FEDERAL TRADE COMMISSION v. FRED MEYER, INC., ET AL.
No. 27
SUPREME COURT OF THE UNITED STATES
Argued November 6, 1967. — Decided March 18, 1968.
390 U.S. 341
Edward F. Howrey argued the cause for respondents. With him on the brief were Terrence C. Sheehy and George W. Mead.
Morris B. Abram filed a brief for the Atlantic Coast Independent Distributors Association, Inc., as amicus curiae, urging reversal.
Gilbert H. Weil filed a brief for Clairol Incorporated, as amicus curiae, urging affirmance.
MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.
The Federal Trade Commission, after extensive proceedings, ruled that respondents, the corporate owner of a chain of supermarkets and two of its officers, had unlawfully induced certain suppliers to engage in discriminatory pricing and sales promotional activities prohibited by §§ 2 (a) and 2 (d) of the Clayton Act, as amended
I.
Section 2 (d) makes it unlawful for a supplier in interstate commerce to grant advertising or other sales promotional allowances to one “customer” who resells the supplier‘s “products or commodities” unless the allowances are “available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.”2 Although we have limited our review of this case to one aspect of the alleged § 2 (d)
Respondent Fred Meyer, Inc., operates a chain of 13 supermarkets in the Portland, Oregon, area which engage in the retail sale of groceries, drugs, variety items, and a limited line of clothing. In 1957 Meyer‘s sales exceeded $40,000,000. According to its 1960 prospectus, it made one-fourth of the retail food sales in the Portland area and was the second largest seller of all goods in that area. Since 1936 Meyer has conducted annually a four-week promotional campaign in its stores based on the distribution of coupon books to consumers. The books usually contain 72 pages, each page featuring a single product being sold by Meyer at a reduced price. The consumer buys the book for the nominal sum of 10¢ and must surrender the appropriate coupon when making his purchase of goods. A coupon often represents a reduc-
The Commission concluded that this promotional scheme, as conducted in the years 1956 through 1958, violated §§ 2 (d) and 2 (a) in the following respects: First, the $350 paid to Meyer by each of four suppliers participating in the campaigns represented promotional allowances paid in violation of § 2 (d) because similar allowances were not made available on proportionally equal terms to competing customers. Second, the additional value given Meyer by these suppliers in the form of discounts, free replacements of goods sold and coupon redemptions amounted to price discrimination prohibited by § 2 (a).5 The Commission held that by inducing the suppliers to discriminate in price, respondents had vio-
Both before the Commission and in the Court of Appeals, respondents argued that it was not established that two participating suppliers, Tri-Valley Packing Association and Idaho Canning Company, had violated § 2 (d). Meyer purchased directly from both of these suppliers. Tri-Valley participated in the 1957 promotion by paying Meyer $350 for a coupon-page featuring Tri-Valley‘s brand of canned peaches and by replacing in merchandise every third can sold by Meyer on the coupon‘s offer of three cans for the price of two. Idaho Canning participated in the 1957 promotion on substantially identical terms, except that the coupon-page it purchased offered three cans of corn for the price of two. The Commission found that two wholesalers, Hudson House and Wadhams & Co., both of which resold to Meyer‘s retail competitors, had been disfavored in these transactions in that Hudson House had purchased canned peaches from Tri-Valley and both Hudson House and Wadhams had purchased canned corn from Idaho Can-
The Commission rejected this reading of § 2 (d), noting that, if respondents’ view prevailed, a retailer buying from a wholesaler and having no direct dealings with his supplier would receive no protection against discriminatory promotional allowances given his competitor who purchased directly from the supplier. The Commission held that § 2 (d) prohibits a supplier from granting promotional allowances to a direct-buying retailer, such as Meyer, unless the allowances are also made available to wholesalers who purchase from the supplier and resell to the direct-buying retailer‘s competitors. Accordingly, the Commission‘s cease-and-desist order included a provision barring respondents from inducing suppliers to grant them promotional allowances not available to “customers who resell to purchasers who compete with respondents in the resale of such supplier‘s products.” 63 F. T. C., at —. One Commissioner, while agreeing with the majority that respondents had induced Tri-Valley and Idaho Canning to violate § 2 (d), dissented in part on the ground that the order should have required the promotional allowances to be made available to the retailers competing with Meyer rather than to
We agree with the Commission that the proscription of § 2 (d) reaches the kind of discriminatory promotional allowances granted Meyer by Tri-Valley and Idaho Canning. Therefore, we reverse the judgment of the Court of Appeals on this point. However, because we have concluded that Meyer‘s retail competitors, rather than the two wholesalers, were competing customers under the statute, we also remand the case for appropriate modification of the Commission‘s order. We deal first with respondents’ arguments, second with the opinion of the Court of Appeals, and third with the Commission‘s order.
II.
Respondents press upon us a view of § 2 (d) which leaves retailers who buy from wholesalers for the most part unprotected from discriminatory promotional allowances granted their direct-buying competitors. We are told that § 2 (d) in specific terms requires this result. To benefit from the statute‘s requirement of proportional equality, it is urged, a buyer must be a “competing customer” within the narrowest sense of that phrase. Thus, the wholesalers in this case are not competing customers because they do not compete with Meyer, and the retailers who do compete with Meyer in the resale of the suppliers’ products are outside the protection of § 2 (d) because they are not customers of the suppliers. For reasons stated below, we agree with respondents that, on
Conceding that the Robinson-Patman amendments by no means represent an exemplar of legislative clarity,10 we cannot, in the absence of an unmistakable directive, construe the Act in a manner which runs counter to the broad goals which Congress intended it to effectuate. See, e. g., FTC v. Sun Oil Co., 371 U. S. 505, 516-521 (1963); Elizabeth Arden Sales Corp. v. Gus Blass Co., 150 F. 2d 988, 991–993 (C. A. 8th Cir.), cert. denied, 326 U. S. 773 (1945). We start with the proposition that “[t]he Robinson-Patman Act was enacted in 1936 to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power.” FTC v. Henry Broch & Co., 363 U. S. 166, 168 (1960). The role within the statutory scheme which Congress intended for § 2 (d) is well documented in the legislative history. An investigation of chain store buying practices undertaken by the Federal Trade Commission, at Congress’ request,11 had
“Still another favored medium for the granting of oppressive discriminations is found in the practice of large buyer customers to demand, and of their sellers to grant, special allowances in purported payment of advertising and other sales promotional services, which the customer agrees to render with reference to the seller‘s products, or sometimes with reference to his business generally. Such an allowance becomes unjust when the service is not rendered as agreed and paid for, or when, if rendered, the payment is grossly in excess of its value, or when in any case the customer is deriving from it equal benefit to his own business and is thus enabled to shift to his vendor substantial portions of his own advertising cost, while his smaller competitor, unable to command such allowances, cannot do so.”18
Of course, neither the Committee Report nor other parts of the legislative history in so many words define “customer” to include retailers who purchase through wholesalers and compete with direct buyers in resales. But a narrower reading of § 2 (d) would lead to the following anomalous result. On the one hand, direct-buying retailers like Meyer, who resell large quantities of their suppliers’ products and therefore find it feasible to undertake the traditional wholesaling functions for themselves, would be protected by the provision from the granting of discriminatory promotional allowances to their direct-buying competitors. On the other hand, smaller retailers whose only access to suppliers is through independent wholesalers would not be entitled to this protection. Such a result would be diametrically opposed to Congress’ clearly stated intent to improve the competitive position of small retailers by eliminating what was regarded as an abusive form of discrimination. If we were to read “customer” as excluding retailers who buy through wholesalers and compete with direct buyers, we would frustrate the purpose of § 2 (d). We effectuate it by holding that the section includes such competing retailers within the protected class.
III.
The Commission did not press in the Court of Appeals the position of one Commissioner that retailers who purchased through Hudson House and Wadhams and competed with Meyer in resales were customers of Tri-Valley and Idaho Canning. Consequently, that court gave almost no consideration to the construction of § 2 (d) which we hold to be the proper one. Citing its prior
IV.
The Commission‘s view of the impact of respondents’ argument in no way conflicts with our own. In rejecting respondents’ construction of § 2 (d), the Commission observed:
“The net result of this argument is that the entire structure of ‘independent’ food merchants—including the traditional wholesaler and his numerous, small retailer-customers—are placed completely outside
the pale of Section 2 (d) of the amended Clayton Act insofar as their competition with the direct-buying ‘chains’ is concerned. “We are not persuaded that Congress either intended or effected any such result when it passed Section 2 (d). In the first place, such a construction goes squarely against the well-known purposes of the Act itself, namely, to give the ‘independent’ food sellers an even break in their competition with the ‘chains.‘”20
But rather than concluding, as we have, that retailers who purchased through Hudson House and Wadhams and competed with Meyer in resales were disfavored customers of Tri-Valley and Idaho Canning, a majority of the Commission held that the wholesalers, Hudson House and Wadhams, were the customers entitled to promotional allowances on proportionally equal terms with Meyer. Although we approach the Commission‘s ruling with the deference due the agency charged with day-to-day administration of the Act, we hold that, at least on the facts before us, § 2 (d) does not require proportional equality between Meyer and the two wholesalers.
The Commission believed it found support for its position in the language of § 2 (d) itself, which requires that promotional allowances be accorded on proportionally equal terms to “customers competing in the distribution” of a supplier‘s product, rather than merely to customers competing in resales. The majority reasoned that Hudson House and Wadhams, when they resold to Meyer‘s retail competitors, were competing with Meyer in the distribution of Tri-Valley and Idaho Canning products because the two wholesalers were “seeking exactly the same consumer dollars that respond-
“To illustrate: Where, as was revealed in the hearings earlier referred to in this report, a manufacturer grants a particular chain distributor an advertising allowance of a stated amount per month per store in which the former‘s goods are sold, a competing customer with a smaller number of stores, but equally able to furnish the same service per store, and under conditions of the same value to the seller, would be entitled to a similar allowance on that basis.”21
This illustration and others which could be cited are not conclusive, but they do strongly suggest that the competition with which Congress was concerned in § 2 (d) was that between buyers who competed in resales of the supplier‘s products. And, as stated above, Congress’ objective was to assure that all sellers, regardless of size, competing directly for the same customers would receive even-handed treatment from their suppliers.22 We noted in FTC v. Sun Oil Co., 371 U. S. 505 (1963), that when Congress wished to expand the meaning of competition to include more than resellers
“There is no reason appearing on the face of the statute to assume that Congress intended to invoke by omission in § 2 (b) the same broad meaning of competition or competitor which it explicitly provided by inclusion in § 2 (a); the reasonable inference is quite the contrary.”23
In the present case, too, we think “the reasonable inference” is that Congress did not intend such a broad meaning of competition in § 2 (d). We recognize that it would be both inappropriate and unwise to attempt to formulate an all-embracing rule applying the elusive language of the section to every system of distribution a supplier might devise for getting his product to the consumer. But, on the concrete facts here presented, it is clear that the direct impact of Meyer‘s receiving discriminatory promotional allowances is felt by the disfavored retailers with whom Meyer competes in resales. We cannot assume without a clear indication from Congress that § 2 (d) was intended to compel the supplier to pay the allowances to a reseller further up the distributive chain who might or might not pass them on to the level where the impact would be felt directly. We conclude that the most reasonable construction of § 2 (d) is one which places on the supplier the responsibility for making promotional allowances available to those resellers who compete directly with the favored buyer.
The judgment of the Court of Appeals, insofar as it held that the promotional allowances granted Meyer by Tri-Valley and Idaho Canning did not violate § 2 (d), is reversed. The case is remanded to the Court of Appeals with directions to remand to the Commission for further proceedings consistent with this opinion.
It is so ordered.
MR. JUSTICE MARSHALL took no part in the consideration or decision of this case.
MR. JUSTICE FORTAS, concurring.
I agree with the result in this case and I join the Court‘s opinion. The net of our decision, as I see it, is this. The statute permits a supplier to make payment to retailers for services and facilities only if such pay-
*We need not here consider refinements of the problem—e. g., the duty of the supplier to tailor his offer so that it is within the practical capability of all competing retailers; or negatively, to avoid making an offer which does not permit fair participation by all types of retailers of the product, as a practical matter.
MR. JUSTICE HARLAN, dissenting.
I dissent because I believe the time has come for a change in approach to Robinson-Patman Act cases that, as here, can only be decided by a judicial tour de force. No doubt, the broad purpose of the Act was to protect small sellers from the advantages their larger competitors can obtain through greater buying power. In implementing this purpose, however, the statute imposes a hodgepodge of confusing,1 inconsistent,2 and frequently
In this case, certain suppliers made promotional allowances to the company, a direct-buying retailer. The Act provides that if promotional allowances are made to one customer they must also be made, on a basis of proportional equality, to all other “customers competing in the distribution” of the supplier‘s product. The suppliers here involved did not make the promotional allowances given to the company available to certain retailers who compete with it but who buy not from the suppliers themselves but from wholesalers who in turn buy from the suppliers. The Court now holds, for the first time, 32 years after the passage of the Act, that although these disfavored retailers are not literally “customers” of the suppliers, the “broad goals” of the Act require them to be treated as if they were.
Furthermore, the failure of the Act to extend explicit protection in the present situation cannot be dismissed as mere legislative oversight. Compelling suppliers to make promotional allowances available to retailers with whom they do not deal is no simple matter. The supplier could deal through his wholesalers, imposing restrictions on them to guarantee that an “allowance” is actually passed through to retailers, only by running afoul of the Sherman Act.4 Nor would it simplify matters to make the allowances directly available to retailers: by hypothesis, the retailers in question are too small to make direct dealing efficient, and in any event the suppliers and retailers would constantly risk a Sherman Act charge, by the wholesaler in the middle, that they were conspiring in restraint of him.5
In addition, under the present circumstances the very idea of “proportional equality” is almost meaningless. The supplier is asked to offer “equal” promotional allow-
The supplier can, of course, resolutely refuse to enter into promotional programs, a course of action that would effectively avoid favoring large distributors. In doing so, however, he would be abandoning one significant form of competition with his fellow suppliers, and would risk the disfavor of retailers who might prevail on differently situated and less timorous competitive suppliers for assistance.
Congress, concerned as it was for small retailers, did not explicitly impose the particular restriction on suppliers announced today. Since, for all we know, the omission may have been deliberate in light of practical considerations, I prefer to take the statute as we find it. This course of action here and in similarly opaque cases might at least encourage the Congress to give this notoriously amorphous statute the thorough overhauling that has long been due.6 On this basis I consider that this case should go for the respondents.
Section 2 (d) of the Clayton Act, as amended by the Robinson-Patman Act, makes it unlawful for a supplier to grant to a customer a promotional allowance which is not available to “all other customers competing in the distribution of such products or commodities.” The Federal Trade Commission held that the respondent retailer had violated § 2 (d) by inducing certain of its direct suppliers to grant it promotional allowances which were not available to wholesalers who sold the suppliers’ products to retailers competing with the respondent.1 The Court of Appeals refused to enforce this part of the Commission‘s order on the ground that the wholesalers were not customers “competing” with the respondent. We granted certiorari limited to a single question:
“Whether a supplier‘s granting to a retailer who buys directly from it promotional allowances that are not made available to a wholesaler who resells to retailers competing with the direct-buying retailer violates Section 2 (d) of the Robinson-Patman Act.” 386 U. S. 907.
The Court today agrees with the Court of Appeals’ answer to this question and holds that wholesalers are not customers “competing” with the respondent. But the Court nevertheless goes on to hold that § 2 (d) was violated upon a theory not argued here by either party. The theory is that retailers who are in fact customers of independent wholesalers are somehow also “customers” of the suppliers of those wholesalers. The Commission has never suggested that this case should turn on any such construction of the term “customer.”2 Cf. SEC v. Chenery Corp., 318 U. S. 80.
Because the Court of Appeals was correct in rejecting the Commission‘s construction of § 2 (d), I would affirm its judgment. But, at the very least, the case should be remanded in order to give the respondent notice and an opportunity to defend against the novel construction of § 2 (d) under which the Court today finds the respondent to be a violator of the law. Due process requires no less. Cf. Cole v. Arkansas, 333 U. S. 196.