TEXACO INC. v. HASBROUCK, DBA RICK‘S TEXACO, ET AL.
No. 87-2048
SUPREME COURT OF THE UNITED STATES
Argued December 5, 1989-Decided June 14, 1990
496 U.S. 543
Peter M. Fishbein argued the cause for petitioner. On the briefs were Milton J. Schubin, Joshua F. Greenberg, Michael Malina, Joseph P. Foley, and Wm. Fremming Nielsen.
Michael R. Dreeben argued the cause for the United States et al. as amici curiae urging reversal. With him on the briefs were Solicitor General Starr, Acting Assistant Attorney General Whalley, Deputy Solicitor General Merrill, Catherine G. O‘Sullivan, and Kevin J. Arquit.
Robert H. Whaley argued the cause for respondents. With him on the brief were John S. Ebel and Lucinda S. Whaley.*
*Briefs of amici curiae urging reversal were filed for the American Petroleum Institute et al. by Edwin M. Zimmerman, G. William Frick, Jan S. Amundson, and Quentin Riegel; for the Motor and Equipment Manufacturers Association by Lawrence F. Henneberger and Marc L. Fleischaker; for the Motor Vehicle Manufacturers Association of the United States, Inc., by Irving Scher and William H. Crabtree; for the National Association of Texaco Wholesalers by Gregg R. Potvin and William L. Taylor; for the National Association of Wholesaler-Distributors by Louis R. Marchese and Neil J. Kuenn; and for the Petroleum Marketers Association of America by Robert S. Bassman, Douglas B. Mitchell, and Alphonse M. Alfano.
Briefs of amici curiae urging affirmance were filed for the State of Connecticut et al. by Clarine Nardi Riddle, Acting Attorney General of Connecticut, and Robert M. Langer and William M. Rubenstein, Assistant Attorneys General, Don Siegelman, Attorney General of Alabama, Douglas B. Baily, Attorney General of Alaska, and Richard D. Monkman, Assistant Attorney General, John Steven Clark, Attorney General of Ar
Briefs of amici curiae were filed for Boise Cascade Corp. by Victor E. Grimm and Scott M. Mendel; and for the Society of Independent Gasoline Marketers of America et al. by William W. Scott and Christopher J. MacAvoy.
JUSTICE STEVENS delivered the opinion of the Court.
Petitioner (Texaco) sold gasoline directly to respondents and several other retailers in Spokane, Washington, at its retail tank wagon (RTW) prices while it granted substantial discounts to two distributors. During the period between 1972 and 1981, the stations supplied by the two distributors increased their sales volume dramatically, while respondents’ sales suffered a corresponding decline. Respondents filed an action against Texaco under the Robinson-Patman Act amendment to the Clayton Act (Act),
I
Given the jury‘s general verdict in favor of respondents, disputed questions of fact have been resolved in their favor. There seems, moreover, to be no serious doubt about the character of the market, Texaco‘s pricing practices, or the relative importance of Texaco‘s direct sales to retailers
Respondents are 12 independent Texaco retailers. They displayed the Texaco trademark, accepted Texaco credit cards, and bought their gasoline products directly from Texaco. Texaco delivered the gasoline to respondents’ stations.
The retail gasoline market in Spokane was highly competitive throughout the damages period, which ran from 1972 to 1981. Stations marketing the nationally advertised Texaco gasoline competed with other major brands as well as with stations featuring independent brands. Moreover, although discounted prices at a nearby Texaco station would have the most obvious impact on a respondent‘s trade, the cross-city traffic patterns and relatively small size of Spokane produced a citywide competitive market. See, e. g., App. 244, 283-291. Texaco‘s throughput sales in the Spokane market declined from a monthly volume of 569,269 gallons in 1970 to 389,557 gallons in 1975. Id., at 487-488. Texaco‘s independent retailers’ share of the market for Texaco gas declined from 76% to 49%.1 Ibid. Seven of the respondents’ stations were out of business by the end of 1978. Id., at 22-23, Record 501.
Respondents tried unsuccessfully to increase their ability to compete with lower priced stations. Some tried converting from full service to self-service stations. See, e. g., App. 55-56. Two of the respondents sought to buy their own tank trucks and haul their gasoline from Texaco‘s supply point, but Texaco vetoed that proposal. Id., at 38-41, 59.
The Dompier Oil Company (Dompier) started business in 1954 selling Quaker State Motor Oil. In 1960 it became a full line distributor of Texaco products, and by the mid-1970‘s its sales of gasoline represented over three-quarters of its business. Id., at 114-115. Dompier purchased Texaco gasoline at prices of 3.95¢ to 3.65¢ below the RTW price. Dompier thus paid a higher price than Gull, but Dompier, unlike Gull, resold its gas under the Texaco brand names. Id., at 24, 29-30. It supplied about 8 to 10 Spokane retail stations. In the period prior to October 1974, two of those stations were owned by the president of Dompier but the others were inde
Like Gull, Dompier picked up Texaco‘s product at the Texaco bulk plant and delivered directly to retail outlets. Unlike Gull, Dompier owned a bulk storage facility, but it was seldom used because its capacity was less than that of many retail stations. Again unlike Gull, Dompier received from Texaco the equivalent of the common carrier rate for delivering the gasoline product to the retail outlets. Thus, in addition to its discount from the RTW price, Dompier made a profit on its hauling function.3 Id., at 123-131, 186-192, 411-413.
The stations supplied by Dompier regularly sold at retail at lower prices than respondents‘. Even before Dompier directly entered the retail business in 1974, its customers were
There was ample evidence that Texaco executives were well aware of Dompier‘s dramatic growth and believed that it was attributable to “the magnitude of the distributor discount and the hauling allowance.”4 See also, e. g., id., at 213-223, 407-413. In response to complaints from individual respondents about Dompier‘s aggressive pricing, however, Texaco representatives professed that they “couldn‘t understand it.” Record 401-404.
II
Respondents filed suit against Texaco in July 1976. After a 4-week trial, the jury awarded damages measured by the difference between the RTW price and the price paid by Dompier. As we subsequently decided in J. Truett Payne Co. v. Chrysler Motors Corp., 451 U. S. 557 (1981), this measure of damages was improper. Accordingly, although it rejected Texaco‘s defenses on the issue of liability,5 the Court of Appeals for the Ninth Circuit remanded the case for
At the second trial, Texaco contended that the special prices to Gull and Dompier were justified by cost savings,6 were the product of a good-faith attempt to meet competition,7 and were lawful “functional discounts.” The District Court withheld the cost justification defense from the jury because it was not supported by the evidence and the jury rejected the other defenses. It awarded respondents actual damages of $449,900.8 The jury apparently credited the testimony of respondents’ expert witness who had estimated what the respondents’ profits would have been if they had paid the same prices as the four stations owned by Dompier. See 634 F. Supp. 34, 43 (ED Wash. 1985); 842 F. 2d, at 1043-1044.
In Texaco‘s motion for judgment notwithstanding the verdict, it claimed as a matter of law that its functional discounts did not adversely affect competition within the meaning of the Act because any injury to respondents was attributable to decisions made independently by Dompier. The District Court denied the motion. In an opinion supplementing its oral ruling denying Texaco‘s motion for a directed verdict, the Court assumed, arguendo, that Dompier was entitled to a
The Court of Appeals affirmed. It reasoned:
“As the Supreme Court long ago made clear, and recently reaffirmed, there may be a Robinson-Patman violation even if the favored and disfavored buyers do not compete, so long as the customers of the favored buyer compete with the disfavored buyer or its customers. Morton Salt, 334 U. S. at 43-44...; Perkins v. Standard Oil Co., 395 U. S. 642, 646-47... (1969); Falls City Indus., Inc. v. Vanco Beverages, Inc., 460 U. S. 428, 434-35... (1983). Despite the fact that Dompier and Gull, at least in their capacities as wholesalers, did not compete directly with Hasbrouck, a section 2(a) violation may occur if (1) the discount they received was not cost-based and (2) all or a portion of it was passed on by them to customers of theirs who competed with Hasbrouck. Morton Salt, 334 U. S. at 43-44...; Perkins v. Standard Oil, 395 U. S. at 648-49...; see 3 E. Kintner & J. Bauer, supra, § 22.14.
“Hasbrouck presented ample evidence to demonstrate that... the services performed by Gull and Dompier were insubstantial and did not justify the functional discount.” 842 F. 2d, at 1039.
The Court of Appeals concluded its analysis by observing:
“To hold that price discrimination between a wholesaler and a retailer could never violate the Robinson-Patman Act would leave immune from antitrust scrutiny a discriminatory pricing procedure that can effectively serve to harm competition. We think such a result would be contrary to the objectives of the Robinson-Patman Act.” Id., at 1040 (emphasis in original).
III
It is appropriate to begin our consideration of the legal status of functional discounts11 by examining the language of the Act. Section 2(a) provides in part:
“It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them....”
15 U. S. C. § 13(a) .
The Act contains no express reference to functional discounts.12 It does contain two affirmative defenses that provide protection for two categories of discounts-those that
In order to establish a violation of the Act, respondents had the burden of proving four facts: (1) that Texaco‘s sales to Gull and Dompier were made in interstate commerce; (2) that the gasoline sold to them was of the same grade and quality as that sold to respondents; (3) that Texaco discriminated in price as between Gull and Dompier on the one hand and respondents on the other; and (4) that the discrimination had a prohibited effect on competition.
The first two elements of respondents’ case are not disputed in this Court,14 and we do not understand Texaco to be challenging the sufficiency of respondents’ proof of damages. Texaco does argue, however, that although it charged different prices, it did not “discriminate in price” within the meaning of the Act, and that, at least to the extent that Gull and Dompier acted as wholesalers, the price differentials did not injure competition. We consider the two arguments separately.
IV
Texaco‘s first argument would create a blanket exemption for all functional discounts. Indeed, carried to its logical conclusion, it would exempt all price differentials except those given to competing purchasers. The primary basis for
“In its meaning as simple English, a discrimination is more than a mere difference. Underlying the meaning of the word is the idea that some relationship exists between the parties to the discrimination which entitles them to equal treatment, whereby the difference granted to one casts some burden or disadvantage upon the other. If the two are competing in the resale of the goods concerned, that relationship exists. Where, also, the price to one is so low as to involve a sacrifice of some part of the seller‘s necessary costs and profit as applied to that business, it leaves that deficit inevitably to be made up in higher prices to his other customers; and there, too, a relationship may exist upon which to base the charge of discrimination. But where no such relationship exists, where the goods are sold in different markets and the conditions affecting those markets set different price levels for them, the sale to different customers at those different prices would not constitute a discrimination within the meaning of this bill.” 80 Cong. Rec. 9416 (1936).
We have previously considered this excerpt from the legislative history and have refused to draw from it the conclusion which Texaco proposes. FTC v. Anheuser-Busch, Inc., 363 U. S. 536, 547-551 (1960). Although the excerpt does support Texaco‘s argument, we remain persuaded that the argument is foreclosed by the text of the Act itself. In the context of a statute that plainly reveals a concern with competitive consequences at different levels of distribution, and carefully defines specific affirmative defenses, it would be anomalous to assume that the Congress intended the term “discriminate” to have such a limited meaning. In Anheuser-Busch we rejected an argument identical to Texaco‘s in the context of a claim that a seller‘s price differential had injured
“The trouble with respondent‘s arguments is not that they are necessarily irrelevant in a § 2(a) proceeding, but that they are misdirected when the issue under consideration is solely whether there has been a price discrimination. We are convinced that, whatever may be said with respect to the rest of §§ 2(a) and 2(b)-and we say nothing here-there are no overtones of business buccaneering in the § 2(a) phrase ‘discriminate in price.’ Rather, a price discrimination within the meaning of that provision is merely a price difference.” Id., at 549.
After noting that this view was consistent with our precedents, we added:
“[T]he statute itself spells out the conditions which make a price difference illegal or legal, and we would derange this integrated statutory scheme were we to read other conditions into the law by means of the nondirective phrase, ‘discriminate in price.’ Not only would such action be contrary to what we conceive to be the meaning of the statute, but, perhaps because of this, it would be thoroughly undesirable. As one commentator has succinctly put it, ‘Inevitably every legal controversy over any price difference would shift from the detailed governing provisions - “injury,” cost justification, “meeting competition,” etc. - over into the “discrimination” concept for ad hoc resolution divorced from specifically pertinent statutory text.’ Rowe, Price Differen-
tials and Product Differentiation: The Issues Under the Robinson-Patman Act, 66 Yale L. J. 1, 38.” Id., at 550-551.
Since we have already decided that a price discrimination within the meaning of § 2(a) “is merely a price difference,” we must reject Texaco‘s first argument.
V
In FTC v. Morton Salt Co., 334 U. S. 37, 46-47 (1948), we held that an injury to competition may be inferred from evidence that some purchasers had to pay their supplier “substantially more for their goods than their competitors had to pay.” See also Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U. S. 428, 435-436 (1983). Texaco, supported by the United States and the Federal Trade Commission as amici curiae (the Government), argues that this presumption should not apply to differences between prices charged to wholesalers and those charged to retailers. Moreover, they argue that it would be inconsistent with fundamental antitrust policies to construe the Act as requiring a seller to control his customers’ resale prices. The seller should not be held liable for the independent pricing decisions of his customers. As the Government correctly notes, Brief for United States et. al. as Amici Curiae 21-22 (filed Aug. 3, 1989), this argument endorses the position advocated 35 years ago in the Report of the Attorney General‘s National Committee to Study the Antitrust Laws (1955).
After observing that suppliers ought not to be held liable for the independent pricing decisions of their buyers,16 and
that without functional discounts distributors might go uncompensated for services they performed,17 the Committee wrote:
“The Committee recommends, therefore, that suppliers granting functional discounts either to single-function or to integrated buyers should not be held responsible for any consequences of their customers’ pricing tactics. Price cutting at the resale level is not in fact, and should not be held in law, ‘the effect of’ a differential that merely accords due recognition and reimbursement for actual marketing functions. The price cutting of a customer who receives this type of differential results from his own independent decision to lower price and operate at a lower profit margin per unit. The legality or illegality of this price cutting must be judged by the usual legal tests. In any event, consequent injury or lack of injury should not be the supplier‘s legal concern.
“On the other hand, the law should tolerate no subterfuge. For instance, where a wholesaler-retailer buys only part of his goods as a wholesaler, he must not claim a functional discount on all. Only to the extent that a buyer actually performs certain functions, assuming all the risk, investment, and costs involved, should he le-
gally qualify for a functional discount. Hence a distributor should be eligible for a discount corresponding to any part of the function he actually performs on that part of the goods for which he performs it.” Id., at 208.
We generally agree with this description of the legal status of functional discounts. A supplier need not satisfy the rigorous requirements of the cost justification defense in order to prove that a particular functional discount is reasonable and accordingly did not cause any substantial lessening of competition between a wholesaler‘s customers and the supplier‘s direct customers.18 The record in this case, however, adequately supports the finding that Texaco violated the Act.
The hypothetical predicate for the Committee‘s entire discussion of functional discounts is a price differential “that merely accords due recognition and reimbursement for actual marketing functions.” Such a discount is not illegal. In this case, however, both the District Court and the Court of Appeals concluded that even without viewing the evidence in the light most favorable to respondents, there was no substantial evidence indicating that the discounts to Gull and Dompier constituted a reasonable reimbursement for the value to Texaco of their actual marketing functions. 842 F. 2d, at 1039; 634 F. Supp., at 37, 38. Indeed, Dompier was separately compensated for its hauling function, and neither Gull nor Dompier maintained any significant storage facilities.
Despite this extraordinary absence of evidence to connect the discount to any savings enjoyed by Texaco, Texaco contends that the decision of the Court of Appeals cannot be affirmed without departing “from established precedent, from practicality, and from Congressional intent.” Brief for Petitioner 14.19 This argument assumes that holding suppliers liable for a gratuitous functional discount is somehow a novel practice. That assumption is flawed.
As we have already observed, the “due recognition and reimbursement” concept endorsed in the Attorney General‘s
Committee‘s study would not countenance a functional discount completely untethered to either the supplier‘s savings or the wholesaler‘s costs. The longstanding principle that functional discounts provide no safe harbor from the Act is likewise evident from the practice of the Federal Trade Commission, which has, while permitting legitimate functional discounts, proceeded against those discounts which appeared to be subterfuges to avoid the Act‘s restrictions. See, e. g., In re Sherwin Williams Co., 36 F. T. C. 25, 70–71 (1943) (finding a violation of the Act by paint manufacturers who granted “functional or special discounts to some of their dealer-distributors on the purchases of such dealer-distributors which are resold by such dealer-distributors directly to the consumer through their retail departments or branch stores wholly owned by them“); In re Ruberoid Co., 46 F. T. C. 379, 386, ¶ 5 (1950) (liability appropriate when functional designations do not always indicate accurately “the functions actually performed by such purchasers“), aff‘d, 189 F. 2d 893 (CA2 1951), rev‘d on rehearing, 191 F. 2d 294, aff‘d, 343 U. S. 470 (1952).20 See also, e. g., In re Doubleday &We need not address the relative merits of Mueller and Doubleday in order to resolve the case before us. We do, however, reject the require
Cf. FLM Collision Parts, Inc. v. Ford Motor Co., 543 F. 2d 1019, 1027 (CA2 1976) (“We do not suggest or imply that, if a manufacturer grants a price discount or allowance to its wholesalers (whether or not labelled ‘incentive‘), which has the purpose or effect of defeating the objectives of the Act,
Most of these cases involved discounts made questionable because offered to “complex types of distributors” whose “functions became scrambled.” Doubleday & Co., 52 F. T. C., at 208. This fact is predictable: Manufacturers will more likely be able to effectuate tertiary line price discrimination through functional discounts to a secondary line buyer when
Indeed, far from constituting a novel basis for liability under the Act, the fact pattern here reflects conduct similar to that which gave rise to Perkins v. Standard Oil Co. of Cal., 395 U. S. 642 (1969). Perkins purchased gas from Standard, and was both a distributor and a retailer. He asserted that his retail business had been damaged through two violations of the Act by Standard: First, Standard had sold directly to its own retailers at a price below that charged to Perkins; and, second, Standard had sold to another distributor, Signal, which sold gas to Western Hyway, which in turn
We conclude that the commentators’ analysis, like the reasoning in Perkins and like the Federal Trade Commission‘s practice, renders implausible Texaco‘s contention that holding it liable here involves some departure from established understandings. Perhaps respondents’ case against Texaco
The evidence indicates, moreover, that Texaco affirmatively encouraged Dompier to expand its retail business and that Texaco was fully informed about the persistent and marketwide consequences of its own pricing policies. Indeed, its own executives recognized that the dramatic impact on the market was almost entirely attributable to the magnitude of the distributor discount and the hauling allowance. Yet at the same time that Texaco was encouraging Dompier to integrate downward, and supplying Dompier with a generous discount useful to such integration, Texaco was inhibiting upward integration by the respondents: Two of the respondents sought permission from Texaco to haul their own fuel using their own tank wagons, but Texaco refused. The special facts of this case thus make it peculiarly difficult for Texaco to claim that it is being held liable for the independent pricing decisions of Gull or Dompier.
VI
At the trial respondents introduced evidence describing the diversion of their customers to specific stations supplied by Dompier. Respondents’ expert testimony on damages also focused on the diversion of trade to specific Dompier-supplied stations. The expert testimony analyzed the entire
Even if we were to agree with Texaco that Dompier was not a retailer throughout the damages period, we could not accept Texaco‘s argument. Texaco‘s theory improperly blurs the distinction between the liability and the damages issues. The proof established that Texaco‘s lower prices to Gull and Dompier were discriminatory throughout the entire 9-year period; that at least Gull, and apparently Dompier as well, was selling at retail during that entire period; that the discounts substantially affected competition throughout the entire market; and that they injured each of the respondents. There is no doubt that respondents’ proof of a continuing violation of the Act throughout the 9-year period was sufficient. Proof of the specific amount of their damages was necessarily less precise. Even if some portion of some of respondents’ injuries may be attributable to the conduct of independent retailers, the expert testimony nevertheless provided a sufficient basis for an acceptable estimate of the amount of damages. We have held that a plaintiff may not recover damages merely by showing a violation of the Act; rather, the plaintiff must also “make some showing of actual injury attributable to something the antitrust laws were designed to prevent. Perkins v. Standard Oil Co., 395 U. S.
The judgment is affirmed.
It is so ordered.
JUSTICE WHITE, concurring in the result.
Texaco‘s first submission urging a blanket exemption for all functional discounts is rejected by the Court on the ground stated in FTC v. Anheuser-Busch, Inc., 363 U. S. 536, 550 (1960), that the “statute itself spells out the conditions which make a price difference illegal or legal, and we would derange
Thus, a Texaco retailer charged a higher price than a distributor who is given what the Court would call a legitimate discount is entirely foreclosed, even though he offers to prove, and could prove, that the distributor sells to his customers at a price lower than the plaintiff retailer pays Texaco and that those customers of the distributor undersell the plaintiff and have caused plaintiff‘s business to fail. This kind of injury to the Texaco retailer‘s ability to compete is squarely covered by the language of
The Attorney General‘s Committee noted the difficulty. Under the construction of the Act that the Federal Trade Commission (FTC or Commission) was then espousing and applying, see Standard Oil Co. v. FTC, 173 F. 2d 210 (CA7 1949), rev‘d on other grounds, 340 U. S. 231 (1951), the Committee said, “[a] supplier according functional discounts to a wholesaler and other middleman while at the same time marketing directly to retailers encounters serious legal risks.” Report of Attorney General‘s National Committee, at 206. The Committee clearly differed with the FTC and called for an authoritative construction of the Act that would accommodate “functional discounts to the broader purposes of the Act and of antitrust policy.” Id., at 208. At a later stage in the Standard Oil case, the FTC disavowed any purpose to eliminate legitimate functional pricing or to make sellers responsible for the pricing practices of its wholesalers. The reversal of its position, which the Court of Appeals for the Seventh Circuit had affirmed, was explained on the ground of “broader antitrust policies.” Reply Brief for Petitioner in FTC v. Standard Oil Co., O. T. 1957, No. 24, p. 32. The FTC also appears as an amicus in this case urging us to recognize and define legitimate functional discounts. Its brief, however, does not spell out the types of functional discounts that the Commission considers defensible. Nor does the FTC cite any case since the filing of its reply brief in 1957 in which it has purported to describe the contours of legitimate functional pricing. Furthermore, the FTC‘s argument apparently does not persuade the Court, for the Commission recommends reversal and remand, while the Court affirms the judgment.
This is obviously not such a case. This is a private action for treble damages, and the Court rules against the seller-discounter since under no definition of a legitimate functional discount do the discounts extended here qualify as a defense to a charge of price discrimination. We need do no more than the Court did in Perkins v. Standard Oil Co. of Cal., 395 U. S. 642 (1969). This the Court plainly recognizes, and it should stop there. Hence, I concur in the result.
JUSTICE SCALIA, with whom JUSTICE KENNEDY joins, concurring in the judgment.
I agree with the Court that none of the arguments pressed by petitioner for removing its conduct from the coverage of the Robinson-Patman Act is persuasive. I cannot, however, adopt the Court‘s reasoning, which seems to create an exemption for functional discounts that are “reasonable” even though prohibited by the text of the Act.
The Act provides:
“It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality . . . where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent
competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, That nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered.” 15 U. S. C. § 13(a) .
As the Court notes, ante, at 556, sales of like goods in interstate commerce violate this provision if three conditions are met: (1) the seller discriminates in price between purchasers, (2) the effect of such discrimination may be to injure competition between the victim and beneficiaries of the discrimination or their customers, and (3) the discrimination is not cost based. Petitioner makes three arguments, one related to each of these conditions. First, petitioner argues that a price differential between purchasers at different levels of distribution is not discrimination in price. As the Court correctly concludes, that cannot be so. As long ago as FTC v. Morton Salt Co., 334 U. S. 37 (1948), we held that the Act prohibits differentials in the prices offered to wholesalers and retailers. True, in Morton Salt the retailers were being favored over the wholesalers, the reverse of the situation here. But if that factor could make any difference, it would bear not upon whether price discrimination occurred, but upon whether it affected competition, the point I address next.
Second, petitioner argues that its practice of giving wholesalers Gull and Dompier discounts unavailable to retailer Hasbrouck could not have injured Hasbrouck‘s competition with retailers who purchased from Gull and Dompier. Any competitive advantage enjoyed by the competing retailers, petitioner asserts, was the product of independent decisions by Gull and Dompier to pass on the discounts to those retailers. This also is unpersuasive. The Act forbids price discrimination whose effect may be “to injure, destroy, or
Petitioner‘s third point relates to the third condition of liability (i. e., lack of a cost justification for the discrimination), but does not assert that such a justification is present here. Rather, joined by the United States as amicus curiae, petitioner argues at length that even if petitioner‘s discounts to Gull and Dompier cannot be shown to be cost based they should be exempted, because the “functional discount” is an efficient and legitimate commercial practice that is ordinarily cost based, though it is all but impossible to establish
The Court does not, however, provide that response, but accepts this last argument in somewhat modified form. Petitioner has violated the Act, it says, only because the discount it gave to Gull and Dompier was not a “reasonable reimbursement for the value to [petitioner] of their actual marketing functions.” Ante, at 562; see also ante, at 570. Relying on a mass of extratextual materials, the Court concludes that the Act permits such “reasonable” functional discounts even if the supplier cannot satisfy the “rigorous requirements of the cost justification defense.” Ante, at 561. I find this conclusion quite puzzling. The language of the Act is straightforward: Any price discrimination whose effect “may be substantially . . . to injure, destroy, or prevent competition” is prohibited, unless it is immunized by the “cost justification” defense, i. e., unless it “make[s] only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which [the] commodities are . . . sold or delivered.”
I suppose a functional discount can be “reasonable” (in the relevant sense of being unlikely to subvert the purposes of
To my mind, there is one plausible argument for the proposition that a functional basis for differential pricing ipso facto—cost justification or not—negates the probability of competitive injury, thus destroying an element of the plaintiff‘s prima facie case, see Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U. S. 428, 434 (1983): In a market that is really functionally divided, retailers are in competition with one another, not with wholesalers. That competition among retailers cannot be injured by the supplier‘s giving lower prices to wholesalers—because if the price differential is passed on, all retailers will simply purchase from wholesalers instead of from the supplier. Or, to put it differently, when the market is functionally divided all competing retailers have the opportunity of obtaining the same price from wholesalers, and the supplier‘s functional price discrimination alone does not cause any injury to competition. Therefore (the argument goes), if functional division of the market is established, it should be up to the complaining retailer to show that some special factor (e. g., an agreement between the supplier and the wholesaler that the latter will not sell to the former‘s retailer-customers) prevents this normal market
For the foregoing reasons, I concur in the judgment.
Notes
See also, e. g., In re Whiting, 26 F. T. C. 312, 316, ¶ 3 (1938) (functional classification of customers involved unlawful price discrimination because of functional overlap); In re Standard Oil Co., 41 F. T. C. 263 (1945), modified and aff‘d, 173 F. 2d 210, 217 (CA7 1949) (“The petitioner should be liable if it sells to a wholesaler it knows or ought to have known . . . is using or intends to use [the wholesaler‘s] price advantage to undersell the petitioner in its prices made to its retailers“), rev‘d and remanded on other grounds, 340 U. S. 231 (1951).
In the Standard Oil case, the FTC itself on remand dropped the part of its order prohibiting Standard Oil from giving functional discounts. See C. Edwards, Price Discrimination Law 309 (1959). The FTC‘s preremand theory in the Standard Oil case has of course been the subject of harsh criticism. See, e. g., Report of the Attorney General‘s National Committee to Study the Antitrust Laws, at 206. Much, if not all, of this criticism rests upon the view that, under the FTC‘s Standard Oil ruling, a “supplier is charged with legal responsibility for the middlemen‘s pricing tactics, and hence must control their resale prices lest they undercut him to the unlawful detriment of his directly purchasing retailers. Alternatively,
the seller may forego his operational freedom by matching his quotations to retailers with theirs.” Ibid. Nothing in our opinion today should be read to condone or approve such a result.
See also In re Mueller Co., 60 F. T. C. 120, 127–128 (1962) (refusing to make allowance for functional discounts in any way that would “add a defense to a prima facie violation of Section 2(a) which is not included in either Section 2(a) or Section 2(b)“), aff‘d, 323 F. 2d 44 (CA7 1963), cert. denied, 377 U. S. 923 (1964). The FTC in Mueller expressly disavowed dicta from Doubleday suggesting that functional discounts are per se legal if justified by the buyer‘s costs. Mueller held that the discounts were controlled instead by the reasoning propounded in General Foods, which refers to the value of the services to the supplier giving the discount. 60 F. T. C., at 127–128.
The Government‘s position in this case does not contradict this course of decision. The Government‘s amicus brief on Texaco‘s behalf criticizes the Court of Appeals opinion on the theory that it “would require a supplier to show that a functional discount is justified by the wholesaler‘s costs,” and that it imposed “liability for downstream competitive effects of legitimate functional discounts.” Brief for United States et al. as Amici Curiae 6 (filed Aug. 3, 1989). Cf. Boise Cascade Corp. v. FTC, 267 U. S. App. D. C. 124, 138–140, 837 F. 2d 1127, 1141–1143 (1988) (summarizing debate about relevance of buyer‘s costs to defense of functional discounts). If the Court of Appeals were indeed to have endorsed either of these rules, it would have departed perceptibly from the mainstream of the FTC‘s reading of the Act. We need not decide whether the Government‘s interpretation of the Court of Appeals opinion is correct, for we affirm its judgment for reasons that do not entail the principles criticized by the Government. Indeed, the Government itself opposed the petition for certiorari in this case on the ground that “we do not think that this case on its facts presents the broad issue that petitioner discusses (whether a supplier must show that its discounts to wholesalers relative to retailers are cost based).” Brief for United States as Amicus Curiae 12 (filed May 16, 1989).
The seller may be willing to accept any division of the price difference so long as some significant part is passed on to the distributor‘s customers. Although respondents here did not need to show any benefit to Texaco from the price discrimination scheme in order to establish a violation of the Act, one possibility is indicated by the brief filed amicus curiae by the Service Station Dealers of America (SSDA), an organization representing both stations supplied by independent jobbers and stations supplied directly by sellers. See Brief for SSDA as Amicus Curiae 1–2. SSDA suggests that an indirect price discount to competitors may be used to force directly supplied franchisees out of the market, and so to circumvent federal restrictions upon the termination of franchise agreements. See
One would expect that—absent a safe harbor rule making functional discounts a useful means to engage in otherwise unlawful price discrimination—excessive functional discounts of the sort in evidence here would be rare. As the Government correctly observes, “[t]his case appears to reflect rather anomalous behavior on the part of the supplier.” Brief for United States et al. as Amici Curiae 17, n. 15 (filed Aug. 3, 1989). See also Brief for United States as Amicus Curiae 15 (filed May 16, 1989) (“[M]arket forces should tend to discourage a supplier from offering independent wholesalers discounts that would allow them to undercut the supplier‘s own retail customers“).
Much of Perkins’ case parallels that of respondents. “There was evidence that Signal received a lower price from Standard than did Perkins, that this price advantage was passed on, at least in part, to Regal, and that Regal was thereby able to undercut Perkins’ price on gasoline. Furthermore there was evidence that Perkins repeatedly complained to Standard officials that the discriminatory price advantage given Signal was being passed down to Regal and evidence that Standard officials were aware that Perkins’ business was in danger of being destroyed by Standard‘s discriminatory practices. This evidence is sufficient to sustain the jury‘s award of damages under the Robinson-Patman Act.” 395 U. S., at 649.
We added: “Here Standard discriminated in price between Perkins and Signal, and there was evidence from which the jury could conclude that Perkins was harmed competitively when Signal‘s price advantage was passed on to Perkins’ retail competitor Regal. These facts are sufficient to give rise to recoverable damages under the Robinson-Patman Act.” Id., at 648.
In fact, the principle applied in Perkins—that we will not construe the Robinson-Patman Act in a way that “would allow price discriminators to avoid the sanctions of the Act by the simple expedient of adding an additional link to the distribution chain,” id., at 647—seems capable of governing this case as well. It might be possible to view Perkins as standing for a narrower proposition, either because Signal apparently exercised majority control over the intermediary, Western Hyway, and its retailer, Regal, see id., at 651 (MARSHALL, J., concurring in part and dissenting in part),
or because Standard did not assert that its price to Signal reflected a “functional discount.” However, as the Perkins dissent pointed out, ibid., the Perkins majority did not put any such limits on the principle it declared.
See, e. g., Celnicker & Seaman, Functional Discounts, Trade Discounts, Economic Price Discrimination and the Robinson-Patman Act, 1989 Utah L. Rev. 813, 857 (1989) (concluding that “[t]rade discounts often are manifestations of economic price discrimination. . . . If a trade discount violates the normal competitive disadvantage criteria used under the Act, no special devices should be employed to protect it“); Rill, 53 Antitrust L. J., at 940–941 (“Although it is entirely appropriate for the FTC and the courts to insist that some substantial services be performed in order for a buyer to earn a functional discount, a requirement of precise mathematical equivalency makes no sense“); 3 E. Kintner & J. Bauer, Federal Antitrust Law 318–320, and n. 305 (1983) (“Functional discounts are usually deemed lawful,” but this usual rule is subject to exception in cases, “arising in unusual circumstances,” when the seller‘s “discrimination caused” the tertiary line injury); Calvani, 17 B. C. Ind. & Com. L. Rev., at 549, and n. 26 (discounts to wholesalers are generally held not to injure competition, but this rule is subject to qualifications, and “[p]erhaps the most important caveat focuses on the situation where the seller sells to both resellers and consumers and the resellers pass on to their consumers all or part of the wholesaling functional discount“); C. Edwards, Price Discrimination Law 312–313 (1959) (“It is not surprising that from time to time the Commission has been unable to avoid finding injurious discrimination between direct and indirect customers nor to avoid corrective orders that sought to define the gap between prices at successive levels of distribution“); Kelley, Functional Discounts Under the Robinson-Patman Act, 40 Calif. L. Rev. 526, 556 (1952) (concluding that the “characterization of a price differential between two purchasers as a functional or trade discount accords it no cloak of immunity from the prohibitions of the Robinson-Patman Act“); Shniderman, 60 Harv. L. Rev., at 599–600 (Commission‘s approach to functional discounts “may have been influenced by the possibility of subtle price
discriminating techniques through the employment of wholesalers receiving more than ample discount differentials“).
Professor Edwards, among others, describes the status of functional discounts under the Robinson-Patman Act with clear dissatisfaction. He complains that “[t]he failure of the Congress to cope with the problem . . . has left the Commission an impossible job in this type of case.” Price Discrimination Law, at 313. He adds that the Commission‘s “occasional proceedings” have been attributed to the “Commission‘s wrong-headedness.” Id., at 312. Professor Edwards’ observations about the merits of the statute and about prosecutorial discretion are obviously irrelevant to our own inquiry. Unlike scholarly commentators, we have a duty to be faithful to congressional intent when interpreting statutes and are not free to consider whether, or how, the statute should be rewritten.
“In practice, the competitive effects requirement permits a supplier to quote different prices between different distributor classes—so long as those who are higher up (nearer the supplier) on the distribution ladder pay less than those who are further down (nearer the consumer).” F. Rowe, Price Discrimination Under the Robinson-Patman Act 174 (1962) (footnote omitted) (hereinafter Rowe); see also id., at 178.
Rowe, writing prior to this Court‘s Perkins decision, describes the exception, which he identifies with the Standard Oil cases, as “of dubious validity today.” Rowe 196. Rowe‘s analysis is flawed because he assumes that seller liability for tertiary line implications of wholesaler discounts must follow the logic of the Standard Oil complaint, and likewise assumes that this logic exposes to liability any seller who fails to monitor the resale prices of its wholesaler. Rowe 204. Indeed, Rowe‘s own discussion suggests one defect in his argument: Legitimate wholesaler discounts will usually be insulated from liability by an absence of evidence on the causation issue. Id., at 203–204. In any event, nothing in our opinion today endorses a theory of liability under the Robinson-Patman Act for functional discounts so broad as the theory Rowe draws from Standard Oil.
The parties do not raise, and we therefore need not address, the question whether the inference of injury to competition might also be negated by evidence that disfavored buyers could make purchases at a reasonable discount from favored buyers.
In J. Truett Payne, 451 U. S., at 565–566, we quoted with approval the following passage:
“[D]amage issues in these cases are rarely susceptible of the kind of concrete, detailed proof of injury which is available in other contexts. The Court has repeatedly held that in the absence of more precise proof, the factfinder may ‘conclude as a matter of just and reasonable inference from the proof of defendants’ wrongful acts and their tendency to injure plaintiffs’ business, and from the evidence of the decline in prices, profits and values, not shown to be attributable to other causes, that defendants’ wrongful acts had caused damage to the plaintiffs.’ Bigelow v. RKO Radio Pictures, Inc., [327 U. S.], at 264. See also Eastman Kodak Co. v. Southern Photo Materials Co., 273 U. S. 359, 377–379 (1927); Story Parchment Co. v. Paterson Parchment Paper Co., 282 U. S. 555, 561–566 (1931).” Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S., at 123–124.