States, and which are not purchased by schools, colleges, universities, public 11braries, churches, hospitals, and charitable institutions not operated for profit, as supplies for their own use, and when(1) The commerce requirements specified in 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 was not justified by cost savings (see paragraph (a) (2) of this section); and

(4) The price differential was 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 1. 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 the customer's purchases during such period and fails to grant a discount of the same percentage to other customers on their purchases during such period.

Example 2. An industry member sells goods to one or more of his customers at a higher price than he charges other customers for like merchandise. It is immaterial whether or not such discrimination is accomplished by misrepresentation as to the grade and quality of the products sold.

Example 3. An industry member sella goods directly to a retailer at a lower price than he charges distributors whose retail customers compete with the favored retailer.

Example 4. An industry member pays freight on shipments to a customer, or pays freight on shipments to a distributor's customer, and does not pay such freight for all customers of the industry member, thereby effecting a difference in price between customers of such member.

Example 5. Terms of 2/10 prox. are granted by an industry member to some customers on goods 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: "Free" records. In the phonograph record industry, "free" records of a particular type are customarily offered by sellers to their

customers upon the condition that such customers purchase specified quantities of particular phonograph records.

Granting of free records or other merchandise illustrated by examples 6, 7, and 8 is considered violative of section 2(a) of the Clayton Act, as amended, provided that the requisites preceding the examples of this paragraph (b) of this section are met.

Example 6. An industry member invoices goods to all his customers at the same price but supplies additional quantities of such goods at no extra charge to one or more, but not to all, such customers; or supplies other goods or premiums to one or more, but not to all, such customers for which he makes no extra charge and which effects an actual price difference in favor of certain of his customers.

Example 7. An industry member grants to some of his customers "free" records based on a fixed percentage of the customer's purchase of records and fails to grant "free" records based on the same percentage to other customers, which effects an actual price difference in favor of certain of his customers.

Example 8. An industry member grants to all customers who purchase a specified "quota" of records a certain quantity of "free" records, but the "quota" is so high that some customers cannot attain it and thus do not receive the "free" records, effecting an actual price discrimination in favor of certain of the industry member's customers.

NOTE: Functional discounts. Neither this section, nor section 2(a) of the Clayton Act, as amended, of which this section is interpretive, expressly permits or prohibits the granting of functional discounts. The propriety of such discounts is contingent, principally, on whether they may substantially lessen competition or tend to create a monopoly. All price differentials, whether "functional" or otherwise, must meet the same tests.

Ordinarily, however, a seller may grant a lower price to wholesalers than to retailers to the extent that such wholesalers resell to retailers, without such effects as may substantially lessen competition or tend to create a monopoly. But if such wholesalers also sell at retail, in competition with other of the seller's retail customers, 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.

Examples 9 and 10 are illustrative of practices considered to be violative of section 2(a) of the Clayton Act, as amended, provided that the requisites preceding the examples of this paragraph (b) of this section are met.

Example 9. An industry member sells phonograph records to customers who resell the records by means of record racks placed in retail stores which are primarily engaged in the sale of non-record products and charges such customers 10 percent less than

the price at which such industry member sells phonograph records to retail record store customers.

Example 10. An industry member sells phonograph records to a customer who resells to juke box operators and to retailers and who also is in competition with the latter, and charges such customer a lower price for the records he resells at retail than the industry member charges other retailers. [Rule 1] § 67.2

Prohibited advertising or promotional allowances, or services or facilities.

ances.

(a) Advertising or promotional allowNo member of the industry engaged in commerce shall 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 made known to and is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

NOTE 1: Industry members giving advertising allowances to competing customers must exercise precaution and diligence in seeing that all of such allowances are used in accordance with the terms of their offers.

NOTE 2: When an industry member gives allowances to competing customers for advertising in a newspaper or periodical, and it appears after reasonable inquiry that a lower advertising rate for equivalent space is available to one or more, but not all, such customers, such fact should not be regarded by the industry member as warranting the retention by such customer or customers of any portion of the allowance for his or their personal use or benefit.

(b) Services or facilities. No member of the industry engaged in commerce shall 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: Subsection (b) of section 2 of the Clayton Act, as amended, which is set forth in the note following paragraph (a)(5) of § 67.1 is also applicable to provisions of both paragraphs (a) and (b) of this section (67.2).

(c) Examples. The following are examples of discriminations in furnishing advertising or promotional allowances or services or facilities to be considered as subject to the prohibitions of this section when involving goods of like grade and quality, when the commerce requirements specified by this section are present, and when a suitable equivalent alternative allowance, service or facility is not accorded on proportionally equal terms to those customers to whom the allowance, service or facility set forth in these examples is not available under reasonable terms and conditions.

Example 1. An industry member grants an allowance for advertising to a customer based on a fixed percentage of that customer's purchases and fails to make known and available to other customers who are competing with the former an allowance of the same percentage of their purchases.

Example 2. An industry member furnishes free merchandise to a customer with the proviso that it be used for advertising or that the proceeds of its sale be used for advertising purposes. Such free merchandise is not offered and made available on proportionally equal terms to all competing customers.

Example 3. An industry member provides cooperative advertising allowances in the form of credit memoranda to particular customers on a negotiated, specific advertisement basis without making advertising allowances known to and available on proportionally equal terms to all competing customers.

Example 4. An industry member furnishes promotional services to a retaller customer in connection with the resale of the goods purchased and fails to make such services known to and available on proportionally equal terms to other retail customers who are competing with the former.

Example 5. An industry member provides racks, browsers, bins, displays, special packaging, and other similar services and facilities to certain of its customers but does not make such services or facilities known to and available on proportionally equal terms to all competing customers.

Example 6. An industry member sponsors a radio program on which advertising is provided for certain of its customers. Such service is not made known to and available to all competing customers on proportionally equal terms.

Example 7. An industry member accords to one or more customers the privilege of returning for credit, refund or exchange any or all of the goods purchased by them and

falls to accord the same privilege to another or other competing customers on proportionally equal terms.

(d) Proportional equality of treatment of competing customers. (The following is presented for the purpose of clarifying requirements with respect to the supplying of marketing services, facilities, or allowances by industry members to their customers, but it is not intended to imply that other methods which assure of proportional equality of treatment of competing customers may not also be used.) An industry member may simultaneously offer to each of his customers competing in the resale of his products the same kind of promotional service, facility or allowance of a cost value equal to a uniform percentage of the sales (or purchases) of the industry member's products by each customer during a specified and identical period of time: Provided, however, That where applicable the industry member complies with the following:

(1) When the service, facility, or allowance offered is of a type which under reasonable terms and conditions is not usable or suitable to the facilities and business of all customers, and is offered to any one customer, the member offers each of those customers to whom the service, facility, or allowance is not usable or suitable an alternative type of promotional service, facility, or allowance which is of equivalent measurable cost, is usable by the customer, and is suitable to his facilities and business, and promptly informs all competing customers of the kind and amount of services, facilities, or allowances which he has offered to each and the respective terms and conditions under which such services, facilities, or allowances are to be furnished by the industry member; and

(2) When the offer of any service, facility, or allowance to any customer is conditioned on such customer supplying some reciprocal service, facility, or payment, a reciprocal service, facility, or payment is required in the offers to all other customers and there is an equality of ratio among all customers as to the measurable cost of that which is supplied by the industry member and the reciprocal service, facility, or payment required of any customer.

NOTE: Where the seller has alternative promotional plans, his customers must be given the opportunity to choose among the plans.

[Rule 2]

§ 67.3 Inducing or receiving an illegal discrimination in price, advertising or promotional allowances, or services or facilities.

(a) No member of the industry engaged in commerce, in the course of such commerce, shall knowingly induce or receive a discrimination in price, advertising, or promotional allowances, or services or facilities, which is prohibited by the provisions of § 67.1 or § 67.2.

(b) The following are examples of inducing or receiving discriminations in price, advertising, or promotional allowances, or services or facilities, to be considered as subject to the prohibitions of this section when the requisites established by § 67.1 or § 67.2 for a violation of those rules on the part of the seller are present and the party receiving the discriminations knows or has reason to know that the discriminations illegal.

are

Example 1. An industry member purchases records, purportedly for resale to retailers and to juke box operators, and is charged a lower price than the seller charges other customers for records which they resell at retail; but the member then transfers such records to another part of its business where they are resold at retail, thereby receiving a discrimination in price which is prohibited by § 67.1.

Example 2. An industry member induces suppliers to contribute sums of money to defray some or all of the costs of radio programs sponsored by such member and designed to promote the sale of records in its place of business, and which feature records distributed by the contributing suppliers, when the industry member knows or has reason to believe that allowances for such purpose are not made available on proportionally equal terms by the same suppliers to other customers competing with the favored member, thereby receiving a discrimination in promotional allowances which is prohibited by § 67.2.

[Rule 3]

§ 67.4 Prohibited brokerage and com

missions.

No member of the industry engaged in commerce, in the course of such commerce, shall pay or grant, or 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 inter

mediary 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. [Rule 4]

§ 67.5

GROUP B

re

Prohibited forms of trade straints (unlawful price fixing. etc.).'

Members of the industry, either directly or indirectly, shall not engage in any planned common course of action, or 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 industry products or otherwise unlawfully to restrain trade; or 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 5] § 67.6 Tie-in sales; requiring purchase of one product as a prerequisite to the purchase of other products.

No member of the industry shall require 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

1 The prohibitions of this section are subject to Public Law 542, approved July 14, 1952-66 Stat. 632 (the McGuire Act, commonly referred to as the Fair Trade Amendment), which provides that with respect to a commodity which bears, or the label or container of which bears, the trademark, 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 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.

§ 67.7 Exclusive dealing.

Members of the industry shall not contract to sell or sell industry products, or fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement, or understanding that the purchaser thereof shall not use or deal in the products of a competitor or competitors of such industry member, where the effect of such sale or contract for sale, or of such condition, agreement, or understanding, may be substantially to lessen competition or tend to create a monopoly in any line of commerce. [Rule 7]

§ 67.8 Lifting of stocks.

No member of the industry shall purchase the stock of a distributor or dealer which has been supplied by a competitor or competitors when such practice is used as an inducement to the distributor or dealer to discontinue handling competitive products and to handle such member's products exclusively, and where the effect of such act or practice may be substantially to lessen competition or tend to create a monopoly in any line of commerce. [Rule 81

§ 67.9 Inducing breach of contract.

Members of the industry shall not knowingly induce or attempt to induce the breach of existing lawful contracts between competitors and their customers or between competitors and their suppliers, or interfere with or obstruct the performance of any such contractual duties or services, under any circumstances having the capacity and tendency or effect of substantially injuring or lessening competition. [Rule 9]

§ 67.10 Unlawful interference with purchases or sales.

No member of the industry, by means of any monopolistic practices or through combination, conspiracy, coercion, boycott, threats, or any other unlawful means, directly or indirectly, shall interfere with any industry member's right to purchase his industry products and supplies from whomsoever he chooses, or to sell his products to whomsoever he chooses. [Rule 10]

Members of the industry shall not defame competitors by falsely imputing to them dishonorable conduct, inability to perform contracts, questionable credit standing, or by other false representations, or falsely disparage competitors' products in any respect, or their business methods, selling prices, values, credit terms, policies, or service.

NOTE: Nothing in this section shall be construed as preventing full, fair, and nondeceptive comparison, by demonstration or otherwise, of competitors' products with the products of another industry member before purchasers or prospective purchasers. [Rule 11]

§ 67.12 Push money.

An industry member shall not pay or contract to pay anything of value to a salesperson employed by a customer of the industry member, as compensation for, or as an inducement to obtain, special or greater effort or service on the part of the salesperson in promoting the resale of products supplied by the industry member to the customer

(a) When the agreement or understanding under which the payment or payments are made or are to be made is without the knowledge and consent of the salesperson's employer; or

(b) When the terms and conditions of the agreement or understanding are such that any benefit to the salesperson or customer is dependent on lottery; or

(c) When any provision of the agreement or understanding requires or contemplates practices or a course of conduct unduly and intentionally hampering sales of products of competitors of an industry member; or

(d) When, because of the terms and conditions of the understanding or agreement, including its duration, or the attendant circumstances, the effect may be substantially to lessen competition or tend to create a monopoly; or

(e) When similar payments are not accorded to salespersons of competing customers on proportionally equal terms in compliance with sections 2(d) and (e) of the Clayton Act.

NOTE: Payments made by an industry member to a salesperson of a customer under any agreement or understanding that all or any part of such payments is to be transferred by the salesperson to the customer,

or is to result in a corresponding decrease in the salesperson's salary, are not to be considered within the purview of this section, but are to be considered as subject to the requirements and provisions of section 2(a) of the Clayton Act.

[Rule 12]

§ 67.13 Commercial bribery.

Members of the industry shall not give, or offer to give, or permit or cause to be given, directly or indirectly, money or anything of value to agents, employees, or representatives of customers or prospective customers, or to agents, employees, or representatives of competitors' customers or prospective customers, without the knowledge of their employers or principals, as an inducement to influence their employers or principals to purchase or contract to purchase products manufactured or sold by such industry member, or to influence such employers or principals to refrain from dealing in the products of competitors or from dealing or contracting to deal with competitors. [Rule 13]

§ 67.14 Unauthorized shipment.

No member of the industry shall engage in shipping industry products to customers or prospective customers, for the purpose of inducing purchase or acceptance on consignment of such products, without the express request or prior consent of the proposed consignee or purchaser. [Rule 14]

§ 67.16

GROUP C

Misuse of "stereo" and "stereophonic."

(a) No member of the industry shall use the words "stereo" or "stereophonic," or any other word or phrase of like meaning, to describe or refer to a recording that does not have two distinctly separate modulations derived from an original live recording in which a minimum of two separate channels were employed; except that such words or phrase may be used in connection with a recording having two distinctly separate modulations derived from an original