favor of one customer-purchaser against another customer-purchaser of industry products, bought from such member of the industry for resale, by contracting to furnish, or furnishing in connection therewith, upon terms not accorded to all customer-purchasers on proportionally equal terms, the service or facility whereby such favored customer is accorded the privilege of returning industry products so purchased and receiving therefor credit or refund of purchase price: Provided, however, That nothing in the rules in this part shall prohibit or be used to prevent the return of merchandise by purchaser for credit or refund of purchase price, when and because such merchandise has not been properly labeled by the seller in accordance with these rules or has been otherwise falsely or deceptively labeled or represented, or when and because such merchandise is defective in material, workmanship, or in any other respect is contrary to warranty or purchase contract: And provided, further, That nothing in this section shall prohibit a purchaser from exchanging the current season's merchandise for different sizes of the same style number in order to balance purchaser's stock. (Nothing in this section is intended to modify or affect any of the requirements of § 21.1, entitled "Prohibited Discrimination.") § 21.14 Consignment distribution.

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(a) It is an unfair trade practice for any member of the industry to employ the practice of shipping goods on consignment, pretended consignment, or for delivery "on memorandum":

(1) When such practice is so used, or the terms and conditions thereof so varied or arranged, as to effectuate a discrimination contrary to the provisions of § 21.1; or

(2) When such consignment, pretended consignment, or delivery "on memorandum," is used for the purpose and with the effect of artificially clogging trade outlets and unduly restricting competitors' use of said outlets in getting their products to purchasers or consumers through regular channels of distribution, and thereby injuring, destroying, or preventing competition, tending to

It is the consensus of the industry that where a purchaser is entitled to return goods for any of the reasons hereinabove set forth, such return shall be made within fifteen (15) days after receipt of the goods.

create a monopoly, or unreasonably restraining trade.

(b) Nothing in this section shall be construed as restricting or preventing consignment shipping, or marketing "on memorandum," when carried out in good faith and without illegal discrimination, suppression of competition, or undue interference with competitors' use of the usual channels of distribution.

§ 21.15 Seconds, irregulars, or rejects.

(a) Industry products which are “seconds," "irregulars," or "rejects," or which are represented as being "seconds," "irregulars," or "rejects," shall be so marked, clearly and conspicuously, to the end that confusion, misunderstanding, or deception of the purchasing or consuming public may be avoided and prevented. "Seconds" may be marked or referred to by the manufacturer as "seconds," "irregulars," or "rejects" provided that such marking or reference clearly indicates that the product is not of first quality. Such disclosure of "seconds," "irregulars," or "rejects" shall also be made on invoices as well as on the garment itself, and on the immediate package, if any, in which it is sold to the consumer, and on display cards, advertisements, or other representations under which such "seconds," "irregulars," or "rejects" are offered for sale or advertised to the purchasing or consuming public.

(b) It is an unfair trade practice deceptively to conceal the fact that said industry products are "seconds,” “irregulars," or "rejects," or to fail or refuse to make such disclosure to the end specified in paragraph (a) of this section. § 21.16 Fictitious prices, price lists, etc.

(a) The publishing or circulating by any member of the industry of false or misleading price quotations, price lists, terms or conditions of sale, or reports as to production or sales, with the capacity and tendency or effect of misleading or deceiving purchasers, prospective purchasers, or the consuming public, or the advertising, sale, or offering for sale of industry products at prices purporting to be reduced from what are in fact fictitious prices, or at purported reductions in prices when such purported reductions are in fact fictitious or are otherwise misleading or deceptive, is an unfair trade practice.

(b) It is an unfair trade practice, in connection with the sale, offering for

sale, or distribution of industry products at prices that are in any manner represented as reduced from or lower than current, former, or regular prices, to use, or to furnish or supply for such use, price tags, labels, or advertising material that set forth a false, fictitious, or exaggerated current, former, or regular price, or a false, fictitious, or exaggerated manufacturer's or distributor's suggested retail selling price, or that contain what purport to be bona fide price quotations which are in fact higher than the prices at which such products are regularly and customarily sold in bona fide retail transactions. It is likewise an unfair trade practice to distribute, sell, or offer for sale to the consuming public in such manner products bearing such false, fictitious, or exaggerated price tags or labels.

§ 21.17 Misuse of terms "close-outs," "discontinued lines," "special bargains," etc.

It is an unfair trade practice to offer for sale, sell, advertise, describe, or otherwise represent, industry products as "Close-outs," "Discontinued Lines," or "Special Bargains," by use of such terms or by words or representations of similar import, when such is not true in fact; or to so offer for sale, sell, advertise, describe, or otherwise represent industry products where the capacity and tendency or effect thereof is to lead the purchasing or consuming public to believe such products are being offered for sale or sold at greatly reduced prices, or at so-called "bargain" prices, when such is not the fact.

§ 21.18 Aiding or abetting use of unfair trade practices.

It is an unfair trade practice for any person, firm, or corporation to aid, abet, coerce, or induce another, directly, or indirectly, to use or promote the use of any unfair trade practice specified in these rules.

(a) Products of this industry consist of vegetables, fruits, juices, fish and shellfish, baked goods, and other miscellaneous prepared foods, which are packed, marketed, and delivered to the ultimate consumer in a frozen state. Not included as products of the industry are meats and poultry, and frozen dairy products including ice cream and sherbets.

(b) The term "member of the industry" means any person, firm, corporation, or organization engaged in the production and/or marketing of products of the industry.

§ 22.1

GROUP I

Prohibited discrimination.' (a) Prohibited discriminatory prices, rebates, refunds, discounts, credits, etc.,

As used in § 22.1, 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."

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, or 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 commodities are to such purchasers sold or delivered;

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 subparagraph (2) of this paragraph. 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 obsolescence of seasonal goods, 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, or the services or facilities furnished by a competitor (see paragraphs (d) and (e) of this section).

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

(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, or 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. 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 such dis

count to other customers under like conditions.

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 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 No. 3. An industry member makes a sale of industry products to a purchaser under an arrangement whereby the products are shipped by the industry member's supplier directly to such purchaser and charges a lower price than that charged other purchasers under similar circumstances, or a price which, when compared with the price charged purchasers on sales made out of the stock of the industry member, constitutes a discount greater than can be justified by the difference in costs resulting from the differing quantities or method of sale or delivery.

Example No. 4. An industry member sells to some customers industry products at prices of drop shipments when in fact such transactions are out-of-stock sales which are made to other customers at higher prices, even though the quantities involved are large enough to be delivered on a direct shipment basis. (As here used an "out-of-stock" sale is one from the industry member's stock on hand and a "drop shipment" sale is one in which the industry member arranges to have the goods shipped by the industry member's supplier directly to the industry members customer.)

Example No. 5. Terms of 2/10th 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 a 5 percent instead of a 2 percent discount when making payment to the industry member within the time prescribed.

(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.

(f) Inducing or receiving an illegal discrimination in price. It is an unfair trade practice for any member of the industry engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by paragraphs (a) to (e) of this section.

NOTE: Paragraph (f) of this section is a restatement of section 2 (f) of the Clayton Act as amended. In a complaint proceeding under this section, in order to make out a prima facie violation, the Commission must show that the favored buyer induced or received the lower price knowing, or knowing facts from which he should have known, that such price was violative of section 2 (a) of said act and not justified under paragraph (a) (2), (4), or (5) of this section. When, in any such proceeding, the issue is limited to the question of whether the price differ

The term "services," as here used, includes, but is not limited to, the installation, maintenance, and repair of cabinets designed for use by retail stores in the display, preservation, and storage of frozen food products.

The term "facilities," as here used, includes, but is not limited to, cabinets designed for use by retail grocery stores in displaying, preserving, and storing frozen food products.

ential involved made only due allowance for differences in cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which the goods were sold and delivered, the Commission may establish a prima facie case in a number of ways, including:

(1) By showing that the buyer paying the lower price knew that the methods by, and quantities in, which the goods were sold and delivered to him by the seller, were the same as in the case of the competing buyer or buyers paying the higher price or prices; or (2) By showing, when there is a difference in the methods or quantities in which the goods were sold and delivered by the seller to the buyer than in the case of the competing buyer or buyers paying the higher price or prices, that the buyer paying the lower price or prices knew the nature and extent of such differences and knew or should have known that they could not have resulted in sufficient cost savings of the kind and character specified as to justify the price differential.

(g) Purchases by U. S. Government; applicability of Robinson-Patman Antidiscrimination Act to same. In an opinion submitted to the Secretary of War under date of December 28, 1936, the U. S. Attorney General advised that the Robinson-Patman Antidiscrimination Act "is not applicable to Government contracts for supplies." Opinions, Attorney General 539.)

§ 22.2 Exclusive deals.

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It is an unfair trade practice for any member of the industry engaged in commerce,1 in the course of such commerce, to lease or make a sale or contract for sale of any industry product, for use, consumption, or resale within any place under the jurisdiction of the United States, or fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement, or understanding that the lessee or purchaser thereof shall not use or deal in the goods of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract, for sale, or such condition, agreement, or understanding, may be substantially to lessen competition or tend to create a monopoly in any line of commerce.

NOTE 1: The following is an example of a practice violative of this section. Manufacturer A supplies retail grocery store B with a cabinet for the display, preservation, or storage of frozen food products sold by B under an agreement or understanding with

1 See footnote 1 on p. 149.

B that B will deal only in products purchased from A and the effect of such arrangement has a reasonable probability of substantially lessening competition in the sale of frozen food products.

NOTE 2: The furnishing of a cabinet or other benefit by an industry member to his customer or prospective customer may under certain circumstances constitute a violation of section 5 of the Federal Trade Commission Act, as amended, regardless of the absence of any agreement or understanding between the industry member and his customer or prospective customer that the customer or prospective customer will not deal in the products of a competitor or competitors of said industry member.

There are presently pending before the Commission several complaint cases against manufacturers and processors of ice cream, sherbets, and similar frozen dairy products charging violation of section 5 of the Federal Trade Commission Act, as amended, by: (1) Supplying cabinets to customers for display, storage, and preservation of products; (2) supplying to customers installation and maintenance services relating to the facilities mentioned; (3) making cash or credit allowances to customers for their purchase of the facilites or services mentioned; (4) making loans of money to customers and prospective customers; and (5) supplying of other benefits to customers and prospective customers;

under circumstances having the effect or reasonable probability of substantially injuring, suppressing, or stifling competition or tending to create a monopoly in the sale in commerce of the products mentioned. While §§22.1 and 22.2, constituting respectively re-statements of sections 2 and 3 of the Clayton Act as amended, contain provisions which have application to the practices mentioned under circumstances and conditions therein specified, the rules for the industry do not contain any of the limitations imposed by section 5 of the Federal Trade Commission Act as amended relating to such practices. Decisions made in the mentioned pending complaint cases may supply substantial clarification as to the applicability of said section 5 to these practices, and in that event consideration will be given to the inclusion of provisions supplying such clarification. The non-inclusion of provisions based on said section 5 in the rules promulgated for the industry is not to be regarded as inferring that the corrective authority of the Commission respecting the practices is confined to sections 2 and 3 of the Clayton Act as amended.