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Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Notices6257Neither of these provisions should beconstrued to prohibit lawful cooperativeadvertising programs or ‘‘pass through’’discount programs that are nototherwise part of an unlawful resaleprice maintenance scheme. TheCommission has previously determinedthat order provisions prohibitingagreements on resale prices do notrestrict a company’s ability toimplement otherwise lawful cooperativeadvertising and ‘‘pass through’’ rebateplans because such programs do not, inthemselves, constitute agreements onresale prices. See, e.g., In Re MagnavoxCo., 113 F.T.C. 255, 263, 269–70 (1990).Part III of the order requires that fora period of three (3) years from the dateon which the order becomes final,American Cyanamid shall include astatement, posted clearly andconspicuously, on any price list,advertising, catalogue or otherpromotional material where it hassuggested a resale price for any productto any dealer. The required statementexplains that while American Cyanamidmay suggest resale prices for itsproducts, dealers remain free todetermine on their own the prices atwhich they will sell AmericanCyanamid’s products.Part IV of the order requires that fora period of three (3) years from the dateon which the order becomes final,American Cyanamid shall mail the letterattached to the order as Exhibit A anda copy of this order to all of its currentdealers, distributors, officers,management employees, and agents orrepresentatives with sale or policyresponsibilities for AmericanCyanamid’s products. AmericanCyanamid also must mail the letter andorder to any new dealer, distributor oremployee in the above positions withinthirty (30) days after the commencementof that person’s affiliation oremployment with American Cyanamid.All of the above dealers, distributorsand employees must sign and return astatement to American Cyanamid withinthirty (30) days of receipt thatacknowledges they have read the orderand that they understand that noncompliancewith the order may subjectAmerican Cyanamid to penalties forviolation of the order.Part V of the order requires thatAmerican Cyanamid file with theCommission an annual verified writtenreport giving the details of the mannerand form in which American Cyanamidis complying and has complied with theorder. In addition, Part V of the orderalso requires American Cyanamid tomaintain and make available to theCommission upon reasonable notice allrecords of communications withdealers, distributors, and agents orrepresentatives relating to sale prices inthe United States, as well as records ofany action taken in connection withactivities covered by the rest of theorder. Finally, American Cyanamidmust inform the Commission at leastthirty (30) days before any proposedchanges in the corporation, such asdissolution or sale.Donald S. Clark,Secretary.Statement of Chairman Robert Pitofskyand Commissioners Janet D. Steiger andChristine A. Varney in the Matter ofAmerican Cyanamid, File No. 951–0106The Commission today accepts aproposed consent agreement withAmerican Cyanamid prohibiting it fromengaging in conduct designed to preventits dealers from making discounted salesbelow the minimum price thatAmerican Cyanamid specified.American Cyanamid entered intowritten agreements with its dealers thatprovided dealers with ‘‘rebates’’ eachtime they sold their product at or abovea certain resale price (the floor transferprice). For dealers who sold at thespecified price, this rebate constitutedtheir entire profit margin. TheCommission believes that this conductamounted to an illegal resale pricemaintenance agreement.Commissioner Starek, in his dissent,criticizes this enforcement action for anumber of reasons. As explained below,we disagree with Commissioner Starek’sreasoning.First, the dissenting statement appearsto conclude that a situation where amanufacturer and a dealer enter into anexpress agreement that the manufacturerwill pay the dealer to adhere to themanufacturer’s specified resale price, isnot an ‘‘agreement on resale prices’’ butrather some form of voluntary behavior.Judge Posner responded to similararguments in Khan v. State Oil. 1In Khan, the court declared amaximum resale price arrangement perse illegal where the manufacturerpermitted dealers to charge above amaximum price, but required them insuch case to provide any resulting profitabove the maximum price to themanufacturer. The ‘‘voluntary’’ natureof the arrangement did not detract fromthe finding that there was an agreement.Judge Posner noted that the arrangementwas indistinguishable from anagreement not to exceed the maximumprice, because the dealer was sanctionedfor violating the agreement by having toremit any resulting profit to themanufacturer. In responding to State1 93 F.3d 1358 (7th Cir. 1996).Oil’s argument that there was no pricefixing agreement, Judge Posnerobserved: ‘‘The purely formal characterof the distinction that it urges can beseen by imagining that the contract hadforbidden Khan to exceed the suggestedresale price and had provided that if heviolated the prohibition the sanctionwould be for him to remit any resultingprofit to State Oil.’’ 2We agree with Judge Posner. In thiscase, the sanction was loss of the rebatefor sales made below the floor transferprice. If an agreement to forego one’sentire profit margin if one departs fromthe specified price does not constitute aprice maintenance agreement, thennothing remains of the per se rule.Second, the dissent seems to suggestthat this case is one where agreement isbeing inferred from unilateral conduct.We cannot concur. American Cyanamidentered into written agreements whichoffered financial incentives foradherence to a minimum priceschedule. Courts, both before and afterSharp, 3 have held such arrangementsunlawful where adherence to asuggested price was the quid pro quo forthe financial inducements. JudgePosner’s decision in Khan is consistentwith this approach. 4Third, the dissenting statement,relying in large part on recent economicliterature, argues that AmericanCyanamid’s program should not becondemned without proof of a suppliercartel, dealer cartel, or market power. 5That view is inconsistent with theSupreme Court’s view that resale pricemaintenance continues to be illegal perse and we reject the idea that theSupreme Court can be overruled byscholarly contributions to economicjournals.Finally, we cannot agree with thesuggestion that this enforcement actionsomehow creates uncertainty about theCommission’s treatment of pass throughrebates or cooperative advertisingprograms. As the analysis to aid publiccomment explains, pass throughprograms have always been permitted,2 Id. at 1361. See also Isaksen v. VermontCastings, Inc., 825 F.2d 1158, 1164 (7th Cir. 1987)(in finding a violation based on economic coercion,Judge Posner noted, ‘‘It is as if Vermont Castingshad told Isaksen that it would reduce its wholesaleprice to him if he raised his retail price, and Isaksenhad accepted the offer by raising his price.’’).3 Business Electronics Corp. v. Sharp ElectronicsCorp., 485 U.S. 717 (1988).4 93 F.3d at 1362.5 Although we do not fully detail ourdisagreement with the description of the facts in thedissent, we believe that a full trial would haveshown that an overwhelming portion of sales weremade at or above the minimum resale price.Moreover, a dealer’s advisory council voted toadvise American Cyanamid to retain the program inorder to protect its margins.