The Federal Trade Commission marked important changes in antitrust policy yesterday by rejecting a staff agreement with The Los Angeles Times that would have barred the newspaper from giving preferential rates to high-volume advertisers and by finding Russell Stover Candies Inc. guilty of fixing prices for its candy.
In The Los Angeles Times case, commission officials say the unanimous decision to reject a proposed settlement represents an end to Robinson-Patman cases. Enacted in 1936, the Robinson-Patman Act was designed to protect small businesses by making it illegal for manufacturers, distributors or other companies to discriminate against small firms in favor of their larger customers--unless there was a clear cost savings involved with dealing with a larger client.
Over the past several years, however, that law has been called into question by antitrust experts and economists, who have argued that it hurts companies and consumers because it keeps prices artificially high.
Nonetheless, in 1977 the FTC sued The Los Angeles Times for its age-old policy of giving high-volume advertisers discount rates. The staff had argued that the discounts gave large advertisers an unfair advantage over smaller ones, hurting competition in the Los Angeles area.
In late 1980 the newspaper and the FTC staff reached a settlement agreement that would have had widespread implications for newspapers across the country by making it clear that the newspaper could not give discounts to large advertisers unless the reductions met a cost-based formula that reflected the difference between the costs of publishing ads for large-volume and less-frequent advertisers.
In a rare move, the commission rejected that agreement yesterday, noting that the public comments filed on the settlement were overwhelmingly against it. The newspaper industry said it would be put at a competitive disadvantage against television, radio and cable television stations that would not be subject to such restrictions in setting advertising rates. Additionally, retailers large and small said the change in advertising rates would not help them and, in fact, could encourage some newspapers to refuse to sell to the smaller advertisers.
In a decision that is in direct opposition to a 63-year-old Supreme Court ruling, the commission said that Russell Stover violated federal antitrust laws when it threatened to stop dealing with retailers who sold candy below "suggested retail prices."
The FTC signaled that it intended to attack more seriously practices in which manufacturers fix the price that retailers must charge for their products.
The 3-1 decision reverses an earlier ruling by an FTC law judge that Russell Stover was not acting illegally but only exercising its legitimate discretion in deciding which dealers it would do business with. That judge's ruling corresponded with a 1919 Supreme Court ruling, which found that a manufacturer without monopoly control may decide with whom it will deal and may announce in advance the circumstances under which it will refuse to deal.
The commission found that, despite this court ruling, Russell Stover acted illegally because, in exercising its discretion to select dealers, it also fixed prices by making it clear that anyone who charged less than the company's "suggested retail price" no longer would be a Russell Stover dealer.
The commission said that, absent the threat of termination, many dealers would have charged lower prices. As a result, the commission noted evidence showing that 94 percent of Russell Stover products were sold at the suggested prices.
FTC Chairman James C. Miller III dissented, however, saying that dealers could have turned to other candy suppliers if they were unhappy with the arrangement.
An attorney for Russell Stover, David Everson, said the company plans to appeal, confident that the FTC "made a mistake" when it went against the Supreme Court decision and ruled against the candy manufacturer.