Federal Trade Commission v. Standard Oil Company/Dissent Douglas

by William O. Douglas

United States Supreme Court

355 U.S. 396

Federal Trade Commission  v.  Standard Oil Company

 Argued: Nov. 14, 18, 1957. --- Decided: Jan 27, 1958

Mr. Justice DOUGLAS, with whom THE CHIEF JUSTICE, Mr. Justice BLACK and Mr. Justice BRENNAN concur, dissenting.

The Court today cripples the enforcement of the Robinson-Patman Act, 49 Stat. 1526, 15 U.S.C. § 13, 15 U.S.C.A. § 13, in an important area. Section 2 of the Act makes it unlawful for any person engaged in commerce 'to discriminate in price between different purchasers of commodities of like grade and quality' where the purchases are in commerce. Section 2 further provides that as proof of a discrimination 'the burden of rebutting the prima-facie case' shall be on the person charged with the discrimination, provided, however, 'That nothing (herein) contained shall prevent a seller rebutting the prima-facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor.' (Italics added.)

First. Standard admitted that it gave reduced prices to some retailers and refused those reduced prices to other retailers. Before granting these retailers the reduced prices Standard classified them as 'jobbers.' Standard's definition of a 'jobber' took into account the volume of sales of the 'jobber,' his bulk storage facilities, his delivery equipment, and his credit rating. If Standard's tests were met, the 'retailer' became a 'jobber' even though he continued to sell at retail. Moreover, Standard's test of who was a 'jobber' did not take into account the cost to Standard of making these sales. So Standard's definition of 'jobber" was arbitrary, both as respects the matter of costs and the matter of function. It comes down to this: a big retailer gets one price; a small retailer gets another price. And this occurs at the ipse dixit of Standard, not because the cost of serving the big retailer is less nor because the big retailer, as respects the sales in question, performs a function different from any other retailer.

The construction now given the Act flies in the face of the policy expressed by the provisions already quoted and the words in explanation used by Representative Patman himself:

'What are the objectives of this bill? Mr. Chairman, there has grown up in this country a policy in business that a few rich, powerful organizations by reason of their size and their ability to coerce and intimidate manufacturers have forced those manufacturers to give them their goods at a lower price than they give to the independent merchants under the same and similar circumstance and for the same quantities of goods. It that right or wrong? It is wrong. We are attempting to stop it, recognizing the right of the manufacturer to have a different price for a different quantity where there is a difference in the cost of manufacture.' 80 Cong.Rec. 8111.

Second. It is argued, however, that the discrimination in favor of the big retailers and against the small ones is justified on the ground that Standard did no more than meet competition.

To repeat, Standard has given lower prices to some retailers than to others by labeling the favored retailers as 'jobbers,' when in fact they are not 'jobbers.' It seems impossible to justify the statutory burden of showing 'good faith' by reliance upon such a plainly deceptive contrivance as that.

The Court concedes that Standard did not meet the burden of proving its good faith if its discriminatory prices were made pursuant to a pricing 'system' within the meaning given that term by Federal Trade Commission v. A. E. Staley Mfg. Co., 324 U.S. 746, 65 S.Ct. 971, 89 L.Ed. 1338; Federal Trade Commission v. Cement Institute, 333 U.S. 683, 68 S.Ct. 793, 92 L.Ed. 1009; Federal Trade Commission v. National Lead Co., 352 U.S. 419, 77 S.Ct. 502, 1 L.Ed.2d 438. The Commission found 'the discriminations in price involved in this proceeding were made pursuant to respondent's established method of pricing.' The record amply supports this finding. ^[1]

If a seller offers a reduced price for no other reason than to meet the lawful low price of a competitor, then the seller's otherwise unlawful price falls within the protection of § 2(b). But where, as here, a seller establishes a discriminatory pricing system, this system does not acquire the protection of § 2(b) simply because in fact use of the system holds a customer against a competitive offer. In other words, a discriminatory pricing system which in fact meets competition is not a good-faith meeting of competition within the meaning of the Act. The effectiveness of the system does not demonstrate the good faith of its initiator.

Third. The mere fact that a competitor offered the lower price does not mean that Standard can lawfully meet it. Standard's system of price discrimination, shown not to be in 'good faith,' cannot be justified by showing that competitors were using the same system. 'This startling conclusion is admissible only upon the assumption that the statute permits a seller to maintain an otherwise unlawful system of discriminatory prices, merely because he had adopted it in its entirety, as a means of securing the benefits of a like unlawful system maintained by his competitors.' Federal Trade Commission v. A. E. Staley Mfg. Co., supra, 324 U.S. at page 753, 65 S.Ct. at page 975. See also Federal Trade Commission v. Cement Institute, supra, 333 U.S. at page 725, 68 S.Ct. at page 815.

We said in Standard Oil Co. v. Federal Trade Commission, 340 U.S. 231, 250, 71 S.Ct. 240, 250, 95 L.Ed. 239, 'Congress meant to permit the natural consequences to follow the seller's action in meeting in good faith a lawful and equally low price of its competitor.' (Italics added.) It is only a lawful lower price that may be met. Were it otherwise then the law to govern is not the Robinson-Patman Act but the law of the jungle. The point we have now reached was seen by Congressman Utterback, one of the managers of the bill in conference. What he said should dispose of this case:

'This procedural provision cannot be construed as a carte blanche exemption to violate the bill so long as a competitor can be shown to have violated it first, nor so long as that competition cannot be met without the use of oppressive discriminations in violation of the obvious intent of the bill.

'To illustrate: The House committee hearings showed a discrimination of 15 cents a box granted by Colgate-Palmolive-Peet Co. on sales of soap to the A. & P. chain. Upon a complaint and hearing before the Federal Trade Commission, this proviso would permit the Colgate Co. to show in rebuttal evidence, if such were the fact, an equally low price made by a local soap manufacturer in Des Moines, Iowa, to A. & P.'s retail outlets in that city; but this would not exonerate it from a discrimination granted to A. & P. everywhere, if otherwise in violation of the bill.

'But the committee hearings show a similar discount of 15 cents a case granted by Procter & Gamble to the same chain. If this proviso were construed to permit the showing of a competing offer as an absolute bar to liability for discrimination, then it would nullify the act entirely at the very inception of its enforcement, for in nearly every case mass buyers receive similar discriminations from competing sellers of the same product. One violation of law cannot be permitted to justify another. As in any case of self-defense, while the attack against which the defense is claimed may be shown in evidence, its competency as a bar depends also upon whether it was a legal or illegal attack. A discrimination in violation of this bill is in practical effect a commercial bribe to lure the business of the favored customer away from the competitor, and if one bribe were permitted to justify another the bill would be futile to achieve its plainly intended purposes.' 80 Cong.Rec. 9418. (Italics added.) When we let Standard classify a 'retailer' as a 'jobber' and grant a discriminatory price pursuant to arbitrary requirements merely because a competitor employs the same system, ^[2] we make this provision of the Robinson-Patman Act ineffective. We should read the Act in a more hospitable way and allow Standard to maintain its discriminatory price schedule for retailers if and only if it can show

(a) that that price was justified on the basis of costs or function, or

(b) that it was in good faith meeting the lawful offer of a competitor, rather than merely matching a predatory price system, or meeting a competitor's 'pirating' offers, to use the Court's word, with a 'pirating' system of its own.

I would reverse this judgment and direct enforcement of the Commission's order.

Notes

1. Standard's answer to the complaint admits as much if the conclusory allegations as to Standard's good faith are ignored. Paragraph 17 of the answer alleged:
2. The Commission's findings stated:

'In selecting the customers or prospective customers to whom (Standard) will grant the tank-car price on gasoline, the respondent's criterion is now, and for many years has been, that the customer or prospective customer make annual purchases of not less than from one to two million gallons of gasoline, have storage facilities sufficient to accept delivery in tank-car quantities, and have a credit standing assuring payment for large volume purchases. This is the same criterion which for many years has also been applied by the respondent's major competitors, and under it any question of the distributive function performed by the purchaser, that is, whether the purchaser is a retail dealer selling to the public or a wholesaler selling to retail dealers, is wholly immaterial.' 49 F.T.C. 923, 953.