STATEMENT OF GEORGE H. FRATES, WASHINGTON REPRESENTATIVE, NATIONAL ASSOCIATION OF RETAIL DRUGGISTS

Mr. FRATES. My name is George H. Frates. I am the Washington representative of the National Association of Retail Druggists, an association comprising 35,000 small independent retail drug store owners, pharmacists practicing their profession in every State of the Union and the District of Columbia. My address is 1163 National Press Building, Washington, D. C. Every State pharmaceutical association in the country is a member of the NARD.

We appear in opposition to H. R. 2820, the title of which seeks to clarify the right of sellers to engage in competition, by in good faith meeting the equally low price of the competitor. To begin with, the title is misleading, because what the bill actually does, in our opinion, is to repeal the Robinson-Patman Act.

It seems to us that if the latter designation was used, the independent retail druggists of the country would in a moment know the devastating purpose of the bill. We do not believe that the definition of "good faith" can legally or legitimately be defined.

What the independent retail druggists of the United States do realize, however, is this: If Congress permits price discrimination, thereby offending the antitrust laws as amended by the RobinsonPatman Act, then small retailers, considered to be the backbone of the country, are in jeopardy. They know from sad experience what price discrimination is and what it does to them.

Before the enactment of the Robinson-Patman Act price discrimination was rampant. One price to all-quantity and the cost of doing business being considered was an unknown factor, an occupant in the limbo of forgotten things. Small business was at the mercy of the manufacturer. We want to make it plain that the National Association of Retail Druggists is not opposed to big business per se.

We do, however, vigorously oppose differentials in price resulting from the whims and fancies of the sellers. It is our opinion that small business can hold its own if producers are made to play by the same set of rules required of small business.

We do not know the intricacies of the law nor the fine points which the proponents of H. R. 2820 might conceive. But we do know that 35,000 small independent retail drug store owners in the country who come in contact with millions upon millions of people each day have a positive knowledge of the effect of price discrimination. The retail druggists of our Nation compounded and dispensed 389,178,886 prescriptions last year.

Fifteen years ago Dr. John W. Dargavel, executive secretary and general manager of the National Association of Retail Druggists, was one of the first national leaders to recognize that the small independent retailer was due for an economic slaughtering unless Congress did something to permit independent operators to conduct honest, upright, legitimate businesses and to support themselves and their families from the fair earnings of such enterprises.

It was independent small business that fought for the RobinsonPatman Act. It is independent small business that will again fight for its survival. The history of the enactment of the Robinson-Patman Act reveals that from its inception, powerful opposition appeared to delay and roadblock the bill.

Upon close scrutiny almost every argument used against the bill proved to be a web of fabrications. That is, unless it was thought legitimate to use dishonest, deceptive and discriminatory methods in business practice.

Violation of the Robinson-Patman Act plays right into the arms of monopoly. The record proves this. If the Congress now wishes to emasculate the Robinson-Patman Act by destroying it with statutory amendments, we believe the results will be as disastrous to small business as was the case before its enactment.

When the late President Franklin D. Roosevelt placed his signature on the Robinson-Patman antidiscrimination bill June 20, 1936, it represented an outstanding victory for the small retail businessman. We are now again faced with an attempt to destroy the RobinsonPatman Act in the form of H. R. 2820 and S. 719.

1. The bills are unnecessary. They would water down and dilute the antitrust laws.

2. They go beyond the Supreme Court ruling.

3. Why do the proponents of these measures want legislation to affirm the Supreme Court's decision? Is it because they want to lock the Court's decision in the Standard Oil case into statute?

We are of the belief that the proponents must be aware that it would be well-nigh impossible to prove that the seller knew or should have known that the price met, in fact, was unlawful.

May we illustrate how the Robinson-Patman Act put a decided restriction on that method of purchase indulged in by some chain stores and other large buyers, before the enactment of the law. It is known as "listing." For example: The purchasing agent at headquarters negotiates with the manufacturer for the goods which the branch stores of the chain handles and prices are agreed upon between them. The merchandise was then entered into the official list which in turn became an authority to the district or local branch store managers to buy them from the manufacturer at the price quoted in the list.

It will be noted that the headquarters' agent bought nothing. He merely granted the manufacturer an opportunity to sell to the several branch stores at the list prices. To all intents and purposes this modus operandi was in reality a brokerage service. Paragraph (C) of section (2) of the Robinson-Patman law now prohibits such actions. It will be readily seen that if the list price includes the cost of delivery to the branch stores, a discrimination at once appears between these delivered prices to the branches of the chain, and prices to other buyers from the manufacturer who sold f. o. b. factory. This is quite as illegal for the manufacturer who grants as for the chain which receives this discrimination.

Years of experience and observation with respect to the operation of the Robinson-Patman Act have convinced us that the leglislation preserves equal opportunity to all usefully employed in the service of distribution and protects the consuming public with real efficiency and the preservation of that public of its freedom from threat of monopoly or oppressions in obtaining its needs and dispensing of its products.

The act suppresses more effectually discrimination between customers of the same seller not supported by sound economic differences

in their business position or in the cost of servicing them. Such discriminations are sometimes effected directly in prices or terms of sale, and sometimes by separate allowances to favorite customers for purported services or other considerations which are unjustly discriminatory in their result against other customers.

The road to monopoly is strewn with wrecks of independent business. It would, therefore, seem good policy on the part of Congress to consider carefully whether action on this bill is in the public interest. No public hearings before the Senate Judiciary Committee were held on S. 719. No opportunity has been granted to those who oppose this bill to make their wishes known to Congress, with the single exception of the opportunity granted by this committee-and I might add, the Senate Small Business Committee.

Monopoly in the field of distribution develops when big business is able to get concessions that are not available to all retailers, and to continue this practice long enough wears down the reserves of the indenpendent retailers. Antimonopoly laws ironically prevent these little retailers from taking any joint action in their own defense; consequetly, big business has been able to enjoy more and more of the ill-gotten fruits of discrimination.

Big business is able to subdue competition by working on one sector at a time. Competition is subdued and independents who survive are on the brink of bankruptcy. They become so in debt to big business-controlled sources of supply that they are deprived of any independence of thought or action.

Unless the entire distributional system of the Nation is to be revolutionized and the little independent units that now comprise the greater part of it eliminated, we must get back on a sound, fair economic basis. Laws must be amended to eliminate, instead of fostering, discriminatory practices.

Small independent retail druggists of the Nation worked hard to promote the passage of the Robinson-Patman Act. It has given them a fighting chance with big business. The basing point may or may not be of vital importance to our industry; but when an attempt to settle a squabble belonging to the cement, steel, and gasoline giants take place and the result weakens protective legislation for the small retailer, then we feel like innocent bystanders on whom there has been dumped an avalanche of steel and cement and gasoline.

Senator Paul H. Douglas remarked:

Unless we can amend S. 719 we can say goodbye to the Robinson-Patman Act. And we will go back to the heyday of monopoly. Concentration of economic power will grow and grow and grow. The average American will be unable to go into business for himself. The green laws of America's business economy will be overrun by the weeds of monopoly.

President Truman in his veto message which killed S. 1008 said: When further amendments of the antitrust laws are needed to meet new problems, they should be enacted in a form which clearly preserves the basic purpose of these laws-the protection of fair competition and the prevention of monopoly. May I thank the members of the House Judiciary Committee for the privilege of this appearance?

The CHAIRMAN. We appreciate your coming. Our next witness is Mr. George J. Burger, vice president of the National Federation of Independent Business, Inc.

80861-51-ser. 1, pt. 5- -14

STATEMENT OF GEORGE J. BURGER, VICE PRESIDENT, NATIONAL FEDERATION OF INDEPENDENT BUSINESS, INC.

Mr. BURGER. I am George J. Burger, vice president of the National Federation of Independent Business, Inc. Our national headquarters is at Burlingame, Calif. Our Washington office is at 714 Bond Building, Washington 5, D. C.

The National Federation of Independent Business is an organization composed of, and representing, small independent business and professional men across the Nation. It is the largest business organization, in point of active individually supporting members, in the United States.

Our members, and they alone, determine our position on all legislative matters. They put us on record for or against legislative proposals directly by their individual, signed ballots, which are mailed to their Congressmen. Members present at these hearings are familiar with the process by which our official positions are established.

As we have pointed out in our previous testimony on so-called basing-point legislation, Federation members have demanded repeatedly that we do everything possible to maintain the integrity of Federal antitrust laws. They have called on us to seek strengthening and enforcement of these laws, to oppose all attempts, willful or otherwise, to weaken them.

As directed by these votes, we opposed in the Eightieth and Eightyfirst Congresses, so-called basing-point legislation which would have destroyed the Robinson-Patman protections which small firms have had against ruinous price discriminations. Record of our opposition will be found in, among other places, hearings held by the so-called Capehart committee, December 8, 1949; and in the Eighty-first Congress before the Senate Judiciary Committee, March 31, 1949; and the House Small Business Committee, July 5, 1949.

We believe the members of this Judiciary Committee who served in Congress through the past 3 years are familiar with the work we have done along these lines. Equally, we believe that many of the arguments which we advanced against so-called basing-point legislation in the Eightieth and Eighty-first Congresses apply with equal force against currently proposed legislation.

We are here today to oppose H. R. 2820. Our opposition to this proposed legislation is based on the reasoned conclusion that the legislation will, whether intended or not, we do not say, destroy the Robinson-Patman protections enjoyed by small, independent businesses against ruinous price discriminations. Either that or make effective enforcement of the act so difficult as to rob the law of all potential for practical results.

We believe that H. R. 2820 completely reverses the present Robinson-Patman Act by making "good faith meeting of competition” a complete defense against charges of price discrimination. We are sorry to say that in our own small way we think the United States Supreme Court was quite wrong in its interpretation of the statute in its January 8, 1951, decision on the Federal Trade CommissionIndiana Standard case. We make this observation mindful of the respect the Court deserves-as our highest tribunal-from all the citizens of this Nation.

We believe that the framers of the Robinson-Patman Act intended to change the provisions of the Clayton Act when they revised the "good faith" proviso of the latter. We believe that through this change they intended to make the "good faith" defense to price discrimination charges a way station on the road to complete defense. We reason that they had in mind at the time making the "good faith" defense, as the Honorable James Mead, Federal Trade Commission Chairman, put it in his April 18, 1951, letter to Senator Pat McCarran, Senate Judiciary Committee chairman, subsidiary to the basic Clayton Act policy of preserving commerce from substantial suppression of competition.

We believe that H. R. 2820 changes all this by providing that "good faith" meeting of competitive prices shall be a complete defense to a charge of price discrimination except where the accused "knew or should have known the the lower price he met was unlawful." Let us give an example.

Company A decides it time to increase its share of business in a certain market. It finds the most convenient method of doing so is to lower the price to a few of its outlets. It knows that these outlets have been offered more attractive terms by some competitors. But it also knows that for one reason or another these outlets have not taken on the competitive brands. In any event, Company A reduces its prices to these outlets. They take the reductions, and in using them inflict serious competitive injuries to other outlets not so favorably treated. Along comes the Federal Trade Commission to investigate. Company A admits the obvious fact of injury to non-favored outlets, but says, "Gentlemen, we had to do it, and did it in good faith, to meet competition from the other firms."

The Commission still has its doubts, however, what then must it do? It looks up the Clayton Act as amended by H. R. 2820 and finds that it must prove that, (1) Company A's competitors' prices were unlawful; and (2) that Company A "knew or should have known" these prices were unlawful.

So, the Commission delays the proceedings against Company A and calls in Company A's competitors, initiating as it were an entirely new proceeding, to determine whether their prices were lawful. Then, assuming that the Commission finds these prices to have been unlawful, it must further find whether Company A "knew or should have known" these prices were unlawful.

Frankly, we very much doubt that the Commission or anyone outside the executive staff of Company A can prove that Company A "knew or should have known" the prices to be unlawful, short of being able to prove that Company A's accounting and legal experts had had ready access to its competitors' books and records.

Even granting that collusion does occur in American business from time to time, we seriously doubt that any concern, no matter how friendly with competitors, would allow those competitors to have analysts poking their noses into its intimate affairs. Frankly, we wonder whether any company-in the absence of some legal ruling to the effect-can have any accurate knowledge whether its competitors' prices are lawful or unlawful.

It may be that the Commission can, over a period of years, determine whether this belief exists in the case of firms honestly trying to