is, or where there is reasonable probability that the effect will be, to substantially injure, suppress, or stifle competition or to create a monopoly. Among the situations in which the requisite purpose or intent would ordinarily be lacking are cases in which such sales were: (1) Of seasonal goods near the conclusion of the season; (2) or perishable goods in respect to which deterioration is imminent; (3) of obsolescent goods; (4) made under judicial process; or (5) made in bona fide discontinuance of business in the goods concerned.

(c) As used in paragraphs (a) and (b) of this section, the term "cost" means the respective seller's cost and not an average cost in the industry whether such average cost be determined by an industry cost survey or some other method. It consists of the total outlay or expenditure by the seller in the acquisition, production, and distribution of the products involved, and comprises all elements of cost such as labor, material, depreciation, taxes (except taxes on net income and such other taxes as are not properly applicable to cost), and general overhead expenses, incurred by the seller in the acquisition, manufacture, processing, preparation for marketing, sale, and delivery of the products. Not to be included are dividends or interest on borrowed or invested capital, or nonoperating losses, such as fire losses and losses from the sale or exchange of capital assets. Operating cost should not be reduced by items of nonoperating income, such as income from investments, and gain on the sale of capital assets.

(d) Nothing in this section shall be construed as relieving an industry member from compliance with any of the requirements of the RobinsonPatman Act. [Rule 23]

§ 36.24 Prohibited forms of trade restraints (unlawful price fixing, etc.)^ "The inhibitions of this section are subject to Pub. L. 542, approved July 14, 1952— 66 Stat. 632 (the McGuire Act) which provides that with respect to a commodity which bears, or the label or container of which bears, the trade-mark, brand, or name of the producer or distributor of such commodity and which is in free and open competition with commodities of the same general class produced or distributed by

It is an unfair trade practice for any member of the industry, either directly or indirectly, to engage in any planned common course of action, or to enter into or take part in any understanding, agreement, combination, or conspiracy, with one or more members of the industry, or with any other person or persons, to fix or maintain the price of any products or otherwise unlawfully to restrain trade; or to use any form of threat, intimidation, or coercion, to induce any member of the industry or other person or persons to engage in any such planned common course of action, or to become a party to any such understanding, agreement, combination, or conspiracy. [Rule 24] § 36.25 Tie-in sales; coercing purchase of one product as a prerequisite to the purchase of other products.

The practice of coercing the purchase of one or more products as a prerequisite to the purchase of one or more other products, where the effect may be substantially to lessen competition or tend to create a monopoly or unreasonably to restrain trade, is an unfair trade practice. [Rule 25] § 36.26 Prohibited discrimination. 5

others, a seller of such a commodity may enter into a contract or agreement with a buyer thereof which establishes a minimum or stipulated price at which such commodity may be resold by such buyer when such contract or agreement is lawful as applied to intrastate transactions under the laws of the State, Territory, or territorial jurisdiction in which the resale is to be made or to which the commodity is to be transported for such resale, and when such contract or agreement is not between manufacturers, or between wholesalers, or between brokers, or between factors or between retailers, or between persons, firms, or corporations in competition with each other.

"As used in this section, the word "commerce" means "trade or commerce among the several States and with foreign nations, or between the District of Columbia or any Territory of the United States and any State, Territory, or foreign nation, or between any insular possessions, or other places under the jurisdiction of the United States, or between any such possession or place and any State or Territory of the United States or the District of Columbia or any foreign nation, or within the District of Columbia or any Territory or any insular possession or other place under the jurisdiction of the United States."

(a) Prohibited discriminatory prices, rebates, refunds, discounts, credits, etc., which effect unlawful price discrimination. It is an unfair trade practice for any member of the industry engaged in commerce, in the course of such commerce, to grant or allow, secretly or openly, directly or indirectly, any rebate, refund, discount, credit, or other form of price differential, where such rebate, refund, discount, credit, or other form of price differential, effects a discrimination in price between different purchasers of goods of like grade and quality, where either or any of the purchases involved therein are in commerce, and where the effect thereof may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, however:

(1) That the goods involved in any such transaction are sold for use, consumption, or resale within any place under the jurisdiction of the United States, and are not purchased by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit, as supplies for their own use;

(2) That nothing contained in this paragraph shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such products are to such purchasers sold or delivered.

NOTE: Cost justification to be based on net savings in cost of manufacture, sale or delivery. Cost justification under paragraph (a)(2) of this section depends upon net savings in cost based on all facts relevant to the transactions under the terms of paragraph (a)(2) of this section. For example, if a seller regularly grants a discount based upon the purchase of a specified quantity by a single order for a single delivery, and this discount is justified by cost differences, it does not follow that the same discount can be cost justified if granted to a purchaser of the same quantity by multiple orders or for multiple deliveries.

(3) That nothing contained in this section 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;

(4) That nothing contained in this paragraph shall prevent price changes from time to time where made in response to changing conditions affecting the market for or the marketability of the goods concerned, such as, but not limited to, actual or imminent deterioration of perishable goods, distress sales under court process, or sales in good faith in discontinuance of business in the goods concerned;

(5) That nothing contained in this section shall prevent the meeting in good faith of an equally low price of a competitor.

NOTE: Subsection (b) of Section 2 of the Clayton Act, as amended, reads as follows: "Upon proof being made, at any hearing on a complaint under this section, that there has been discrimination in price or services or facilities furnished, the burden or rebutting the prima facie case thus made by showing justification shall be upon the person charged with a violation of this section, and unless justification shall be affirmatively shown, the Commission is authorized to issue an order terminating the discrimination: Provided, however, That nothing herein contained shall prevent a seller rebutting the prima facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor."

(b) Examples of prohibited price differential practices. The following are examples of price differential practices to be considered as subject to the prohibitions of paragraph (a) of this section when involving goods of like grade and quality which are sold for use, consumption, or resale within any place under the jurisdiction of the United States, and which are not purchased by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit, as supplies for their own use, and when:

(1) The commerce requirements specified in paragraph (a) of this section are present; and

(2) The price differential has a reasonable probability of substantially

lessening competition or tending to create a monopoly in any line of commerce, or of injuring, destroying, or preventing competition with the industry member or with the customer receiving the benefit of the price differential, or with customers of either of them; and

(3) The price differential is not justified by cost savings (see paragraph (a)(2) of this section); and

(4) The price differential is not made in response to changing conditions affecting the market for or the marketability of the goods concerned (see paragraph (a)(4) of this section); and

(5) The lower price was not made to meet in good faith an equally low price of a competitor (see paragraph (a)(5) of this section).

Example No. 1. The granting of a percentage discount on a purchase made by a customer which is not granted on purchases made by all other customers, or which is not granted in the same percentage on the purchases of all other customers.

Example No. 2. At the end of a given period an industry member grants a discount to a customer equivalent to a fixed percentage of the total of such customer's purchases during the period and fails to grant a discount of the same percentage to all other customers on their purchases during such period.

Example No. 3. An industry member sells goods to one or more of his customers at a higher price than he charges other customers for like products. It is immaterial whether or not such discrimination is attended by misrepresentation as to the grade and quality of the product sold.

Example No. 4. Terms of 2 percent, if payment is made by the 10th of the following month, are granted by an industry member to some customers on products purchased by them from the industry member. Another customer or customers are, nevertheless, allowed to take an additional discount when making payment to the industry member within the time prescribed.

NOTE: As previously indicated, the foregoing are examples of practices to be considered violative of the prohibitions of paragraph (a) of this section when involving goods of like grade and quality and when not subject to the other exemptions, exclusions, or defenses set forth in this paragraph.

(c) Prohibited brokerage and commissions. It is an unfair trade practice

for any member of the industry engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.

(d) Prohibited advertising or promotional allowances, etc. It is an unfair trade practice for any member of the industry engaged in commerce to pay or contract for the payment of advertising or promotional allowances or any other thing of value to or for the benefit of a customer of such member in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such member, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

(e) Prohibited discriminatory services or facilities. It is an unfair trade practice for any member of the industry engaged in commerce to discriminate in favor of one purchaser against another purchaser or purchasers of a commodity bought for resale, with or without processing, by contracting to furnish or furnishing, or by contributing to the furnishing of, any services or facilities connected with the processing, handling, sale, or offering for sale of such commodity so purchased upon terms not accorded to all competing purchasers on proportionally equal terms.

NOTE: See subsection (b) of section 2 of the Clayton Act, as amended, which is set forth in the note concluding paragraph (a) of this section.

Sec.

40.12 Enticing away employees of competitors.

40.13 Prohibited sales below cost. 40.14 Prohibited discrimination. 40.15 Exclusive deals.

40.16 Aiding or abetting use of unfair trade practices.

COMMITTEE ON THE PRACTICES

40.201 Industry committee.

AUTHORITY: Secs. 6, 5, 38 Stat. 721, 719; 15 U.S.C. 46, 45 unless otherwise noted.

SOURCE: 22 FR 4441, June 25, 1957, unless otherwise noted.

§ 40.0 The industry defined.

The industry for which trade practice rules are established through this proceeding consists of persons, firms, corporations, and organizations engaged in the sale of equipment designed to test the reaction and performance of products under varying degrees of temperature, shock, noise, combustion, gravity, and other environmental conditions, and which is manufactured in whole or substantial part at factories maintained and operated by them. Not included are persons, firms, corporations, or organizations who merely install and/or repair such equipment.

GROUP I

§ 40.1 Misrepresentation and deception in general.

In connection with the distribution, sale, or offering for sale of industry equipment, it is an unfair trade practice to use, or cause or promote the use of, any trade promotional literature, advertising matter, guarantee, warranty, mark, brand, label, trade name, picture, design or device, designation, or any other type of oral or written representation, however disseminated or published, or to fail to disclose any material fact, when such representation or failure to disclose has the capacity and tendency or effect of misleading or deceiving purchasers or prospective purchasers in any material respect.

§ 40.2 Deceptive pricing.

(a) It is an unfair trade practice for any industry member, in the course of or in connection with the offering for sale or distribution of industry equip

ment, to publish or circulate, in advertising or otherwise, false or misleading price quotations, price lists, or lists stating terms or conditions of the sale or installation of industry equipment, which have the capacity and tendency or effect of thereby misleading or deceiving purchasers or prospective purchasers in any material respect.

(b) Among the practices inhibited by this section are:

(1) Misrepresenting the total cost price or expense of the complete, final, and efficient installation.

(2) Misrepresenting the need for extra parts, gadgets, or devices required for the satisfactory and efficient performance of the installation.

(3) Misrepresenting the need for maintenance or replacement of parts of such equipment after such installation has been made, or with respect to any services offered concerning maintenance of such equipment or installation.

§ 40.3 Misrepresentation as to experience and production capacity.

In connection with the sale, offering for sale, or distribution of environmental testing equipment, it is an unfair trade practice for any industry member to represent, directly or indirectly, that the member has special knowledge, experience, or facilities for designing, manufacturing, installing, or maintaining any such equipment, or has engaged in specialized study or research relating thereto, when such is not the fact.

§ 40.4 Misrepresentation of performance of equipment.

In the sale, offering for sale, or distribution of environmental testing equipment, it is an unfair trade practice to misrepresent the performance capabilities of any such equipment.

§ 40.5 Defamation of competitors or false disparagement of their equipment.

The defamation of competitors by falsely imputing to them dishonorable conduct, inability to perform contracts, questionable credit standing, or by other false representations, or the false disparagement of competitors' equipment in any respect, or of their business methods, selling prices, value,

credit terms, policies, or services, is an unfair trade practice.

§ 40.6 Substitution of equipment.

It is an unfair trade practice to make an unauthorized substitution of equipment, where such substitution has the capacity and tendency or effect of misleading or deceiving the purchasing or consuming public, by:

(a) Shipping, delivering, or installing industry equipment that does not conform to descriptions submitted, to specifications upon which the sale is consummated, or to representations made prior to securing the order, without advising the purchaser of the substitution and obtaining his consent thereto prior to making shipment or delivery; or

(b) Falsely representing the reason for making a substitution.

§ 40.7 Misrepresenting equipment as conforming to standard.

In connection with the sale or offering for sale of industry equipment, it is an unfair trade practice to represent, through advertising or otherwise, that such equipment conforms to any · standards recognized in or applicable to the industry when such is not the fact.

§ 40.8 Inducing breach of contract.

(a) Knowingly inducing or attempting to induce the breach of existing lawful contracts between competitors and their customers or their suppliers, or interfering with or obstructing the performance of any such contractual duties or services, under any circumstances having the capacity and tendency or effect of substantially injuring or lessening present or potential competition, is an unfair trade prac

tice.

(b) Nothing in this section is intended to imply that it is improper for any industry member to solicit the business of a customer of a competing industry member; nor is the section to be construed as in anywise authorizing any agreement, understanding, or planned common course of action by two or more industry members not to solicit business from the customers of either of them, or from the customers of any other industry member.