In a proceeding under § 5 of the Federal Trade Commission Act,
the Federal Trade Commission found that respondents had unlawfully
conspired to adopt and use a zone delivered pricing system in their
sale of lead pigments. In its general cease and desist order
prohibiting concert of action among respondents in the further use
of such system, the Commission inserted a provision directing each
respondent individually to cease and desist from adopting the same
or a similar system of pricing for the purpose or with the effect
of "matching" the prices of competitors.
the inclusion of this provision, as here
interpreted, was within the statutory authority of the Commission.
Pp. 352 U. S.
1. The findings of the Commission are supported by substantial
evidence, and are binding on respondents. Pp. 352 U. S.
2. The contested portion of the order must be viewed as limited
in these respects: (1) it is temporary; (2) the order is directed
solely at the use of a zone delivered pricing system; and (3) zone
delivered pricing per se
is not banned. Pp. 352 U. S.
3. Delivered zone pricing violates the order only when two
conditions are present: ( 1 ) identical prices with competitors (2)
resulting from zone delivered prices. P. 352 U. S.
4. Section 2(b) of the Clayton Act, relating to the right of a
seller in good faith to meet the lower price of a competitor, must
be read into every Commission order, and respondents therefore are
afforded all the benefits of that section. P. 352 U. S.
5. The record shows that the respondents were afforded all the
safeguards of a fair hearing. Pp. 352 U. S.
6. The remedy adopted by the Commission has a reasonable
relation to the unlawful practices which were found to exist. Pp.
352 U. S.
7. Under the circumstances here, the Commission was justified in
its determination that it was necessary to include some restraint
in its order against the individual corporations in order to
prevent a continuance of the unfair competitive practices found to
exist. Pp. 352 U.S.
Page 352 U. S. 420
8. The order does not prohibit or interfere with independent
delivered zone pricing per se,
nor does it prohibit the
practice of the absorption of actual freight as such in order to
foster competition. Pp. 352 U. S.
9. Hypothetical situations do not warrant striking down the
contested provision of the order. P. 352 U. S.
227 F.2d 825 reversed.
MR. JUSTICE CLARK delivered the opinion of the Court.
The sole question involved in this proceeding under § 5 of the
Federal Trade Commission Act [Footnote 1
] concerns the power of the Commission in
framing an order pursuant to its finding that respondents had
conspired to adopt and use a zone delivered pricing system in their
sale of lead pigments. [Footnote
] In its general cease and desist order prohibiting concert of
action among respondents in the further use
Page 352 U. S. 421
of such system, the Commission inserted a provision directing
each respondent individually to cease and desist from adopting the
same or a similar system of pricing for the purpose or with the
effect of "matching" the prices of competitors. The respondents
assert that this is beyond the power of the Commission, and the
Court of Appeals agreed, 227 F.2d 825, striking that provision from
the Commission's order. We granted certiorari, 351 U.S. 961,
because of the importance of the question in the administration of
the Act. We restore the stricken provision of the Commission order,
permitting it to stand with the interpretations placed upon it in
The original proceeding under § 5 of the Act was commenced in
1944. The order was entered on a second amended complaint filed in
1946. After protracted hearings, the Commission entered its
findings, which the Court of Appeals has held to be supported by
substantial evidence. The findings material here are as
The pricing practice of the industry as to the sale of white
lead in oil prior to 1933 is not shown in the record. However,
National Lead had, as early as 1910, sold this pigment on the basis
of territorial differentials involving free freight to specified
towns. The differentials added to the base price were generally
uniform for some 589 cities listed in National Lead's pricing
system in 1933. The charge to purchasers outside the listed cities
was the base price plus actual freight to the nearest listed city.
In the sales of dry white lead and lead oxides, it appears that, by
the sales practice prior to 1933, there was a uniform delivered
price in the case of the white lead, while the purchasers of lead
oxides paid the freight charge in addition to the base price.
Beginning in July, 1933, the industry held a series of meetings
in Chicago for the ostensible purpose of drafting
Page 352 U. S. 422
a code of fair competition to govern it under the National
Industrial Recovery Act, 48 Stat. 195. These meetings resulted in
an understanding and agreement among those attending, including
respondents, to sell lead pigments "on the basis of flat delivered
prices to customers within designated zones, with uniform
differentials applicable as between such zones. . . ." 49 F.T.C.
840. Four zoning systems were established covering the various lead
pigments. As an example, the system for white lead in oil and "keg"
products consisted of 12 geographical zones, one known as a par
zone. The remaining zones in this system were known as premium
zones, the price in each being determined by adding a set premium
to the par zone price. These premiums varied from $.125 per cwt. in
two of the zones to a high of $1 per cwt. in the premium zone
covering the State of New Mexico. [Footnote 3
] The zones were highly artificial, and zone
boundaries led to bizarre results at times, with purchasers located
near the plants of respondents being charged higher prices than
those located at a distance from the plants. The industry,
including respondents, not only agreed to sell at the same zone
delivered prices in identical geographical zones, but also adopted
uniform discounts, terms of sale, and differentials with respect to
certain of their products. A further agreement was to sell white
lead in oil on the basis of consignment contracts.
The Commission stated that
"nowhere in the code, nor in any preliminary draft of a code
produced at the meetings of any of the committees, is there any
Page 352 U. S. 423
the use of zones or to territorial differences in the prices of
lead pigments, or to the use of agency or consignment contracts or
arrangements in the sale of white lead in oil."
at 839. The Commission added that,
"with certain exceptions, the respondents have followed the
pricing practices and have adhered to the terms and conditions for
the sale of lead pigments agreed upon in 1933 and 1934 as herein
found from 1934 to the present time."
at 849. The respondents admit that they are bound
by these findings, and we see no reason to disturb them.
The Commission entered an order prohibiting respondents from
entering into or carrying out any "planned common course of
action," agreement, or conspiracy to sell at prices determined
pursuant to a "zone delivered price system," or any other system
resulting in identical prices at the points of sale. The order also
included a provision, to which respondents strenuously object,
directing each of them to cease and desist from
"quoting or selling lead pigments at prices calculated or
determined in whole or in part pursuant to or in accordance with a
zone delivered price system for the purpose or with the effect of
systematically matching the delivered price quotations or the
delivered prices of other sellers of lead pigments, and thereby
preventing purchasers from finding any advantage in price in
dealing with one or more sellers as against another."
at 873-874. The Commission, in an accompanying
opinion, stated that, in all cases where it found violations of the
"it is the Commission's duty to determine to the best of its
ability the remedy necessary to suppress such activity and to take
every precaution to preclude its revival."
at 884. In this case, the opinion pointed out,
Page 352 U. S. 424
respondents cooperatively revised the pricing practices in the
industry by establishing a "uniform zone pricing system." Detailed
discussions were carried on which resulted not only in an
agreement, but "maps showing the boundaries of the zones to be
observed . . . were distributed" by the individual respondents.
at 884. Each respondent has, "since that time . . . ,
followed the pricing system and adhered to the zone boundaries so
discussed and shown on these maps." Ibid.
complaint, the Commission in its opinion further noted that charges
were included against each respondent as to its individual use of
and adherence to the zone system of selling
"'for the purpose and with the effect of enabling the
respondents to match exactly their offers to sell lead pigments to
any prospective purchaser at any destination, thereby eliminating
competition between and among themselves.' . . . It was the
adherence by each of them to this system of pricing that made the
combination work. . . . Unless and until each of the respondents is
prohibited from so adhering to the system and from so using the
zones, the evils springing from the combination, one of which is to
eliminate price competition, may well continue indefinitely. Unless
the respondents, representing practically the entire economic power
in the industry, are deprived of the device which made their
combination effective, an order merely prohibiting the combination
may well be a useless gesture."
at 884-885. In its view, the Commission added,
"prohibition is necessary not because it is unlawful in all
circumstances for an individual seller, acting independently, to
sell its products on a delivered price basis in specified
territories, but to make the order fully effective against the
trade restraining conspiracy in which each of the respondents
Id. at 884. When and if competition is restored and the
Page 352 U. S. 425
prohibition is no longer necessary, the Commission expressed its
intention, upon application, to vacate the latter provision of its
At the beginning, we must understand the limits of the contested
portion of the order. First, it is temporary. Though its life
expectancy is not definite, it is clear that the Commission was
creating a breathing spell during which independent pricing might
be established without the hang-over of the long existing pattern
of collusion. Second, the order is directed solely at the use of a
zone delivered pricing system, [Footnote 4
] and no other. This system is a pricing method
based on geographic divisions or zones, the boundaries of which are
entirely drawn by the seller. His delivered price is the same
throughout a particular geographic zone so drawn up by him.
Customarily, the delivered price is different between zones,
though, as here, widely separated zones, geographically, might have
the same delivered price. It is well to mention here that, while
this Court has passed upon the validity of basing point systems of
sales, Corn Products Refining Co. v. Federal Trade
Commission, 324 U. S. 726
(1945), it has not decided the validity of the zone pricing plan
used here. Third, zone delivered pricing per se
banned by the order. The Commission might have made the order more
specific by entering a flat prohibition of the use for a definite
period of the device found to be "the very cornerstone of the . . .
zone pricing. See Hartford-Empire
Co. v. United States, 323 U. S. 386
323 U. S. 428
(1945), where the corporate defendants were enjoined from "forming
or joining any such trade association" for
Page 352 U. S. 426
a period of five years. But the Commission chose the more
flexible sanction, i.e.,
the limited use of zone delivered
pricing. However, it concluded that the future use should be
temporarily restricted for the protection of the public. And so
delivered zone pricing violates the order only when two conditions
are present: (1) identical prices with competitors, (2) resulting
from zone delivered pricing. Considering these conditions with the
mechanics of the zone plan, we see that the only way prices can be
systematically identical is for the zones of competitors to be so
drawn as to be in whole or in part identical and for zone prices to
be the same in those zones which coincide or overlap. [Footnote 5
Respondents contend that the cease and desist order, as written,
excludes the benefits of § 2(b) of the Clayton Act. [Footnote 6
] While § 2(b)
"does not concern itself with pricing systems . . . , [but] only
[with] the seller's 'lower' price and [with] that only to the
extent that it is made 'in good faith to meet an equally low price
of a competitor,'"
Federal Trade Commission v. A. E. Staley Mfg. Co.,
324 U. S. 746
324 U. S. 753
(1945), this section is read into every Commission order.
Federal Trade Commission v. Ruberoid Co., 343 U.
, 343 U. S. 476
(1952). Since § 2(b) must, therefore, be read into this order, the
respondents are afforded all of the benefits of that section.
It is the contention of respondents that the contested paragraph
of the order effectively bans the noncollusive,
Page 352 U. S. 427
individual use of zone pricing, a lawful, competitive sales
method, and is therefore beyond the authority of the Commission.
Respondents further assert that, even if the Commission had such
authority, its exercise here was entirely improper, unnecessary,
and would, in fact, hamper competition in the industry. They stress
that the complaint did not include a charge that the individual use
of zone pricing was unlawful; that it came into the case after the
Trial Examiner had filed his recommended decision and order; and
that respondents were denied the opportunity of rebutting the
charge by evidence showing zone pricing to be "a logical,
economical, and competitive method of doing business." The
insertion of the objectionable paragraph, they contend, violates
due process in that they had no opportunity to defend. Since § 2(b)
is read into every Commission order, and since it would allow
respondents to rebut the charge, their contention is completely
answered, and we shall not deal with it further.
It goes without saying that the requirements of a fair hearing
include notice of the claims of the opposing party and an
opportunity to meet them. Morgan v. United States,
304 U. S. 1
The record indicates that the respondents were afforded those
safeguards. The emphasis that there was no charge, no evidence, no
finding to support the inclusion of the objectionable provision in
the order is misplaced. Its insertion was nothing more than a mode
of implementation, selected by the Commission, to enforce its
findings of violations of the Act. Moreover, the record is replete
with evidence that counsel supporting the complaint would seek the
use of such a method of enforcement. As far back as in early 1947,
while the case was before the Examiner, the issue concerning the
effect of the zone pricing system used by respondents was before
the Commission on motions to dismiss. Admittedly, Count II of the
complaint dealt with the use of the zone system itself. The
Commission overruled the
Page 352 U. S. 428
motions to dismiss, adopting the view of counsel supporting the
complaint that its allegations were directed against the effects of
the alleged system or method, i.e.,
the zone pricing plan,
and "not against individual instances" of discrimination in
pricing. Furthermore, in May, 1948, almost five years before the
decree was entered, counsel supporting the complaint filed written
exceptions to the recommended decision of the Examiner on the
ground, among others, that it did not include a provision similar
to the one objected to here. If respondents thought rebuttal
evidence necessary, the record is bare of any effort on their part
to offer it. Nor was any request made to reopen the case for that
purpose after it reached the Commission.
We pass on to respondents' major contention questioning the
power of the Commission. As the Court has said many times before,
the Commission may exercise only the powers granted it by the Act.
Federal Trade Commission v. Western Meat Co., 272 U.
, 272 U. S. 559
(1926). The relevant sections empower the Commission to prevent the
use of unfair methods of competition and authorize it, after
finding an unfair method present, to enter an order requiring the
offender "to cease and desist" from using such unfair method.
The Court has held that the Commission is clothed with wide
discretion in determining the type of order that is necessary to
bring an end to the unfair practices found to exist. In Jacob
Siegel Co. v. Federal Trade Commission, 327 U.
(1946), the Court named the Commission
"the expert body to determine what remedy is necessary to
eliminate the unfair or deceptive trade practices which have been
disclosed. It has wide latitude for judgment, and the courts will
not interfere except where the remedy selected has no reasonable
relation to the unlawful practices found to exist."
at 327 U. S.
-613. Thereafter, in Federal
Trade Commission v.
Page 352 U. S. 429
Cement Institute, 333 U. S. 683
333 U. S. 726
(1948), the Court pointed out that the Congress, in passing the
"felt that courts needed the assistance of men trained to combat
monopolistic practices in the framing of judicial decrees in
In the light of this, the Court reasoned, it should not "lightly
modify" the orders of the Commission. Again, in Federal Trade
Commission v. Ruberoid Co., supra,
at 343 U. S. 473
we said that,
"if the Commission is to attain the objectives Congress
envisioned, it cannot be required to confine its road block to the
narrow lane the transgressor has traveled; it must be allowed
effectively to close all roads to the prohibited goal, so that its
order may not be bypassed with impunity."
We pointed out there that Congress had placed the primary
responsibility for fashioning orders upon the Commission. These
cases narrow the issue to the question: does the remedy selected
have a "reasonable relation to the unlawful practices found to
exist"? We believe that it does. First, the simplicity of operation
of the plan lends itself to unlawful manipulation; second, it had
been used in the industry for almost a quarter of a century; and,
third, its originator and chief beneficiary had been previously
adjudged a violator of the antitrust laws. United States v.
National Lead Co., 332 U. S. 319
The respondents were found to have plainly disregarded the law.
In this respect, the Commission correctly considered the
circumstances under which the illegal acts occurred. Those in utter
disregard of law, as here, "call for repression by sterner measures
than where the steps could reasonably have been thought
permissible." United States v. United States Gypsum Co.,
340 U. S. 76
340 U. S. 89
(1950). Respondents made no appeal here from some of the findings
as to their guilt. Having lost the battle on the facts, they hope
to win the war on the type of decree. They fight for the right to
continue to use
Page 352 U. S. 430
individually the very same weapon with which they carried on
their unlawful enterprise. The Commission concluded that this must
not be permitted. It was
"not obliged to assume, contrary to common experience, that a
violator of the antitrust laws will relinquish the fruits of his
violation more completely than [it] requires. . . ."
International Salt Co. v. United States, 332 U.
, 332 U. S. 400
(1947). Although the zone plan might be used for some lawful
purposes, decrees often suppress a lawful device when it is used to
carry out an unlawful purpose. Ethyl Gasoline Corp. v. United
States, 309 U. S. 436
(1940); United States v. Bausch & Lomb Optical Co.,
321 U. S. 707
(1944). In such instances, the Court is obliged not only to
suppress the unlawful practice, but to take such reasonable action
as is calculated to preclude the revival of the illegal practices.
Ethyl Gasoline Corp. v. United States, supra,
309 U. S. 461
Local 167, I.B.T. v. United States, 291 U.
(1934). See also United States v. United
States Gypsum Co., supra; United States v. Crescent Amusement
Co., 323 U. S. 173
323 U. S. 188
] We therefore
conclude that, under the circumstances here, the Commission was
justified in its determination that it was necessary to include
some restraint in its order against the individual corporations in
order to prevent a continuance of the unfair competitive practices
found to exist. Federal Trade Commission v. Standard Education
Society, 302 U. S. 112
302 U. S. 120
(1937). We shall now examine the restraint imposed.
Respondents point out that in only one other case in the long
history of the Commission has a similar order
Page 352 U. S. 431
been entered. They say our restoration of the contested
paragraph will effectively prevent competition. In its supplemental
memorandum, see note 5
the Commission has clearly stated its understanding
of the scope and effect of the order. It is our conclusion that the
order was not intended to, and does not, prohibit or interfere with
independent delivered zone pricing per se.
Nor does it
prohibit the practice of the absorption of actual freight as such
in order to foster competition. Furthermore, as we have said, there
is read into the order the provision of § 2(b) of the Clayton Act
as to the right of a seller in good faith to meet the lower price
of a competitor. This is not to say that a seller may plead this
section in defense of the use of an entire pricing system. The
section is designed to protect competitors in individual
Respondents pose hypothetical situations which they say may rise
up to plague them. However, "we think it would not be good judicial
administration," as our late Brother Jackson said in
International Salt Co. v. United States, 332 U.
, 332 U. S. 401
(1947), to strike the contested paragraph of the order to meet such
conjectures. The Commission has reserved jurisdiction to meet just
such contingencies. As actual situations arise, they can be
presented to the Commission in evidentiary form, rather than as
fantasies. And, we might add, if there is a burden that cannot be
made lighter after application to the Commission, then respondents
must remember that those caught violating the Act must expect some
fencing in. United States v. Crescent Amusement Co.,
at 323 U. S.
38 Stat. 719, as amended, 15 U.S.C. § 45.
The three principal lead pigments are dry white lead, white lead
in oil, and the lead oxides, red lead and litharge. Dry white lead
is a fine white powder used as a pigment in paints. White lead in
oil is white lead with linseed oil added and is sold for use as the
basic ingredient in exterior house paint. Lead oxides and litharge
are sold to electric storage battery manufacturers as the basic raw
material for battery plates. Red lead is also the basic ingredient
in red lead paint commonly used as a protective coating for iron
and steel structures.
The par zone includes a number of northeastern and midwestern
States. However, some cities located within these States are
excluded from the par zone. On the other hand, the San Francisco
area is a par zone, as is the City of St. Louis, though both are
located in States not included in par zone areas. For a detailed
discussion and maps of the operation of the zone pricing system,
the findings, 49 F.T.C. 840-870.
Our discussion of the zone delivered pricing system should in no
way be construed as our approval of its use. We do not reach that
At oral argument, counsel for the Federal Trade Commission was
requested by the Court to submit a statement on behalf of the
Commission setting forth its view as to the scope of the disputed
paragraph of the cease and desist order. In response, the
Commission supplied its interpretation, which coincides with that
set out here.
49 Stat. 1526, 15 U.S.C. § 13(b).
We need not discuss the full scope of the powers of the Federal
Trade Commission, nor their relative breadth in comparison with
those of a court of equity. As this Court said in May
Department Stores Co. v. Labor Board, 326 U.
, 326 U. S. 390
(1945), "The test . . . is whether the Board might have reasonably
concluded . . . that such an order was necessary. . . ."