Borden, Inc. v. Federal Trade Commission

JONES, Bеfore KENNEDY and Circuit n PHILLIPS, Judges, Senior Circuit Judge.

PHILLIPS, Judge. Senior Circuit This petition case is before the court on a to review an order of Federal Trade Commission, Borden, Inc., finding that petitioner, violated 5 of § Federal Act, 15 U.S.C. During the late 1950’s Trade Commission and 1960’s local and order of The decision began business .bottling concerns reconsti- 669-833 at 92 F.T.C. reported tuted competition with that Borden used found The Commission regional ReaLemon on a basis. The empha- in the sale of competition unfair methods sis of advertising ReaLemon’s juice product known a reconstituted changed response competi- to this complaint charged un- as ReaLemon. only tion. was the bottler of re- Sunkist through promo- competition fair methods of attempt constituted lemon to com- geographic pricing of ReaLemon tional basis, pete with ReaLemon aon national Borden faced markets where early 1960’s in the late 1950’s and but Corporation, Citrus Crown Golden regional retrenched to Sunkist distribution. the reconstituted lemon entrant into recent time ReaLemon has remained Since business, the unlawful intent the sole nationwide bottler and distributor monopoly power. maintain ReaLemon’s of reconstituted lemon (1) what is the issues are principal purchased the ReaLemon-Puritan within which Bor- product relevant Company approximately in 1962 for $12.4 assessed, (2) wheth- should be den’s conduct operated has wholly million. Borden monopoly power within possessed er Borden subsidiary owned as ReaLemon Foods.1 At (3) whether the relevant complaint, the time of the Bоrden had an- practices in the sale of Borden’s acts billion, nual sales of over its 1972 income $2 illegal mainte- ReaLemon amounted to million, after taxes was it and had $66 (4) monopoly power, and nance of approximately assets of billion. In $1.3 remedy was re- whether the Commission’s juice by 1973 sales of reconstituted lemon alleged unlawful reasonably lated subsidiary Borden’s totaled mil- about practice sought $22 to curtail. For the rea- lion, below, generating a net income mil- sons stated court concludes of $3.5 findings sup- are lion. ported by substantial evidence on the record By comparison, Golden Crown Citrus Cor- prescribed remedy is within the and the poration was a small company based in Chi- power Accordingly, we Commission. cago in produced the late 1960’s which opinion affirm the and order. juice sold reconstituted lemon in the Chica- go area. In 1969 Golden Crown embarked I plan expand on a beyond its sales Chica- The ReaLemon business was be^un go to the midwest and later to other mar- original product 1935. The was bottled kets in the northeast and southeast. Gold- juice. product Subsequently lemon was expansion en Crown’s method of was to sell changed juice, lemon made reconstituted product prices to retailers at well below concentrate, juice from lemon water and a those of ReaLemon. It relied almost en- preservative. juice lemon Reconstituted tirely prices acceptance on its lower for its successfully was marketed as a convenient in other markets. The Commission found fresh-squeеzed substitute for lemon usually only enough retailers have in the 1940’s the ReaLemon Sometime space shelf for two brands of reconstituted developed and used for the trademark was they generally lemon limited their juice product. reconstituted lemon At that sales to ReaLemon and the brand of one nationally only time ReaLemon was the ad- priced competitor. Consequently, lower processed vertised and distributed lemon through from 1969 1971 Golden Crown’s juice, during the 1940’s advertising and its expansion other geographic into areas suc- converting and 1950’swas aimed at users of product. mainly expense ceeded at the of other local fresh lemons to the ReaLernon wholly changeably opinion. 1. Since subsidi- in this ReaLemon is Borden, owned ary of inter- their names used competitors displaced on Golden Crown er prices to control and entry into the mar- however, signifi- ket, store shelves. the AU further found that Borden price differential between Golden possessed cant proc- within the in- began and ReaLemon make essed lemon Crown market.6 He found Bor- on the sales of ReaLemon. Borden’s den roads had maintained this monopoly power response unlawfully from through to this Golden promotions extensive principal forms the basis of the FTC reductions in geographic Crown selected markets where complaint charging unlawfully it faced competition Golden Crown. He further maintaining monopoly power produc- in the found that 32 ounce size tion, ReaLemon7 to large distribution and sale reconstituted sold grocery chains in Philаdelphia and Buffalo United States.

at “unreasonably prices.” low Because of premium II price the ReaLemon brand commanded, name promotions ReaLemon’s On July the FTC issued a com- and unreasonably prices compet- forced plaint charging Borden with violations itors product either to sell their prices 5 of the Federal Trade Commission Act. § below their costs lose their share (ALJ) Administrative Law Judge Daniel to Borden. The ALJ determined conducted re- hearings, Hanscom extensive practices these violated and or- § pages ceived several thousand of exhibits dered Borden grant compulsory trade- testimony and heard from numerous econo- licensing mark of the ReaLemon name and experts mists behalf Borden and design years. label for ten The AU fur- August 19, the FTC.2 On ALJ Hans- ther ordered that Borden cease desist comprehensive issued initial com decision from granting price resulting reductions finding that Borden had violated 5.3 The different net among ReaLemon cus- AU that for purposes analyzing found competing tomers geographic same conduct, the relevant mar- area, selling ReaLemon below costs or at juice.4 ket was Because unreasonably low with the effect of characteristics, different and eco- hindering competition, granting promo- realities, nomic commercial the AU tional allowances with the effect of hinder- rejected that Borden’s contention the rele- ing eliminating competition. or lemons, finding vant market included fresh was, processed instead that at appealеd lemon Borden the initial decision of least, proper a upon submarket.5 Based the ALJ to the opinion Commission. The Borden’s share of the relevant and order8 of the Commission were filed ratios, industry 7, concentration ReaLemon’s November The adopt- 1978. Commission name, ability brand findings ALJ, dominant to com- ed the factual of the made premium price strong mand a because of findings further remedy. and modified the preferences, respect consumer ReaLemon’s rate of With to the relevant product mar- assets, ket, return on its Borden’s substantial disagreed the Commission with Bor- advantages, resource pow- ReaLemon’s den’s assertion a analysis that submarket hearings period 2. The extended over of seven 5. 92 F.T.C. 675-702. weeks, testimony with from 74 witnesses. The transcript 6,000 hearing pages totaled over 6. 92 F.T.C. 702-718. with an additional 12 binders exhibits. 7. ReaLemon was sold in various sizes con- Borden, Inc., (1978). 92 F.T.C. 669 but tainers was 32-ounce size bottle primary complaint concern of the F.T.C. be-

4. Processed lemon was defined promoted heavily by cause size was Bor- including Commission as reconstituted lemon competition den in with Golden Crown’s 32- juice, juice, proc- frozen reconstituted ounce size. juice, essed fresh lemon frozen fresh lemon geograph- and imitation lemon 8. 92 F.T.C. 778. ic found market was to be United States as a whole. 504 involving the unlaw- Ill a case in improper

was Ap- monopoly power. ful maintenance emphasized present It is to be v. Brown Co. Shoe the criteria plying opinion of action is to review an order and 8 States, U.S. S.Ct. the Commission —it is not a suit under the United Clayton Acts. hеld Sherman (1962), the Commission L.Ed.2d juice constituted Act, The Federal Trade Commission analyze which to within valid submarket to issue cease authorizing the Commission that fresh practices and business orders, revenue-raising and desist is “not a The Com- properly excluded.9 lemons were measure,” v. penal United St. States finding of the ALJ adopted Co., (2d Paper mission also 355 F.2d Regis power 1966). policy pre To make effective possessed competition, Congress promote serve and product market. within the of administrative upon “relied the initiative unlawfully main finding that Borden In flexibility of the adminis officials and the through predatory tained its v. Morton process.” trative United States ReaLemon, pricing of Commission Co., 632, 640, Salt neither Borden nor Golden found that (1950). Congress intentionally 94 L.Ed. more efficient than appreciably Crown undefined, generally left 5 broad and del and that ReaLemon’s sales the other egating power to the Commission to deter “unreasonably Philadelphia at Buffalo and the Act. The practices mine when violate justification, without cost were prices,” are flexible and are “to proscriptions 5§ average below its total costs.10 order to particularity by myriad with be defined premium significant overcome ReaLemon’s the field of business.” F. T. of cases from price advantage, competitors Co., such as Golden Colgate C. v. Palmolive ReaLemon, 1035, 1042, L.Ed.2d 904 well below 85 S.Ct. Crown had to F. Refining Company In Atlantic costs, average and below their own variable C., 1498, 1505, T. to survive in the market. Commission (1965), Supreme 14 L.Ed.2d 443 Court predatory practiced found that Borden had emphasized the function equal exclude an with the intent to changing practices business to deal ly competitor, efficient Crown. Golden follows: The Commission modified remedies 5 of the Federal Trade Com- Section ALJ, proposed by eliminating the by the “[ujnfair mission Act declares methods of requirement that Borden license the Rea- commerce, and unfair . . . Lemon trade majority name. A of the Com- ... unlaw- practices acts or in commerce prohibition against mission felt that the un- power it delegation ful.” In a broad of reasonably was a sufficient Commission, in the first empowers the dissipating illegally means of used instance, whether a method to determine resorting to the monopoly power without practice act com- competition or the compulsory more drastic trademark step Congress The inten- plained of is unfair. addition, licensing. nar- Commission term tionally development left of the scope by rowed the the order of the ALJ “unfair” rather than Commission prohibiting price resulting reductions in dif- attempting many “the and vari- to define prices among ferent net ReaLemon custom- prevail which in practices able unfair ” only geographic ers areas where the 592, S.Rep. No. 63d commerce . . .. justified Sess., differences were not cost and Cong., 2d 13. As the conference stated, report unfair could competition. effect restrained or eliminated Pitofsky while 9. 92 10. and F.T.C. at 784-88. The F.T.C. found Commissioners Clanton Commission, concurring opinion even with the of the without resort to the Brown Shoe sub- criteria, determining proposed was the different tests for mоnopoly power. relevant market. maintenance of action of prevented “through be The substantial best evidence rule for review- ing men an order has body practical administrative been as an described follows; the rule apply who will be able to ... busi- by Congress particular We consistently enacted have reiterated —and situations, point evils we emphasize again so as to eradicate ness now—that interfering Congress when has with vested in a Federal the least risk of with agency plenary authority to investigate H.R. operations.” business legitimate particular regulate and forms of commer- Sess., 1142, 2d Conf.Rep. Cong., No. 63d activity, cial or economic entrusting is no divining In thus that there limit primary responsibility with for the reso- gymnas- ingenuity legal business and complex and usually sharply lution of dis- Congress much fore- displayed tics issues, puted appellate factual court re- v. Ce- Federal Trade Comm’n sight. See exercise view of the of that authority Institute, 683, S.Ct. ment [68 perimeter confined narrow of the 92 L.Ed. 1010] evidence substantial rule. Findings Cyanamid Company American v. F. also See fact cannot and will not be set if aside C., 757, 1966). (6th Cir. T. 363 F.2d sup- the evidence record reasonably We turn now to the standards ports conclusion, the administrative even findings reviewing the factual applied be though suggested alternative conclusions While conclusions of the Commission. may equally and be even more reasonable construing responsibility persuasive. findings and the ultimate must stand courts, wrong, were they they Act “the unless the FTC rests cannot Commission, is, wrong be reversibly wrong an ex determinations of the —that —if evidence supports substantial them. appli pert body charged practical with the statute, great of the cation are entitled omitted), (Footnotes Colonial T. Stores F. Texaco, F. T. C. v. U.S. 223 at weight.” C., (5th 1971). 450 F.2d 739-40 Cir. 429 at 21 L.Ed.2d 394.11 Borden has the per Thus burden of findings are conclu of the Commission suading this that the Court evidence in the evidence, supported by sive if substantial J. record is to support not sufficient the Com C., 884, 891 v. F. B. Williams Co. T. 381 F.2d findings mission’s and conclusions. Borden (6th 1967), evidence though Cir. even argues testimony of certain wit support contrary finding. also might credible, nesses on behalf the FTC is not C., v. F. Corp. Home Products T. American that other inferences be drawn from (6th 1968). Our 402 F.2d Cir. task the voluminous testimonial and documenta guess to second is not the Administrative evidence, ry expertise and that Judge ques Law the Commission disregarded should in re credibility weight, tions testimonial viewing analysis economic of the con C., Pfizer v. F. Charles T. 401 F.2d flicting predatory pricing definitions of ad (6th 1968), denied, cert. case. arguments vocated for this These nor, (1969);12 22 L.Ed.2d 453 contrary to the standards of review to be advocates, pick are we to applied court. Congress has ‍‌‌‌‌‌‌​‌​‌​​‌‌​​‌‌‌​‌‌​‌‌‌​‌​‌‌‌‌‌‌​‌​‌​​​‌​​​‌​‍dele among conflicting uncertain in choose Commission, gated to the an administrative ferences to be drawn from the evidence. agency possessing specialized of knowledge Stores, C., Safeway 366 Inc. v. F. T. F.2d techniques marketing practices, and sales 795, (9th denied, 1966), 800 Cir. cert. 386 responsibility resolving the initial of 932, 954, 17 (1967). 87 805 knotty, problems U. S. S.Ct. L.Ed.2d technical economic also, Co., Stores, supra, C., Refining 11. See Atlantic 381 siderable. Colonial Inc. v. F. T. 450 368, 1505; 733, (5th 1971). 85 v. n. 14 U.S. S.Ct. at F. T. C. Cement F.2d 740 Cir. Institute, 683, 793, 812, 720, 333 U.S. 68 S.Ct. (1948). 1010 C., 700, 92 L.Ed. Even when the Commis- v. F. T. See alsо Guziak 361 F.2d 703 findings legal (8th 1966), denied, sion’s are framed in 1007, terms cert. 87 Cir. 385 U.S. conclusions, validity presumptive 712, their con- (1967). S.Ct. 17 L.Ed.2d 545 506 Borden’s conduct.13 This

presented by as to the issue of market definition and that the inferences drawn from court holds the substantive standard of illegality.15 Commission, by the and its the evidence Although there is language in the majority conclusions, findings supported by decision of the Commission suggesting de- substantial evidence. termination under the standards of the FTC Act unlimited the strictures of the Sher- IV Act, man the decision primari- seems to rest The broad of the Commis ly on the law monopolization under the practice whether a sion to determine is un point Sherman Act. At one opinion well “particularly fair is established with states: regard practices to trade which conflict light of these overriding policies we policies of the with the basic Sherman and must determine whether Borden’s main- Clayton though practices Acts even such tenance control over the may actually violate these laws.” F. T. not market was eco- Co., 316, 321, 384 C. Brown Shoe U.S. 86 v. inevitable, nomically whether, like Al- 1504, 1501, (1966). 16 L.Ed.2d 587 S.Ct. coa, it “meant keep, and did keep” that may pari Section 5 be construed in materia control over the market with which it laws, Cyanam with the antitrust American started. Id. at 432. id, 770, supra, 363 F.2d and the antitrust Borden, That in the words of the Alcoa guide laws serve as a or declaration of court, keep” “meant its monopoly policy for the Commission to consider in share is evident from its marketing determining what constitutes an unfair plans.16 competition. Jersey method of New Wood Finishing Mining Mfg. Co. v. Minnesota & The Commission concluded that: “It can Co., 346, (3rd 1964), aff’d, 332 F.2d 351 Cir. hardly be said that the maintenance of Bor- 311, 1473, 14 S.Ct. L.Ed.2d 405 monopoly power den’s was ‘economically in- (1965); C., Luria Brothers & Co. v. F. T. 389 evitable’ .... Its maintenance was the 847, (3rd Cir.), denied, F.2d 859-60 cert. 393 result of a strategy calculated employing 829, 94, (1968). S.Ct. L.Ed.2d 100 geographic price discrimination.17 Although it is well settled that methods The ALJ upon relied Sherman Act cases need not violate the Sher- to find Borden guilty monopolization.18 Clayton man or Acts in order to constitute a Commissioner Pitofsky stated in his concur- violation of Federal Trade § Com- rence that the decision of the Commission Act,14 case, present mission the Com- rests on the conclusion that Borden violated mission seems to have restricted itself to a 2 of the Sherman Act.19 analysis, Sherman Act as indicated in the following language opinion: of its We restrict our review of the Com mission’s decision

Although brought this case was to the and is Sherman Act 2§ Act, grounds upon by decided under Section 5 of the relied it. Industrial Union Department basically monopolization. sounds AFL-CIO American Petro Institute, Accordingly, the law under 2 of leum 31, Section 448 U.S. n. 2844, provide guid- 2858, 31, Sherman Act is used to S.Ct. n. 65 L.Ed.2d 1010 5, ance for the application (1980); both Section Exchange Securities and Commis- Texaco, 13. See F. T. C. v. 393 U.S. 15. 92 F.T.C. at n. 4. 21 L.Ed.2d 394 16. 92 F.T.C. at 795. Jersey Finishing 14. New Wood Co. v. Minneso Co., Mining Mfg. (3rd ta & 332 F.2d 17. 92 F.T.C. at 802. aff'd, 1964), (1965); L.Ed.2d 405 Luria Brothers & Co. v. F. 18. 92 F.T.C. at 767. C., (3rd Cir.), T. 389 F.2d 859-60 cert. denied, 829, 94, 393 21 L.Ed.2d 19. 92 F.T.C. at 826. (1968). 100

507 87-88, 80, 63 Chenery Corp., 318 U.S. v. sion States E. I. DuPont de Co., Nemours & 454, 459, L.Ed. 626 377, 87 994, S.Ct. S.Ct. 100 L.Ed. 1264 (1956) (Cellophane), all of these factors are

V to be considered in assessing the reasonable of prod- definition the The Commission’s interchangeability products.21 of It is now processed juice was market as lemon uct well established monopoly that power is of of finding to its maintenance crucial equated with the prices control or power. The inclusion of fresh monopoly competition.22 exclude As a consequence, in product necessar- lemons within the market examining competition whether from other ily preclude finding of would products prevents the possession monopo- of this would have reduced power because ly power, “[pjrice .and are so market share.20 Borden contends intimately entwined that any discussion of undisputed that facts establish that theory must treat them as one.” Id. at interchangea- reasonably lemons are fresh 76 S.Ct. at 1005. In Cellophane the court ReaLemon, of every for end use that ble discussed the reasonable interchangeability Clay- use a submarket test under the of of products in of cross-elasticity terms of improper monopolization Act is in a ton demand,23 and in terms of comparative costs case, and that the evidence was not suffi- of the products to consumers.24 support finding proc- cient to that essed lemon market did not all include The Commission’s finding that low products containing juice. other lemon cross-elasticity of demand existed between processed fresh lemons lemon Borden’s contention that fresh is supported by the record. reasonably Buyers large lemons and ReaLemon are inter for supermarket changeable representatives chains and emphasizes similarity of the of processed of products, companies end uses the two and de-em testified price price that phasizes other factors such as differ increases or decreases in fresh enсes, demand, cross-elasticity lemons had or little no effect on the- quality differences between fresh lemons demand for This However, and ReaLemon. under United indicates are they in different competitive high 20. Annual sales fresh lemons were as stated would be an indication that a cross-elas approximately $200,000,000, them; ticity and the inclusion of demand exists between that product fresh lemons market would products compete in the same market. reduce less Borden’s market share to than ten “[g]reat The court below held sensi per cent. tivity packaging of customers in the flexible price quality changes” prevent markets to products composed 21. “[The] possessing monopoly ed du Pont from con interchangeability pur- have for reasonable price. trol over S. v. E. I. [U. DuPont De poses they produced price, for which are use — F.Supp., Nemours & Co.] 118 at 207. The qualities Cellophane, supra, considered.” (Footnotes findings. record sustains these 351 U.S. at at S.Ct. 1012. omitted.) Id. at at S.Ct. 1009. Corp., 22. United States v. Grinnell 24. “The Government stresses the fact S.Ct. L.Ed.2d (1966); price Cellophane, supra, cellophane variation in 351 U.S. at between and other they noncompeti- S.Ct. at 1004. ‍‌‌‌‌‌‌​‌​‌​​‌‌​​‌‌‌​‌‌​‌‌‌​‌​‌‌‌‌‌‌​‌​‌​​​‌​​​‌​‍materials demonstrates products wrap- tive. As these are all flexible appraisal “What is called for is an materials, ping consider, it seems reasonable to ‘cross-elasticity’ of demand in the trade.” Id. trial, comparative as was done at the their cost at 1006. The court examined square to the consumer in terms of area.” Id. cross-elasticity of demand cello- betwеen 400-01, 76 S.Ct. at 1009-1010. phane wrappings and other flexible as follows: Cellophane was found to two cost or three An element consideration as to cross- competitor times as much its chief for the elasticity products of demand between is the wrapping flexible but to cost less than responsiveness of the sales of one wrapping. several other forms of flexible price changes slight the other. If de- Court found those differences cost did not cellophane crease causes a give monopoly power prices. DuPont over considerable number of customers of other wrappings cellophane flexible to switch to testi- between other brands and fresh president differential Foods’ ReaLemon markets. lemons larger. Despite fresh this sub- prices for lemons was even increased fied increase cause an gap, did not the volume of sales of year price stantial typical for or reconstituted greater proc- sales than ReaLemon fresh lemons is much in either Representa- a whole.25 as juice juice sales and has not declined as lemon essed lemon lemon processed regional several juice grown tives of sales have processed lemon in changes agreed distributors juice years. the over little effect on had fresh lemons price the Furthermore, supports the record juice.26 lemon processed price finding that ReaLemon the Commissioner’s important differ- other Testimony as to interchangeable with reasonably is not lemons and of fresh prices ences asserts that ReaLem lemons. Borden fresh support the Commis- juice lemon processed every each and be substituted for may on An ex- markets. finding of different sion’s juice from fresh lemons. end use of supermarket of a president vice ecutive test, however, merely is not Cellophane area testified City York in the New chain can be substituted for product whether one fluctuates on fresh lemons price of that the product, but whether the use of another Repre- daily basis.27 weekly and even a interchanged reasonably products juice compa- processed lemon sentatives they produc purposes for which for lem- prices processed that the nies stated uses, prices, qualities ed when long of time. periods stable for juice are on Cellophane considered.28 In products are well as marketing plans, as own wrapping flexible the court examined the distributors, demon- other testimony from quality per differences in market prices juice lemon processed strated by buyers wrapping of flexible ceived response primarily were determined which those differences af degree processed brands of competing prices buying their decisions. 351 U.S. fected also con- juice. The Commission lemon 397-400, qual If the at 1008-1009. be- price differences the substantial sidered products are ity differences between two lemon and reconstituted fresh lemons tween one that consumers would not consider such roughly ReaLemon is ounce of juice. One viable substitute for another in product a lemon; fresh juice of one to the equivalent decisions, making purchasing regard their bottle of ReaLemon thus, a 32 ounce actually can be of whether one less 32 lemons. juice of about equivalent to another, use of then substituted for the marketing plan stat- Yet ReaLemon’s must be con quality these differences lemons costs from fresh ed that determining the reasonable inter sidered in more than three and five times between products competi of the in a changeability pre- sold at a ReaLemon ReaLemon. Since market. The Commission considered tive competing brands consist- price and mium fresh lem- quality differences between prices, price to sell at lower ently had testified, however, that no Findings lemons.” He also at 668-9. 32 and 92 F.T.C. 25. See retail lemon correlation existed between fresh processed juice prices. contradict- claim of direct evidence 26. Borden’s lemon and retail findings ing is insufficient. the Commission’s testimony only points two wit- Finding at 683. 27. See F.T.C. respon- support argument price nesses between fresh lemons siveness Cellophane, the court stated that the com- regional manager for a sales lemon One depends petitive for commodities hazarding that he “would be distributor stated they are from one another how different guess” between the existed that a correlation use, buyers go and “how far will character or price lemons and a decline lower of fresh commodity for another.” to substitute one during company’s product the same of his sales It noted 76 S.Ct. at 1006. further witness, president period. The other timе is the variable characteristics that “[i]t n distributor, very high regional that a stated of a produc- wrappings” flexible different movement of will affect for lemons ability marketing that determine choice. ers’ will have in that “a housewife at 1011. Id at buy option than fresh other juice and found a processed ons and lemon use monly fresh lemons for such purposes, undisputed af- number of differences which and even processed consumers of lemon purchasing fect a consumer’s decision. juice felt that fresh lemons be should used studies, Borden, market Documents entertaining when guests. These demon- testimony from and numerous distributors quality strated differences between fresh conspicuous’ are the showed that differences and processed lemons juice lemon further storage greater capabilities convenience and the support that, finding Commission’s con- processed juice lemon fresh lemons. over price, sidering use quality, and fresh lemons juice Processed lemon is available for imme- were not reasonably interchangeable with diate use while fresh lemons must processed juice. lemon squeezed for Processed lemon juice may long periods; be stored for Rea- conjunction In with the reasona may year Lemon last from six months to if a interchangeability ble test Cellophane, contrast, refrigerated. fresh lemons are applied Commission the submarket test spoil relatively will perishable, within a States, Brown Shoe v. Co. United time, replenished short must be con- 8 L.Ed.2d 510 quality stantly frequently. if used Other (1962),30to processed conclude that lemоn affecting buying differences consumer deci- a juice is valid submarket within which to taste sions concern and decorative uses. the allegations assess complaint. that, recognized marketing plans Borden’s Borden contends Commission erred notwithstanding the convenience and eco- applying in the Brown Shoe test because it factors, it nomic would be difficult to con- relates to relevant markets for Clayton Act vert fresh many consumers of lemons anti-merger cases rather than for Sherman strong preference ReaLemon because of a monopolization Act cases. Basically Borden marketing for the of fresh A taste lemons. maintains that in a 'proceeding under the study done for Borden in on 1972 concluded more provisions flexible 5 of § the basis of interviews with consumers that Act, may the Commission apply only the the chief consumers used lem- reason fresh reasonable interchangeability test of Cello superior was its flavor.29 Borden’s phane if maintenance of unlawful mo marketing recognized also plans nopoly power alleged. reject We presence of chemical additives ReaLemon First, contention for two reasons. the Com distinguished it from fresh lemons. Final- did not “ignore mission dictates Cel ly, an obvious difference between fresh lophane” apply exclusively the Brown lemons and which criteria, Shoe submarket as claimed Bor affects consumer selection is the ornamen- den. the contrary, On re lemons, tal or decorative uses of fresh such synthesis a guid lied on of both tests for tea, wedge аs a lemon for iced a slice of ance in dishes, determining whether con garnish lemon to fish or other Second, duct peel drinks, Supreme twist violated 5. of lemon to decorate grated peel recipes. submarkets, Court has recognized for The evi- as dence demonstrated that separate entities, restaurants com- may economic be found in Finding Co., 29. See at F.T.C. v. States E. I. du Pont de Nemours & many quoted comments from 877-878, consumers there- 593-595 S.Ct. [77 in. 1057], L.Ed.2d such boundaries of may by examining submarket be determined explained 30. The Court Brown Shoe the defi- practical industry public such indicia nition of a submarket as follows: recognition separate of the submarket as a product outer boundaries of entity, product’s peculiar economic char- are determined the reasonable inter- uses, unique production acteristics and facili- changeability cross-elasticity of use or ties, customers, prices, distinct distinct sensi- product demand between the itself and sub- tivity price changes, specialized ven- However, stitutes it. within this broad (Footnotes omitted.) dors. 370 U.S. well-defined submarkets exist which, themselves, constitute purposes. markets for anti-trust United Clayton “just cases as well as Act Act had a feel for Sherman it.” Another company (Wolcott, cases, representative is “no reason to differenti Foods) and there Seneca speak stated he could only from personal of commerce in the con his ‘line’ ate between use as a consumer as to whether reconsti- ‘part’ Act and of com Clayton text of the tuted lemon competes with lemonade. of the Sherman Act.” purposes merce for The opinion of a third company representa- Corp., Grinnell United States (Greenburg, Fruit) tive Penn was that lem- 1698, 1705, 16 L.Ed.2d 778 86 S.Ct. competes onade with reconstituted lemon (1966). recognized has that a This court juice only during the summer months. A may appropriate be in a analysis submarket representative fourth (Fey, Maid) Minute monopolization Byars case. v. Act Sherman thought that all products lemon-flavored 843, Co., Inc., 859, 609 F.2d City Bluff News compete degree. to a certain This contra- 1979).31 (6th We hold that the use n. 41 Cir. dictory testimony cited Borden is insuffi- appropriate is of submarket criteria cient support a conclusion that the Com- present define the relevant market in the mission’s definition processed lemon dealing with the unlawful maintenance case juice supported market is not by substantial under 5 of the monopoly power evidence. Act.32 Furthermore, Borden points to evidence prod- attacks the relevant Borden further interchangeability processed between finding of the on uct market Commission juice lemon and only par- lemonade for one ground that erred in Commission use, ticular end the making of lemonade. It excluding processed juice from the lemon cites interchangeability no evidence of with market lemonade and a lemon-based mixer processed juice uses, lemon for other such arguing processed for cocktails. that recipes as in and iced tea. Similar short- juice lemon contains more than the five comings apply argument to the that lemon- by the products included bаsed cocktail mixes should be included in market, 4, product supra, relevant n. Bor- processed juice lemon market. The rec- questions credibility den of an econo- ord substantially viewed as a whole sup- FTC, testifying mist and claims that ports the Commission’s definition of the numerous other witnesses described the processed juice market, lemon and this processed juice between lemon court concludes defined market testimony upon and lemonade. The relied appropriate was for examining Borden’s by Borden is inconclusive. As to whether conduct under 5.§ juice competes reconstituted lemon with VI

lemonade, company representative one (Kendall, Foods) Kendall stated that it was Having considered the relevant know, very relationship a hard and he we now must determine previously 31. See also Columbia Metal Culvert Co. v. Kai In addition to the discussed differ- 20, Corp., uses, qualities, prices, ser Aluminum & Chemical 579 F.2d ences in the Com- denied, 876, (3rd Cir.), 27 industry n.11 cert. 439 U.S. 99 recog- mission found that members 214, (1978); Greyhound 58 L.Ed.2d 190 processed nized the lemon market as a 488, Computer Corp. Corp., v. I. B. M. 559 F.2d separate entity. and distinct economic This 1977), denied, (9th 494 n.7 cert. Cir. recognition pricing policies was reflected in the 1040, 782, (1978); 98 S.Ct. L.Ed.2d 790 Hea members, industry marketing their strate- G., Corp. Volkswagenwerk, transfer v. A. gies, marketing and the of fresh lemons with- 964, denied, (5th 1977), F.2d Cir. cert. regard availability processed out for the lem- (1978). 98 S.Ct. L.Ed.2d 792 Furthermore, juice. there are differences in production lemons, of fresh which are C., 32. See L. G. Balfour Co. F. v. T. F.2d processed produce, cleaned and as fresh (7th 1971). Apparently Borden does not рrocessed juice, goes through lemon which a seriously finding processed contest manufacturing bottling process. The chan- lemon is a relevant submarket if the sub- different, nels of distribution are also here, applied prop- market criteria through produce fresh lemons sold brokers and erly supports so because substantial evidence wholesalers, processed while lemon finding the Commission’s through grocery sold brokers salesmen. juice is a submarket. supported power,34 evidence whether substantial the Commission looked to other possessed finding that Borden Commission’s evidencing factors power to con- monopoly within market. trol competitors exclude power may be in- existence of market. predominant a share ferred from While maintaining a dominant Grinnell, market. United States share of the market periods for extended 16 L.Ed.2d 778 time, Borden consistently able inference, however, an “does Such charge higher price reap greater prof Only automatically. not have follow its for ReaLemon than were others market analysis careful of the market factual ing processed The Commission question monopoly pow- will reveal whether found that Borden charged premium fact, er, Byars City exists.” v. Bluff price, per sometimes over 30 cent more than Co., supra, News 609 F.2d at 850-51. While brands, of other though even no ‍‌‌‌‌‌‌​‌​‌​​‌‌​​‌‌‌​‌‌​‌‌‌​‌​‌‌‌‌‌‌​‌​‌​​​‌​​​‌​‍the Commission stressed Borden’s dominant objective quality differences in existed be share, market it also relied on several other tween any ReaLemon and of the other indicating possessed factors ReaLemon mo- processed brands of lemon juice.35 Rea nopoly power within the market. premium price Lemon’s was attributed to Borden’s market share was sub product successful differentiation. Wit stantial, amounting at times to almost 90% industry nesses from the and grocery busi nationwide, of the market and over 95% in ness testified that ReaLemon was “almost large metropolitan some areas. Much of generic” “synonymous” with reconstitut by statistical data used the Commission juice. ed lemon Borden maintained this in determining market shares came from product successful differentiation through Borden’s own documents and marketing extensive advertising: ReaLemon was the plans.33 through From 1969 1974 Borden’s only nationally processed advertised lemon ranged national market share from 88% to juice only significant advertis liquid basis, 75.3% on a volume and from er industry in the until 1972 when Golden on a 91.8% 88.9% dollar basis. Borden’s Crown began advertising on a minor scale Marketing Plan for ReaLemon esti in selected markets. 92%, mated its market the 1972 share plan 90%, A plan put highly estimated and the successful prod1 brand name and Although uct through 88%. these market shares are differentiation achieved exten more monopoly than sufficient infer sive advertising over the years, standing 33. For Plan dollar TREESWEET SENECA REALEMON SUNKIST GOLDEN VITA ALL showed TOTAL basis: OTHERS example, PAKT CROWN following 1973 ReaLemon 12/25/70 Ending Year 100.0 91.8 2.1 2.0 1.4 1.8 .4 .5 market shares on a 12/24/71 Ending Year 100.0 91.4 2.4 2.1 1.5 1.7 .5 .4 Marketing 8/4/72 Ending Months 100.0 88.0 5.5 3.2 1.4 1.1 .4 .4 34. 496 n.18. a this decline is not complaint firms showed some decline from 1969 bacco Co. v. United Findings Greyhound Computer Corp., supra, rated finding Although marketing processed by 71-76, of market counsel monopoly power. the ReaLemon market 92 F.T.C. at 702-07. necessarily share States, 90 L.Ed. 1575 figures compilеd data inconsistent with obtained from American To- through 1974, 559 F.2d at (1946); share 794- See Borden now claims that data statistical is Plan, Marketing president In the 1972 inaccurate, position obviously unreliable and a ReaLemon Foods stated that from a technical previous upon inconsistent with its reliance standpoint, apparent ReaLemon had “no ad- formulating strategy this data in and mar- vantage any competitors. over of its keting plans for ReaLemon. ReaLemon man- Processed lemon agement figures used the market share of a plans, ...” Other ReaLemon market actual recognized independent and well established prices, support finding and market shares organization. market research Borden’s data premium price that ReaLemon commanded substantially on its market share was corrobo- basically product. fungible for a presumption period, about one and one-half times the create alone, not does possesses a seller rate of return for the food and related When monopoly power. Regardless products share industries. of how the overwhelmingly dominant an characterized, however, differentiates million is Borden’s rate $9.6 through recognized supports return on ReaLemon’s assets from others name, brand rather than contradicts the Commission’s extensively advertised finding monopoly power. control seller to enabling the thereby then competition, unreasonably restrict position A aspect final of Borden’s exist. found to market structure relied on the Commis- ac competitors аnd its Both ReaLemon sion was ReaLemon’s substantial resource price, premium ReaLemon’s knowledged advantage competitors. over its ReaLemon prod their competitors price the need greater had far resources to finance ex- premium enough to overcome this ucts advertising,37 promo- penditures their or increase to maintain price in order tions than did its It competitor. nearest share, ReaLemon ability and the market strong public conducted a nationwide rela- share its dominant preserve and, program through tions other Borden premium manipulation of this through the products, participate food it could in tie-in promotional gap. Through selective advertising cross-couponing. adjust its net Borden could allowances weaker resource bases ReaLemon’s com- and control prices to retailers wholesale petitors engage rendered them unable to level of at the wholesale price competition Looking such activities. to the evidence as Rea indicated The evidence distribution. whole, particular a and in to the evidence of brand successfully differentiated Lemon’s market share combined with its name, advertising ability extensive strength, brand name we hold that price also acted to premium command a finding monopoly power Commission’s is entry into the degree as a barrier to some supported by well the record. market.36 VII the rate also considered The Commission by We next review the assets realized Commis of return on ReaLеmon’s Rea- price finding sion’s that Borden restrained com purchase total Borden. The petition its ad- in violation of 5 of the Act $12,370,514, but § in 1962 Lemon $2,767,619. unlawfully maintaining monopoly par- The justed net worth was $9,602,895 power. possession difference Borden’s mere of lawful characterized the ties earnings ly acquired monopoly power proc or as a a of future as discount per essed lemon market is not se un computing cost. In ReaLemon’s “goodwill” States, assets, the ALJ exclud- lawful. Standard Oil Co. v. United rate of return on its 1, 62, 502, 516, million, it 221 31 55 argues but Borden U.S. L.Ed. ed the $9.6 (1911). possesses monopoly If exclud- who considered as an asset. One should be ed, ranged through from violates the Act power rate of return Sherman ReaLemon’s 1968-73, during nearly acquisition four “the wilful or maintenance of 16.9% to 35.2% growth re- from average power distinguished times the rate of that as or and one-half development consequence superior in- a of a products the food and kindred turn for acumen, included, acci product, rate of return business or historic dustries. If Grinnell, supra, dent.” v. ranged during to 10.2% the same United States 8.1% $629,100. 96-100, 716-18, quot- penditure comparison Findings at advertis- 36. See 92 F.T.C. ing testimony year ing by competing from economist Dr. Michael brands was al- presidents regional of two Mann and from the processed most non-existent. juice companies. example, promotion budget 38. For ReaLemon’s that ReaLemon 37. The Commission found $2,805,000. Finding for 1973 was See $5,000,000 advertising spent be- more than on at 715. F.T.C. Mar- 1969 and 1974. ReaLemon’s 1972 tween advertising keting projected ex- its 1971 Plan is 570-71, 1703-1704. It S.Ct. at to maintain at its market share and restrain to foreclose competition expansion from the the use of of Golden advan competitive competitors.39 Crown and other gain or Golden States is unlawful. United competitor Crown was the first challenge tage that 941, 945, Griffith, seriously ReaLemon’s 68 S.Ct. market dominance. mentioned, As Predatory previously conduct Golden Crown’s 92 L.Ed. 1236 gains initial market such as be came from the monopoly power, possessing one discrimination, competitors is shares other more price than from pricing or low-cost is reemphasized the ReaLemon’s. It to be to find a violation of generally required began was when Golden Crown is not essential to a find to show Act. It Sherman however, successful on encroachment monopolization, acts ReaLemon’s ing of market share that monopoly power began ReaLemon to re- practices used to maintain act, as its Marketing Plan independently unlawful. indicates. be in themselves Griffith, 334 U.S. at United States v. 1971 plan proposed heavy The emphasis v. Aluminum 944; United States at 68 S.Ct. upon the through ReaLemon brand name America, (2nd Co. of 148 F.2d 431-32 advertising, depended strong 1945). necessary is it always Nor familiarity with the justi- brand name as a specific intent to restrain trade find a obtaining fication for higher price. Griffith, supra, monopolize, plan proposed further forego general for a intent planned costs, higher increases to offset ordinarily required monopolize is all that to sacrifice profits short-term to maintain Byars Act violation. to find Sherman its market share. ReaLemon also switched Co.,Inc., supra, City v. Bluff News 609 F.2d granting promotionаl its method of allow- at 859. Commission found ReaLemon’s ances, nearly doubling promotional allow- marketing pricing, promo strategies, geographic ances in competi- areas where practices predatory were in nature tional existed, Coast, tion such as on the East evidenced intent to maintain its an limiting promotional while allowances in These monopoly power unlawfully. prac non-competitive areas. A specific objective marketing implemented plans tices included 1972 Marketing of the Plan was combatting monopoly power, to maintain ReaLemon’s low-priced competition, the primary and promotional and allowances without weapons promotional were allowances on a ar justification geographic cost in selective selective geographic basis and ad- increased heavy competition, faced eas where Borden vertising. promotional The allowances unreasonably and sales below cost or at low brought about in reductions ReaLemon’s prices competi with the intent to exclude regular retail price by per 10 cents or more the tors from market. 32-ounce bottle. In present Marketing the ease the record con The 1973 was Plan more ex- general of in plicit stating tains direct evidence Borden’s ReaLemon’s intention to monopo to and maintain its monopoly power intent exercise maintain its over proc- the ly power. marketing plans ReaLemon’s through essed lemon market exclu- mapped sionary major objective 1971-74 out actions to be taken A conduct. of documents, Interestingly, credibility marketing plans demonstrating Borden attacks and marketing plans guided plans of own and internal docu that these ReaLemon’s conduct in ments, untrustworthy, contending they are the market. Nor were the stated intent and proposals, objectives plans not of mere and substantial evidence of these taken out of context. major argument might throughout running Borden’s actions. This be A theme was them portion marketing price promo- meritorious if the Borden’s to intent use selective plans discipline vigorous price taken and re to alone out of context were tions restrain and upon competition. Finally, marketing plans lied as evidence of Borden’s intent. See can- C., Bearing “puffery” impress Roller Co. F. T. F.2d Timken not construed as meant to denied, (6th Cir.), superiors, president cert. for the of ReaLemon con- However, plans they by 9 L.Ed.2d 99 tributed to the and were used testimony management company other evidence and corroborated to direct sales. share to raise ReaLemon’s market plan regional was on’s and managers national sales back estimated nationwide from an 86.5% demonstrated that marketing plans these only not objective This was aimed 89.0%. vigorously implemented, were and their share, market “but the Golden Crown purposes objectives and exactly were other than against the share of all brands stated.42 tools for Again, the main ReaLemon.” marketing plans, These internal docu- achieving objeсtive were trade selective ments, and conduct conforming plans advertising, and substantial promotions deal provided evidence direct of ReaLemon’s in- in promotional spending concentrated with only tent not monopoly pow- maintain its competitive markets for stated heavily er in the but also to increase its gains. reversing competitive purpose share, reduce the shares Golden to combat Golden inroads particular, Crown other competitors, any Crown and stifle and price sought dif- to reduce ReaLemon expansion competitive further efforts through promotional deals. ferential Golden Crown. ReaLemon’s tactics and marketing plan last relied beyond simple, healthy conduct went com- Commission, substantially in- plan, the 1974 petitive response by a monopolist price advertising budget for overall creased Rather, competition. they evidenced con- allowances, only of- promotional but certed effort to restrict competition unrea- promotional allowances in fered increased sonably power. and maintain areas.40 A competitive geographic the most objective to increase plan stated of the The price promotional reductions and al- key market share in dis- ReaLemon’s selected geographic lowances in markets en- high per capita tricts41 Borden to receive monopoly in profits abled had consumption, where Golden Crown competition, little areas of then use noted that plan beеn most successful. The profits these to subsidize in reductions 4 districts an estimated these accounted for intense competition. only areas of theAs of Golden Crown’s sales for months 54.7% distributor nationwide objective was to plan of 1973. strong enjoying recognition brand Golden Crown’s share from 18% to reduce premium price profits, Borden was share 14%in and increase ReaLemon’s unique position being able to withstand to 75%. These 4 areas were se- 71% periods pro- extended reduced they areas of represented lected because motional allowances in geographic selected Crown, high development and the of Golden Thus, markets. had the conduct plan decreasing stated that Crown’s Golden deterring entry restricting effect of “may result effectiveness these markets competitors ability expand other into lever- significant expansion reduction of geographic geo- areas. These selective age.” deals in were to Trade these 4 areas graphic promotions to were intended con- levels, high be whereas deals continued discipline fine regional and smaller distribu- in other areas were to In addi- be reduced. of their vigorous price competi- tors because in heavy promotions tion to these selected be compe- tion and cannot characterized as areas, price in- dropped planned ReaLemon pro- tition the merits exempt from the creases in the markets Crown where Golden of scriptions the FTC Act. competing, but instituted increas- finding by Another the dеm- es elsewhere. from ReaLemon’s Commission Testimony regional sales Borden’s manager, onstrating and internal docu- intent to maintain its ReaLem- correspondence ments and from was that Borden sold greater key promotional plan 40. were These allowances 41. The four districts listed in were the York, granted despite Philadelphia, Chicago, the in the Northeast fact that New and Detroit. manufacturing evidence ReaLemon’s indicated promo- greater greater costs were there. The reports quotes correspondence 42. See and tional allowances could not be attributed to managers Findings sales ReaLemon’s in 128-30, lower distribution costs. F.T.C. 729-32. unreasonably or at Areeda-Turner’s,47 ReaLemon below cost Posner’s or should ap- be prices Philadelphia in and Buffalo with plied low in present case in determining injuring competition.43 the effect whether pricing was predatory. reference presents The Commission made This case unique situation of predatory pricing a monopolist marketing economic definitions product which by Posner44 proposed Professor Richard could premium price, command a giving it significant leverage Professors Areeda Turner but did not pricing over its compet- which rule itors. correctly historically make decision as to ReaLemon has dominat- ed the defines the term. With reference to the market and rule, has competition adversely affected through Areeda-Turner the Commission said: selective geographic price promotions necessary “It is not to dеcide whether this is exclusive, unreasonably prices. preferred sup- record or even the test for However, ports conclusion Commission’s pricing.... the AU Bor- predatory den intended to continue its domination parties approach, both utilized this with the long same term effect of reducing we find it one for illuminating a useful or eliminating competition. the issue.”46 Commission, we Like the do not find it We conclude that when a monopo rules, list, necessary to through decide which two brand identification or other- Philadelphia preference” eyes consumers, 43. The in were to sales Acme Mar- “brand kets, largest supermarket city by producing objectively chain in prod- not an better grocery uct, by having with retail market. but first in been the market or 20% 28% Niagara by having The sales in “image” Buffalo were Frontier made extensive advertis- Services, largest super- volume ing expenditures. owner of the Faced such a space to limited shelf markets in the area. Due only may an entrant not have to invest the large promotions and the offered these custom- technically required resources that are . to es- Borden, ers found that the production tablish and distribution networks they short-term effect was that were unable to may but also have to undertake substantial buy competitors. from Borden’s promotional expenditures, get both to loyal- known and to overcome brand Posner, 44. R. Law: An Economic Antitrust Per- ties that the firm has dominant achieved. spective, (1976). situations, entry such successful will be more costly and, time-consuming, and more Turner, Law, as a 45. P. Areeda and D. Antitrust result, pоtential competition Turner, will (1978); be a less 715b § Predatory Pricing see also Areeda and existing effective constraint on dominant and Related Practices under result, Act, recognize firm. As a courts should Section 2 of the Sherman Harv.L.Rev. generic premium because names and images by advertising change brand induced F.T.C. n. 29. entry way conditions of such a potential competition is a less effective con- 47. Reference an is made to article Profes- be, might straint on than otherwise Klevorick, sors Joskow and A Framework for dominant firm such behavior markets Analyzing Predatory Policy, 89 Yale L.J. 213 worthy scrutiny. be of closer (1979), proposing ap- a two-tier rule-of-reason In those the firm cases where and market proach determining pricing pred- whether suggested structural characteristics that effi- atory. They formulate a rule which assesses ciency likely high losses if there is a long-run conditions, “such for an assessment is identify pricing predatory, failure to which is required predatory pric- because the essence analysis then the second tier of the would be ing alleged predator’s is the sacrifice of short- applied. Id. at 249. This second tier would gains greater long-run gains.” run Id. at closely behavior, more examine a firm’s 217. The first tier examine the would structur- approach and would allow for a more flexible al characteristics of the market and the market applying in power cost-based various rules. The alleged predator of the to determine if théy proposal generate expectation Joskow-Klevorick combines some оf a reasonable that advantages predatory per of the se cost-based in could which rules occur would im- pose significant applied society. that it is by losses a workable rule which can be economic courts, Among advantages structural factors Joskow and Kle- and some of the following: flexibility vorick would consider is in the broader Scherer and Posner published Second, rules. This article was after the we should seek to determine opinion existing whether the Commission’s was issued. dominant firm has been establishing significant successful in 516

wise, manipulate prices can and does in Co., 419, Lead 428, 352 77 S.Ct. equally as to exclude way such a efficient (1957).49 L.Ed.2d 438 Because Con requiring them to competitors by sell below gress placed has upon the Commission the costs, average price variable such ma- their primary responsibility for shaping remedies, nipulation power is an unreasonable use of the courts should “lightly not modify” the monopolist’s posi- to maintain the Commission’s order. F. T. Colgate- C. v. supports The record Co., tion. conclusion supra, Palmolive 380 U.S. at monopolist that Borden is a and undertook S.Ct. 1046. The courts should “interfere Accordingly, the these actions. Commission only where there is no reasonable relation was authorized to hold that these actions between the remedy and the violation.” violate the Act Sherman and the FTC Refining C., § Atlantic Co. v. F. T. 381 U.S. 357, 377, Act 1498, 1510, § 85 S.Ct. 14 L.Ed.2d 443

(1965); P. C., F. Collier & Son v. F. T. VIII (6th Cir.), F.2d denied, cert. L.Ed.2d 186 The final issue petition raised in Borden’s propriety concerns the of the Commission’s The first paragraph of the Commis cease and desist order. alleges Borden sion’s order prohibiting any price discrimi the order amounts to an absolute ban nation, justified not differentials, cost in against price selective reductions in re- any geographic adversely area that affects sponse competition, and therefore de- competition, reasonably related to Bor prives Borden “meeting competition” den’s unlawful conduct which the Commis defense to which it is entitled. Additional- sion sought has to curtail. As stated earli ly, alleges Borden prohibition on er, Borden’s geographic selective promo cost, sales below unreasonably price tions and cuts were primary tools prices which have the effect of hindering or hindering competition in from smaller re restraining competition, vague is too gional competitors. No other competing Respondent unenforceable. replies had the broad nation that the order need provide not a “meeting Borden, al base of ability or the to remain competition” defense under the Robinson- competitive in the face of Borden’s sus Patman Act where guilty Borden was price tained reductions promotions in a monopolizing, for a monopolist may be particular market area. The Commission found to have violated 2 of the Sherman long-run noted the anti-competitive conse Act whether or not a Robinson-Patman vio- quences of this consumers, conduct to Finally, lation is established. the FTC re- that once Borden eliminates the threat of sponds that specific order is as as the entry from regional competitor оr disci permit, circumstances and sufficiently clear plines competitor to cease its compe raising questions to avoid serious as to its tition, may recoup its short-term meaning application.48 profits reduced by raising prices losses The Commission has wide discre monopolistic back to levels. Borden thus determining tion in the kind of order neces would be able to maintain its sary to cope with the practices unfair and consumers would be left with a found. F. T. Colgate-Palmolive Co., C. v. limited high selection and monopoly prices. 374, 392, 13 The remedy prohibiting Commission’s these (1965); L.Ed.2d 904 F. T. C. v. National selective geographic price reductions and argues 48. The FTC also that Borden failed to 49. This wide latitude is based on the Commis object Commission, “expertise to the remedies before the determining sion’s what is neces objections sary and raises these practices for the first time in to eliminate unfair and its ad appears objections responsibilities Court. It ministrative to devise remedies indirectly issue according statutory were at least policy.” raised before the to a consistent Commission, they C., have been considered Standard Oil Co. Cal. F. T. 577 F.2d (9th 1978). this Court. cost-justified 392, is a promotions unless reason- 85 S.Ct. at 1046. When considered in stopping able means of unlawful the context complaint and opinion conduct. arose, from which it the language to which Borden refers is sufficiently clear and pre- disagree We with Borden’s conten cise.50 improperly denies it tion that the order prohibition against selling “meeting competition” defense. Under “below its cost” selling refers to order, below may make overall ReaLemon’s Borden still average cost, total “unreasonably competition particular low reductions to meet prices" refers to made sales at or near aver- geographic Additionally, areas. it is well age costs with the to intent restrain unrea- established that the Commission “has the sonably competition from Golden authority prac to restrict lawful Crown otherwise others, opinion as the clearly they demon- likely tices and activities when to strates.51 The explained unlawful carry purpose.” be used to out an remedy portion opinion of its that “whether Washington, Arthur Murray Studio Inc. a price ‘unreasonably is low’ must be deter- C., 622, (5th 1972). v. F. T. 458 F.2d Cir. mined reference to costs, Borden’s own Co., also T. Lead See F. C. v. National su its awareness competitors’ costs, of its his- 509; pra, at at Ameri price differentials, toric competitive Cyanamid supra, can Company, 363 F.2d at conditions in the market.”52 With such 771; C., T. Sandura Co. v. F. F.2d knowledge, Borden can determine whether (6th 1964). The Commission “must policies put will it in a zone of be effectively allowed close all roads to danger with respect to the ruling. FTC Ac- prohibited goal, may so its order cordingly, compliance the onus of is in its by-passed impunity.” not be F. T. C. proper place. Lead, supra, National 352 U.S. at prohibited goal at 509. The S.Ct. was Bor We affirm and enforce the Commission’s den’s unlawful of monopoly maintenance order.

power. permit To reduce KENNEDY, CORNELIA G. Circuit regional with smaller sellers Judge, dissenting. while maintaining high monopoly prices and elsewhere, profits permit be would The majority affirms FTC’s ruling very practice cаrry out used to its unlawful ‍‌‌‌‌‌‌​‌​‌​​‌‌​​‌‌‌​‌‌​‌‌‌​‌​‌‌‌‌‌‌​‌​‌​​​‌​​​‌​‍that Borden engaged monopolization in purpose. The the authority FTC had violation of section 2 of the Sherman Anti- practice, though restrict this even it might trust Act. I respectfully dissent. otherwise be lawful. Although all reconstituted lemon

Finally, alleges Borden alike, or chemically FTC found that a vague der is so strong unenforceable. preference consumer existed for Borden focuses on the solely language pro Borden’s ReaLemon brand because Borden hibiting selling ReaLemon from successfully “below its differentiated ReaLemon from prices.” cost or at unreasonably other brands in the minds of consumers regard, the Supreme has said an through Court heavy promotion of the ReaLemon order “sufficiently Borden, must be clear pre Inc., trademark. [1976-1979 cise raising questions to avoid serious as to Transfer Trade Reg.Rep. (CCH) Binder] meaning 21,490 21,496. ¶ F. application.” p. T. C. v. at [its] FTC found that Co., Colgate-Palmolive supra, 380 preference U.S. at consumer enabled Borden to Although sufficiently precise, C., supra, the order is Luria Brothers & Co. v. F. T. 389 F.2d advantage den., (3rd Cir.), still take of the Com cert. procedures advising respondent mission’s 21 L.Ed.2d 100 proposed whether its conduct violates the or hypothetical might der. Concern that conduct 800-01, 51. See 92 F.T.C. 804-05. violate the order is insufficient an reason for modification. See T. C. v. F. National Lead 52. 92 F.T.C. 807 n.41. Co., supra, 510; 352 U.S. at 77 S.Ct. at 518 more for ReaLemon significantly monopolization mission’s definition charge as pay for willing were to

than consumers competitive by monopolist conduct a that is found Id. It also competing products.1 Rather, “economically not inevitable.” in the monopoly power that Borden had majority recognizes, the otherwise law Id. at market. reconstituted ful conduct forbidden section 2 by of the 21,501-21,503. monopolist’s Sherman Act is a use of mo power in in competition nopoly increased order to maintain or im ReaLemon faced that Bor- position The FTC found prove the late 1960’s. its in market. United this com- deliberately set out to defeat Griffith, den v. States or increase its market petition, to maintain (1948); 92 L.Ed. Telex Corp. 21,504-21,505. In furtherance share. Id. at Corp., v. International Business Machines ReaLem- goal promoted Borden of this (10th Cir.), 510 F.2d 926-927 cert. dis Commis- heavily. more The on brand even missed, 423 U.S. S.Ct. L.Ed.2d Borden ReaLem- priced sion also found that (1975); majority op. (emphasis at 512-513 price at costs. Because of on or near its added). every pow Not of market exercise premium commanded —created ReaLemon by monopolist monopoly er a is a use of preference com- by the consumer —Borden’s power. power Monopoly power is that a petitors price compet- were forced their by firm of its possesses monopoly virtue ing products below their own costs. position power not that it pricing. “unreasonably FTC called this low” of, a superior prod has because for instance 21,509-21,510. 21,511, together with Id. at use of monopoly power uct. A that is un prac- The Commission found that Borden reasonably anti-competitive violates unreasonably only in pricing ticed such low Byars Act. City Sherman See Bluff competition where was stiff. those markets Co., (6th 1979). 609 F.2d News section 2 The FTC concluded under However, growth development as a con monopolist only Act a Sherman sequence superior product, a business that are power through maintain its means acumen, accident, historic even a mo 21,504, inevitable.” “economically Id. at nopolist, does not violate the Act. United 21,508, 21,510. It ruled that Borden’s selec- Grinnell, 563, 570-571, States v. unreasonably tive in deliber- 1698, 1703-1704, 16 L.Ed.2d ate maintain its mar- attempt to or increase monopolization Since is the unreasonably monopolization ket under share constituted anti-competitive monopoly power, use of thereby section violated section 5 of intent only that could relevant 21,510. to a Id. at majority FTC Act. charge monopolization anis intent upholds ruling. to the to use addition Commission, grounds on unreasonably relied an anti- majority alleged below cost sales competitive proof relies manner. is no There by Borden states used that Borden its had such an intent here. Borden monopoly profits markets where it faced surely meant to obtain as much of the re- competition little price subsidize reduc- could, constituted market as it tions in markets where the very but that is the essence normal com- op. One can- Majority stiff. at 514. petition, goal that we even approve for a majority’s opinion not tell from monopolist. Despite majority’s asser- importance any relative of these one the contrary simple, tion to this is healthy grounds holding. competition. The alternative is that Bor- Although upholds den must have not respond the Commission’s re- intended majority sult the adopt does not Com- began disappear, when its share heavily finding finding accept, 1. The relied on is a little hard view of the competitors would have to sell one of fact that Borden’s most successful com- Maid, petitors, apparently charged sig- well below that of ReaLemon in to com- order Minute pete. nificantly Reg. Transfer Trade more for its than [1976-1979 Binder] Borden did Rep. (CCH) 21,507-21,508; 21,510. This for ReaLemon. act so irra- monopolist monopoly profits not even need use of but derived in IBM, supra. Telex v. one tionally. See to subsidize competition in an- market, hand, other the other is an un- its accomplish Borden meant to market- reasonably anti-competitive of monopo- use through advertising ing goals extensive ly power. Had the Commission rested its not promotions. Advertising is a use of finding decision here on a that Borden used Successfully promoting monopoly power. its monopoly profits geographic from some epitome is the one’s “busi- against markets to the fight compe- finance ness acumen” that Grinnell states is not others, tition in there was evidence which monopolization monopolization. any Nor is might supported have such a Commission price shown selective reduc- by Borden’s However, decision. the FTC found Borden finding there that tions where is no in violation of section 2 it charged because pricing violated the Robin- discriminatory low” “unreasonably prices, defined Act or resulted in Borden’s not son-Patman unreasonably prices prices so low good It is making profit. simply business preferenсe that for ReaLemon power, a use of forced practice, monopoly not to competitors sell at to a loss. The prices only where Commis- lower is sion expressly monopolist stated that a Computer Products v. See California with stiff. an image advantage cut Corp., prices International Business Machines not (9th 1979) (“business competitors, eliminate requiring F.2d 742-743 thus Bor- profitable engage acumen” den to pricing, includes shrewdness umbrella or pric- price competition, pricing ing protect which above is above cost competitors.2 cost; average variable the Sherman Act not ground Commission did its decision on distinguish competition any on the pricing does not ba- below cost improper or use of price performance). monopoly sis of and of profits.3 forcing Borden’s analysis adopted Act,” 2. The Commission of Pro- of the Sherman 88 Harv.L.Rev. 697 Scherer, fessor who it hard to avoid (1975) “find[s] . Professor Posner would instead find a temporary price judgment cutting value monopo- violation of the Sherman Act when a only by producers handicapped eliminate an average Posner, list sells below total cost. An- socially image inferior brand is undesirable.” Perspective titrust Law: An Economic Scherer, “Predatory Pricing and the Sherman (1976) expressly . The FTC refused decide Comment,” Act: A 89 Harv.L.Rev. correctly whether Posner or Areeda/Turner Transfer Trade Binder] [1976-1979 pricing practices defined those that constitute 21,509. Reg. (CCH) Rep. at This is indeed a monopolization. [1976-1979 Transfer Binder] judgment, nothing value and it has to do with Reg. Rep. (CCH) 21,506 Trade n.29. This is monopoly power” the “use of that section 2 understandable since the Commission was con- agree disagree reaches. Whether I with manipulation premium, price cerned with of a judgment, Professor Scherer’s value it has no pricing. not below cost place Despite general assump- here. a rather Absent a decision the Commission that contrary, tion to 2 of the section Sherman pricing average below total cost violates sec- Act is not a license for the courts or the FTC to Act, among competing tion of the Sherman the fact that choose economic theories of might engaged good impose pricing the social and to their own have ideas such has no policy. except, of wise economic That is the task of relevance case to this as the Commis- Congress, arguably acting it, as a prices FTC rule sion used show that Borden’s were broad, maker under FTC Act. While judicial low. This Court cannot take notice monopolization definition of in section 2 is not that Posner’s and not some other economic quite that broad. theory correctly defines the use of fact, power. majority expressly refuses “apparently” 3. The did note that Borden Thus, finding. to make such a the existence of prices made some sales ReaLemon at average sup- below total cost does not costs, average agree- were below its ing total after port majority’s decision. price ALJ that Borden did not parenthetically The Commission also stated average ReaLemon below variable cost. price part that Borden subsidized its cuts in Reg. Rep. Transfer Trade [1976-1979 Binder] monopoly pricing with continued elsewhere. (CCH) 21,507. Professors Areeda and Turn- 21,508. Id. at This statement made was as an monopolist prod- er would find a during aside the Commission’s discussion of average guilty ucts monopolization. not above variable cost manipulation premium. of its Turner, “Predatory Areeda & only The statement would if be true Posner’s Pricing and Related Practices Under Section 2 certainly to sell at a loss was competitors mark was lawfully acquired by Borden and only if not the basis for the paramount protected by is federal law. 15 U.S.C. decision, and it is the basis Commission’s 1114. Manipulation pref- of a consumer gives for its decision that the Commission erence is not a monopoly power use of un- appeal. we must review on & Securities preference less the created somehow Corp., Exchange Chenery Comm’n v. monopoly position 87-88, 87 L.Ed. finding But, there no such here. see 626 (1943); majority op. at 506-507. Accord Scherer, “The Posnerian Separat- Harvest: ingly, any discussion of below cost sales or ing Chaff,” Wheat 86 Yale L.J. monopoly profits to subsidize low use (1977).4 It is a not violation of the place has no our review of the antitrust laws for monopolist a to take ad- case. vantage preference of a consumer the merits of the decision the FTC did On expense of competitors.5 make, majority neither nor the FTC majority may The reasoning be explain why monopolist may ever not use lawful conduct forbidden section 2 of the preference competitive consumer to its ad- Act beyond Sherman extends a monopolist’s vantage monopoly or how this is a use of unreasonable use of monopoly power to in- asserts, power. majority simply The as did clude the any use of power. The Commission, manipulation that Borden’s majority opinion is a little ambiguous on price premium competition. of its harmed point. this If this is the basis of its deci- However, it monopoly power, is the use of sion, I think the majority errs in extending just competition not an effect on or compet- the Sherman Act to otherwise lawful activity by itive a monopolist, that section 2 use of market power that is not monopoly prohibits. However, power. even under this broader price premium The did not exist because test, there nothing is unreasonable about a monopoly. nothing It was more than monopolist’s using image advantage to evidence of a preference consumer for its benefit. preference ReaLemon. was created in part by the ReaLemon trademark Because I think the wrong FTC was to part by successful advertising. premise The trade- a violation of section 2 on Borden’s predatory pricing adopted. definition of were is not forbidden section 2 of the Since the Commission did not decide that Pos- Sherman Act. correctly ner defined that constitutes a monopoly power support use of there is no disapproved prefer 5. The of the consumer its statement that Borden used its ence for ReaLemon because it resulted from a profits fight against compеti- to subsidize the “spurious” product based on the differentiation tion. The Commission’s offhand statement strength of the ReaLemon trademark. [1976— finding monopoliza- cannot basis for a Reg. Rep. (CCH) 1979 Transfer Trade Binder] tion. 21,509-21,510. The FTC concluded that there was no rational reason for consumers to majority approval 4. The cites with Joskow and pay premium for the ReaLemon brand name Klevorick, Analyzing “A Framework for Preda- chemically indistinguisha since the tory Policy,” 89 Yale L.J. 213 Like ble from other brands of reconstituted Scherer, Professor these commentators would 21,508, 21,510. strongly Id. at I disa subject competitive use of an irrational gree. primary function of a brand name is price premium scrutiny under section 2. provide quality. consumers an assurance of Scherer, Again, like Professor their reasons for quite pay It is rational for consumers extra doing solely so focus on the effect of such a . for ReaLemon to minimize their risk of receiv preference competition. brand As set out ing goods. any proof inferior Should below, n.5, I do not believe that it is the func- necessary provides is rational be this case pref- tion of the FTC decide which consumer prime example. principal competitor erences “rational” and which “irrational.” complaining party and the before the Commis However, the fatal I flaw see Joskow sion was Golden Crown. The ALJ found and analysis ignores Klevorick’s is that it the com- appears agree the Commission that Golden plete legitimacy preference of a brand created 21,- product. Crown sold an adulterated Id. at by advertising by being first in the market. 501 n.16. acumen,” This is “business and its use to affect price premium, I would manipulation of its affirm its decision. I remand

not would for the FTC to decide whether Bor-

instead monopoly profits

den did use from some competition in other

markets to subsidize

markets. Quincy Wright,

Norman pro se. WRIGHT, Quincy Norman Leech, Jr., William M. Atty. Gen. of Ten- Plaintiff-Appellant, nessee, Nashville, Tenn., for defendants-ap- pellees. Gentry CROWELL, al., et KEITH, Before LIVELY and Circuit Defendants-Appellees. Judges, PECK, Senior Circuit Judge. No. 81-5011. PER CURIAM.. United States Court of Appeals, rights This is a civil action brought Circuit. Sixth pursuant to 42 U.S.C. 1983 in which a Submitted Briefs March 1982. prisoner Tennessee sought State damages Decided March from the Secretary of State of Tennessee

and various election commissioners on the ground that deprived he had been of his right to vote. The district court dismissed ground action on the that his constitu tional claims had become moot reason of a consent order entered in another district. On a motion to reconsider the district court plaintiff found that the had made no effort 6,1980 May to vote in the primary, that his original complaint referred to the Novem general ber 1980 ‍‌‌‌‌‌‌​‌​‌​​‌‌​​‌‌‌​‌‌​‌‌‌​‌​‌‌‌‌‌‌​‌​‌​​​‌​​​‌​‍election which was covered by the consent previously to, order referred and denied the motion for reconsideration. appeal On plaintiff contends that his action was not rendered moot the con- sent decree and that his right constitutional May to vote in the 6th primary infring- Though ed. proceeded pro he has se from beginning action, of this appeals he also from the order of the district denying court his motion for attorney fees.

Upon consideration of the record on appeal and the briefs of parties court concludes that the district court did denying plaintiff’s not err in claim for

Case Details

Case Name: Borden, Inc. v. Federal Trade Commission

Court Name: Court of Appeals for the Sixth Circuit

Date Published: Apr 12, 1982

Citation: 674 F.2d 498

Docket Number: 79-3028

Court Abbreviation: 6th Cir.