor's brand. The stuff is highly inflammable, and the method of handling it is important to the refiner. He is also vitally interested in putting his brand within easy reach of consumers, with ample assurance of its genuineness. No purpose or power to acquire unlawful monopoly has been disclosed, and the record does not show that the probable effect of the practice will be unduly to lessen competition. Upon the contrary, it appears to have promoted the public convenience by inducing many small dealers to enter the business and put gasoline on sale at the crossroads.

The powers of the commission are limited by the statutes. It has no general authority to compel competitors to a common level, to interfere with ordinary business methods or to prescribe arbitrary andards for those engaged [261 U.S. 463, 476]   in the conflict for advantage called competition. The great purpose of both statutes was to advance the public interest by securing fair opportunity for the play of the contending forces ordinarily engendered by an honest desire for gain. And to this end it is essential that those who adventure their time, skill, and capital should have large freedom of action in the conduct of their own affairs.

The suggestion that the assailed practice is unfair because of its effect upon the sale of pumps by their makers is sterile and requires no serious discussion.

The judgments below must be

Affirmed.

Footnotes

[ Footnote 1 ] Equipment Contract.

This agreement, made and entered into this ___ day of _____, 19__, between Sinclair Refining Company of _____, party of the first part, and _____, of the city of _____, state of _____, party of the second part witnesseth:

Whereas, party of the second part is now being supplied with gasoline by the party of the first part and desires to install on his premises situated at _____ the following equipment for the better storing and handling of such gasoline: _____.

Now, therefore, in consideration of the premises and of the sum of one dollar by the party of the second part to the party of the first part ( the receipt of which is hereby acknowledged), the above named parties do hereby agree as follows:

[ Footnote 1 ] The above described equipment shall be used by the party of the second part for the sole purpose of storing and handling the gasoline supplied by the party of the first part.

[ Footnote 2 ] The party of the second part agrees, at his own cost, to maintain said equipment in good condition and repair so long as he shall continue to use the same.

[ Footnote 3 ] The party of the second part agrees that he will not incumber or remove said equipment, or do or suffer to be done anything whereby said equipment or any part thereof may be seized, taken on execution, attached, destroyed or injured, or by which the title of the party of the first part thereto may in any way be altered, destroyed or prejudiced.

[ Footnote 4 ] In the event party of the second part should at any time use said equipment for any other purpose than the storing and handling of gasoline supplied by the party of the first part, or should cease for ___ days to handle gasoline secured from the party of the first part the right or license of the party of the second part to said equipment shall at once terminate, and thereupon party of the first part shall have the right to enter upon said premises and remove said equipment and every part thereof.

[ Footnote 5 ] The party of the second part shall indemnify and save harmless the party of the first part of and from any liability for loss, damage, injury, or other casualty to persons or property caused or occasioned by any leakage, fire, or explosion of gasoline stored in said tank or drawn through said pump.

[ Footnote 6 ] This agreement shall terminate forthwith upon the sale or other disposition of said premises by party of the second part, and in any event upon the expiration of ___ months from the date hereof; and in the event that by mutual consent said equipment remains in the possession of the party of the second part at the expiration of said period, it is agreed that the same shall be used by party of the second part subject to all of the terms and conditions of this agreement, and such may be terminated at any time after the expiration of ___ months from the date hereof by the party of the first part giving ten days' notice to that effect. Upon the termination of this license by whatever means effected, the party of the first part shall have the right to enter upon said premises and remove the said equipment and each and every part thereof: Provided, however, that the party of the second part shall have the right and option at such time to purchase said equipment by paying therefor the sum of _____.

This contract is executed in triplicate, and it is agreed that th contract held by the party of the first part is to be considered the original and to be the binding agreement in case the duplicate varies from it in any particular.

In witness whereof, the parties hereto have caused this agreement to be executed the day and year first above written.

[ Footnote 2 ] Sec. 5. That unfair methods of competition in commerce are hereby declared unlawful.

The commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except banks, and common carriers subject to the acts to regulate commerce, from using unfair methods of competition in commerce.

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