not applicable to Government contracts for - supplies." (38 Opinions, Attorney General

539.)

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

NOTE: Cost Justification under the above proviso depends upon net savings in cost based on all facts relevant to the transactions under the terms of proviso (a)(2). 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 section 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, obsolescence of seasonal goods, distress sales under court process, or sales in good faith in dicontinuance 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 1: 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 of 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."

NOTE 2: In complaint proceedings, justification of price differentials under subparagraphs (2), (4), and (5) of paragraph (a) of this section is a matter of affirmative defense to be established by the person or concern charged with price discrimination.

NOTE 3: Nothing in this section should be construed as prohibiting the granting of different prices which are not otherwise violative of the foregoing provisions of this section, to customers in different functional categories. For example, a seller may grant a lower price to wholesalers than to retailers to the extent that such wholesalers resell to retailers. If such wholesalers also sell at retail they may not properly be granted a price lower than the prices granted to competing retailers on that portion of the goods they sell at retail.

(b) 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. An industry member sells goods to one or more of his customers at a higher price than he charges other customers for merchandise of like grade and quality. It is immaterial whether or not such discrimination is accomplished by misrepresentation as to the grade and quality of the products sold.

Example No. 2. An industry member sells goods to one or more of his customers at a higher price than he charges other customers for merchandise of like grade and quality in like containers. It is immaterial whether or not such discrimination is accomplished by misrepresentation as to the type or cost of the containers in which the products are packaged.

Example No. 3. Several buyers reserve a specified quantity of a particular grade and quality of fresh fruits and vegetables for current delivery. At the time of routing, ordering accessorial services and billing, one of such buyers refuses to accept the shipment at the price charged other current buyers for such goods of like grade and quality and will accept delivery only at a reduced price. If the seller accedes to the buyer's demands for a reduced price and all the conditions set forth above immediately preceding Example No. 1 are present, the resulting price discrimination would be violative of paragraph (a) of this section. Similarly, if the buyer knowingly induced or received such illegal discrimination in price, he would have violated paragraph (d) of this section.

(c) The following examples are intended to illustrate practices in the Fresh Fruit and Vegetable Industry which, although possibly giving raise to a price differential among buyers, do not violate paragraph (a) of this section under conditions set forth in such examples:

Example No. 1. A buyer enters into a binding and enforceable agreement with a seller to purchase at a stated price a specified quantity of fresh fruits or vegetables, shipment to take place at such time in the future so that the transaction is not considered a sale for current delivery.

The agreed upon price may be lower or higher than such seller is selling goods of like grade and quality to other buyers as to sales for current delivery on the date the agreement is made. By like token, the price paid may be lower or higher than prices paid by other buyers as to sales for current delivery on the day specified for shipment.

In agreeing to buy now for future shipment, the buyer is faced with the risk of a future declining market. The opportunity to make such future purchases is made available at the same price by the seller to all his customers.

In order for this example to be applicable, sufficient time must elapse under the contract between the agreement and the delivery so as to constitute the assumption by the buyer and the seller of an actual market risk. The foregoing is to be determined from the facts and circumstances of each case. This example may not be relied upon as a subterfuge for paying or granting discriminatory prices.

Example No. 2. Buyer A buys a quantity of goods from a distant seller; the terms are "F.O.B. acceptance final." Buyer B located in the same city as Buyer A, buys the same quantity of goods of like grade and quality from the same seller; the terms of sale are "inspection, acceptance, arrival." Buyer A pays less for the goods than Buyer B as a result of the differing risks, such as transit damage, deterioration and rejection borne by the parties in each sale. Either buyer had, as is required, the opportunity to buy from the same seller the goods on the terms under which they were purchased by the other.

NOTE: It is the concensus of the industry that the definitions and terms of sale prevalent in the industry, and the relative risks, advantages and obligations involved in each such term, except only as otherwise specifically provided herein, are, where applicable, as described in § 46.43 of the regulations issued pursuant to the Perishable Agricultural Commodities Act (7 CFR 46.43).

Example No. 3. A large number of sellers and buyers are continuously engaged in bargaining for what is, from their standpoint, the best possible price for a particular commodity. Numerous transactions take place with great rapidity, usually consummated through telephone conversations. On occasion, one buyer may purchase from a seller goods at a lower price than another buyer may purchase goods of like grade and quality from the same seller. On a subsequent day

or within a series of subsequent transactions on the same day, the situation is reversed. While on any given day discriminations are likely to exist, there is not likely to be a violation of paragraph (a) of this section if:

1. The discriminations are not the result of a plan or formula whereby a paritcular buyer or class of buyers receives a relatively consistent advantage, and

2. The discriminations do not, in fact, afford a relatively consistent advantage to a particular buyer or class of buyers, and

3. The discriminations are not of such size or extent as to be likely to cause or threaten injury to buyers or classes of buyers which purchase from the same seller but do not receive any benefit from the discriminations, and

4. The discriminations are not of such a nature as to cause or threaten competitive injury to competing sellers.

(d) It is also unlawful for any member of the industry engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price prohibited by paragraph (a) of this section. [Rule 1]

§ 74.2 Prohibited brokerage.

(a) It is unlawful 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.

(1) The foregoing provision prohibits, in connection with the sale of goods, the payment of a brokerage fee or the granting of an allowance or discount in lieu of a brokerage fee

(i) By the seller to the buyer; and (ii) By the buyer to the seller; and (iii) By the seller or the buyer to an agent, representative or other intermediary who is working for or in behalf of the other party to the sales transaction, or is subject to such other party's direct or indirect control; and

(iv) By an agent of the seller to the other party to the sales transaction, either through paying such other party all or a portion of his fee or through accepting a reduced fee which results in a reduction in the price by the seller. The provision of this paragraph (a) also prohibits the receipt of such a commission, brokerage fee, discount or allowance under the conditions prescribed.

(b) The paying or granting or receiving or accepting of any commission, brokerage fee, or allowance or discount in lieu thereof, such as is proscribed by paragraph (a) of this section is unlawful without regard to whether or not the practice

(1) Causes or is likely to cause competitive injury as described in paragraph (a) of § 74.1.

(2) Was employed to meet any payment, allowance or discount furnished by a competitor.

(c) An intermediary is prohibited from receiving, in connection with the same sales transaction, a brokerage fee or allowance or discount in lieu thereof from both the seller and the buyer, and is also prohibited from receiving a brokerage fee or allowance or discount in lieu thereof from either the seller or buyer if he, the intermediary, is subject to the direct or indirect control of the other party to the sales transaction.

(1) Does the intermediary represent the buyer or the seller?

(1) This is determined on the basis of the facts and circumstances in each sales transaction. The records of the parties concerning the sale and the actions of such parties in connection with negotiating the sale and the handling of subsequent developments occurring throughout the course of the transaction are to be considered in making such a determination.

(ii) If there is a dispute as to whether there was an agreement between the broker and either the seller or the buyer concerning the sales transaction, the actions and records of the parties involved are particularly pertinent in determining which party the broker represents.

(a) Among acts and practices which indicate, in connection with the sale of goods, that a broker may be representing the seller are the following:

(1) Seller solicits the broker's services in effecting the sale of the goods involved under terms most advantageous to the seller.

(2) Broker offers the goods to the buyer at the seller's price, and thereafter, transmits counter offer, if any, to the seller.

(3) Broker negotiates sale of the goods in accord with the seller's instructions and authorization.

(4) If shipment is rejected, or an allowance is requested, or other disputes arise, the broker acts to resolve such matters so as to protect the best interests of the seller consistent with the terms of the contract.

(b) Among acts and practices which indicate, in connection with the sale of goods, that a broker may be representing the buyer are the following:

(1) Buyer solicits the broker's services in effecting the purchase of goods of the kind involved under terms most advantageous to the buyer.

(2) Broker contacts seller and makes offer for merchandise and otherwise negotiates purchase on buyer's instructions or authorization. Broker designates size and grade desired by buyer and seeks lowest possible price and best quality within a grade.

(3) In controversies as arise in the transaction, in negotiating price adjustments therein, in rejecting merchandise, and in the handling of any other matters

involved in the sale, the broker acts to protect the best interests of the buyer consistent with the terms of the contract.

(c) Examples of two sales transactions, one in which the broker represents the seller and the other in which the broker represents the buyer are as follows:

Example No. 1. A shipping point broker is requested by a shipper to help sell five cars of strawberries. The broker contacts wholesalers on the terminal markets and sells the strawberries at a price set by the shipper. He issues a memorandum of the transaction

to the parties. The broker has represented the shipper.

Example No. 2. A shipping point broker calls a jobber by long distance telephone to see if he needs brokerage service in obtaining produce. The Jobber requests the broker to purchase for him five cars of lettuce of a certain grade at the lowest available price. The broker calls several of the local shippers where he is operating and ascertains where the lettuce can be obtained at the best price for the ouyer. He locates and inspects the lettuce and if satisfactory, purchases the desired amount in the name of the buyer. Thereafter he sends a memorandum to the parties to the transaction. The broker has acted as the agent for the buyer.

The above examples illustrate but two types of situations in which the broker acts for the seller or the buyer, depending upon the facts in the particular transaction. It is not practicable to show all of the variations of the arrangements made between brokers and sellers or between brokers and buyers. These are many and varied. Moreover, a slight difference in these arrangements may bring about a different result. For example, a shipper may ask a broker if he knows of any buyer who wants to place orders for the purchase of produce. If the broker negotiates for a buyer a sale with such shipper and acts in all respects on the buyer's behalf in obtaining for him the most advantageous terms, clearly the buyer may pay brokerage. Consider a slight variation in the facts, how

ever.

In this situation the shipper, although knowing that the broker has acted for buyers previously even in transactions with the same shipper, calls him and says that he, the shipper, has produce he would like to move and asks the broker to help him do so. If the broker in arranging the transaction does so in the best interest and pursuant to instructions of the shipper, and otherwise acts for the shipper in the transaction, he should look to the shipper for payment of brokerage. This would be so even though the buyer had been the broker's principal in another transaction.

Some brokers at various shipping points make it their practice to telephone jobberbuyers in other areas regularly who give the broker their orders. The broker then calls shippers believed to have the produce they

are seeking. Thereafter, the broker inspects the produce and either accepts or rejects it for the buyer. If the produce is acceptable he negotiates a deal pursuant to the buyers' instructions. The circumstances described indicate that the broker has acted for the buyer throughout the transaction and that the latter may pay brokerage. Here again, a slight change in the buying or selling arrangements might well cause a different result.

In determining whether a broker acts for a buyer or a seller, each transaction must be considered on its own facts. A rule of general applicability can be helpful only in clarifying the pertinent legal principles and affording guidance to industry members in the application of these principles to particular situations.

(2) Is the intermediary subject to the direct or indirect control of the party to the transaction other than the person who pays the brokerage? Such control may be by various means. In Commission cases it has been found to exist where

(i) A broker, who was under contract with buyers to furnish them with purchasing and marketing service, placed orders with sellers for goods for such buyers, obtained brokerage fees from the sellers and credited such fees to the buyers' accounts. The sellers were prohibited from paying the brokerage fees.

(ii) An independently owned broker receiving brokerage fees from the sellers for negotiating sales of private brand merchandise to certain buyers was obligated under a contract to pay license fees for use of such private brands to a corporation owned by the buyers. Broker was prohibited from receiving brokerage fees from the sellers.

(d) Paragraph (a) of this section also prohibits a seller from paying to a broker a commission or brokerage fee in connection with a sales transaction wherein the broker does not act as an intermediary for the seller but takes title to the merchandise involved and sells it for his own account.

(e) A discount or allowance by an industry member is in lieu of brokerage if it is attributable to a reduction or elimination of brokerage fees in connection with the sales transaction involved.

(1) A discount or allowance granted by an industry member to some but not all customers would not under ordinary circumstances be considered in lieu of brokerage if

(1) The industry member granting same makes no sales through brokers to any of his customers, or

(ii) The industry member makes all of his sales through brokers at the same brokerage rate.

(2) The actual basis for a discount or allowance at the time it was granted will indicate whether or not such was in lieu of brokerage.

NOTE: A discount or allowance which is not in lieu of brokerage may nevertheless be violative of § 74.1.

(f) The following are examples of violations of paragraph (a) of this section:

Example No. 1. A seller sells goods sometimes through brokers and sometimes on a direct basis, where no broker is involved. If on a direct sale the seller deducts an amount from the price which in fact constitutes an allowance or discount in lieu of brokerage, both the seller and the buyer have violated paragraph (a) of this section. It is of no consequence whether such payment or allowance is made directly by check, by deduction by the buyer from invoice price before remitting payment therefor, by deduction from the sales price by the seller, or otherwise.

In other transactions, however, the abovedescribed buyer may function, not as a buyer, but as a bona fide broker for the same seller. negotiate for him a sale of goods to another party in accord with the seller's instructions and authorization and lawfully receive a brokerage fee for such service.

Example No. 2. In order to make a sale of a large quantity of products to a particular buyer who will not pay the seller's going price, the seller and his broker agree that the usual brokerage fee will be reduced and that the price to such buyer will be less than otherwise by an amount reflecting all or part of the brokerage reduction. The sale is made to such buyer at the reduced price. The seller, the broker and the buyer have violated paragraph (a) of this section.

Example No. 3. A broker is in fact the purchasing agent for a large buyer corporation and he is in all respects subject to such corporation's supervision and control. In connection with negotiation of purchases of goods and the handling thereof on behalf of the buyer corporation, the broker performs certain incidental services for the sellers involved and is paid brokerage fees by the sellers for such services. The payment of the brokerage fees by the sellers and the receipt and acceptance thereof by the broker are violations of paragraph (a) of this section. A broker may receive compensation for negotiating a valid and binding sales contract only from his principal for whom he has negotiated such contract.

(g) The following are examples of practices which are not violative of paragraph (a) of this section.

Example No. 1. A broker negotiates a valid and binding contract for the sale to several buyers of fresh fruits or vegetables on behalf of his seller-principal at a price established by the seller. The seller delivers an invoice and/or manifest to the broker showing the name of the broker as "broker" and itemizing the list of the merchandise together with the price of each item. The names of the buyers are not listed. As a service to his seller-principal, the broker bills and collects from the buyers the amount charged by the seller, remitting the total amount collected, less brokerage, together with a memorandum of sale identifying the buyers. There is no violation of paragraph (a) of this section in this example. In such a situation wherein the names of the buyers are not initially disclosed by the broker to his seller-principal it is the broker's responsibility to provide confirmation and memoranda as will clearly establish his role as a broker, and it is the seller's responsibility to ascertain that the broker is not the buyer.

Example No. 2. An industry member who is regularly engaged as a packer and shipper of fresh fruits and vegetables has an inadequate supply of a particular commodity to meet his needs at a particular time. He purchases the necessary quantity to meet such needs from another regularly engaged packershipper operating at the same level of distribution. By prearrangement, the purchaser is allowed an inter-packing house discount. Such practice does not violate paragraph (a) of this section.

Example No. 3. An industry member sells industry products through his broker to some purchasers and direct, without the services of his broker, to other purchasers. In doing so he charges lower prices to some customers because in making sales to them he incurs less selling and delivery expense other than savings in brokerage fees and commissions than he incurs in selling or delivering products to the other customers.

NOTE: A price differential which is not violative of paragraph (a) of this section may nevertheless be violative of § 74.1. [Rule 2]