UNITED STATES v. BORDEN COMPANY ET AL.
No. 439
UNITED STATES SUPREME COURT
Argued April 24-25, 1962. -Decided June 25, 1962.
370 U.S. 460
Stuart S. Ball argued the cause for The Borden Company, appellee. With him on the briefs was H. Blair White.
John Paul Stevens argued the cause for Bowman Dairy Company, appellee. With him on the briefs was L. Edward Hart.
This is a direct appeal1 from a judgment dismissing the Government‘s Section 2 (a) Clayton Act2 suit in which it sought an injunction against the selling of fluid milk products by the appellees, The Borden Company and Bowman Dairy Company, at prices which discriminate between independently owned grocery stores and grocery store chains. The District Court in an unreported decision found the pricing plan of each dairy to be a prima facie violation of § 2 (a) but concluded that these discriminatory prices were legalized by the cost justification proviso of § 2 (a), which permits price differentials as long as they “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.” To review the Government‘s contention that the District Court had improperly permitted cost justifications based on the average cost of dealing with broad groups of customers unrelated in
By way of background, we first point out that the present appeal is merely a glimpse of protracted litigation between the parties which began in 1951 and which has not yet seen its end. The original complaint charged violations of §§ 1 and 2 of the
In view of our disposition, we need not relate the facts in detail. Both appellees are major distributors of fluid milk products in metropolitan Chicago. The sales of both dairies to retail stores during the period in question were handled under plans which gave most of their customers—the independently owned stores—percentage discounts off list price which increased with the volume of their purchases to a specified maximum while granting a few customers—the grocery store chains—a flat discount without reference to volume and substantially greater than the maximum discount available under the volume plan offered independent stores. These discounts were made effective through schedules which appeared to cover all stores; however, the schedules were modified by private letters to the grocery chains confirming their higher discounts.4 Although the two sets of discounts were never
To support their defense that the disparities in price between independents and chains were attributable to differences in the cost of dealing with the two types of
The Borden pricing system produced two classes of customers. The two chains, A & P and Jewel, with their combined total of 254 stores constituted one class. The 1,322 independent stores, grouped in four brackets based on the volume of their purchases, made up the other. Borden‘s cost justification was built on comparisons of its average cost per $100 of sales to the chains in relation to the average cost of similar sales to each of the four groups of independents. The costs considered were personnel (including routemen, clerical and sales employees), truck expenses, and losses on bad debts and returned milk. Various methods of cost allocation were utilized: Drivers’ time spent at each store was charged directly to that store; certain clerical expenses were allocated between the two general classes; costs not susceptible of either of the foregoing were charged to the various stores on a per stop, per store, or volume basis.
Bowman‘s cost justification was based on differences in volume and methods of delivery. It relied heavily upon a study of the cost per minute of its routemen‘s time. It determined that substantial portions of this time were devoted to three operations, none of which were ever performed for the 163 stores operated by its two major chain customers.5 These added work steps arose from the method of collection, i. e., cash on delivery and the delayed collections connected therewith, and the performance of “optional customer services.” The customer services, performed with varying frequency depending upon the circumstances, included “services that the driver may be requested to do, such as deliver the order inside, place the containers in a refrigerator, rearrange
On these facts, stated here in rather summary fashion, the trial court held that appellees had met the requirements of the proviso of § 2 (a) on the theory that the general cost differences between chain stores as a class and independents as a class justified the disparities in price reflected in appellees’ schedules. In so doing the trial court itself found “the studies . . . imperfect in
The burden, of course, was upon the appellees to prove that the illegal price discrimination, which the Government claimed and the trial court found present, was immunized by the cost justification proviso of § 2 (a). Such is the mandate of § 2 (b) as interpreted by this Court in Federal Trade Comm‘n v. Morton Salt Co., 334 U.S. 37, 44-45 (1948).8 There can be no doubt that the § 2 (a) proviso as amended by the Robinson-Patman Act contemplates, both in express wording and legislative history, a showing of actual cost differences resulting from the differing methods or quantities in which the commodities in question are sold or delivered.9 The only
Although the language of the proviso, with some support in the legislative history,10 is literally susceptible of a construction which would require any discrepancy in price between any two purchasers to be individually justified, the proviso has not been so construed by those charged with its enforcement. The Government candidly recognizes in its briefs filed in the instant case that “[a]s a matter of practical necessity . . . when a seller deals with a very large number of customers, he cannot be required to establish different cost-reflecting prices for each customer.” In this same vein, the practice of grouping customers for pricing purposes has long had the approval of the Federal Trade Commission.11 We ourselves have noted the “elusiveness of cost data” in a Robinson-Patman Act proceeding. Automatic Canteen Co. v. Federal Trade Comm‘n, 346 U.S. 61, 68 (1953). In short, to completely renounce class pricing as justified by class accounting would be to eliminate in practical effect the cost justification proviso as to sellers having a large number of purchasers, thereby preventing such sellers from passing on economies to their customers. It seems hardly necessary to say that such a result is at war with Congress’ language and purpose.
But this is not to say that price differentials can be justified on the basis of arbitrary classifications or even
In this regard we do not find the classifications submitted by the appellees to have been shown to be of sufficient homogeneity. Certainly, the cost factors considered were not necessarily encompassed within the manner in which a customer is owned. Turning first to Borden‘s justification, we note that it not only failed to show that the economies relied upon were isolated within the favored class but affirmatively revealed that members of the classes utilized were substantially unlike in the cost saving aspects considered. For instance, the favorable cost comparisons between the chains and the larger independents were for the greater part controlled by the higher average volume of the chain stores in comparison to the average volume of the 80-member class to which these independents were relegated. The District Court allowed this manner of justification because “most chain stores do purchase larger volumes of milk than do most independent stores.” However, such a grouping for cost justification purposes, composed as it is of some independents
Likewise the details of Bowman‘s cost study show a failure in classification. Only one additional point need be made. Its justification emphasized its costs for “optional customer service” and daily cash collection with the resulting “delay to collect.” As shown by its study these elements were crucial to Bowman‘s cost justification. In the study the experts charged all independents and no chain store with these costs. Yet, it was not shown that all independents received these services daily or even on some lesser basis. Bowman‘s studies indicated only that a large majority of independents took these services on a daily basis. Under such circumstances
The appellees argue in the alternative that their cost justifications can be sufficiently unscrambled to remove any taint the Court may find in them and still show a cost gap sufficient to justify the price disparity between the chains and any independent. This mass of underlying statistical data not considered by the trial court and now tied together by untried theories can best be evaluated on remand, and we therefore do not consider its sufficiency here.
In sum, the record here shows that price discriminations have been permitted on the basis of cost differences between broad customer groupings, apparently based on the nature of ownership but in any event not shown to be so homogeneous as to permit the joining together of these purchasers for cost allocations purposes. If this is the only justification for appellees’ pricing schemes, they are illegal. We do not believe that an appropriate decree would require the trial court continuously to “pass judgment on the pricing practices of these defendants.” As to the issuance of an injunction, however, the case is now
Reversed and remanded.
MR. JUSTICE FRANKFURTER took no part in the consideration or decision of this case.
MR. JUSTICE DOUGLAS, concurring.
This is not a case that involves problems of centralized purchasing by a large enterprise for all its constituent members, where the volume involved reduces the unit cost. We have here purchases by constituent members of chain stores of milk and milk products that will be sold at the particular store. The competitor is not a member of a competing chain or, if it is, the chain of which it is a part is a smaller one. The costs studies here involved have little, if any, relation to centralized management. They in the main pertain to two factors of cost. First, is the volume of sales of milk and milk products to the individual store and the method of payment. Second, the degree to which the store relieves the seller of milk and milk products from the costs of handling the product as it enters the store, of stacking or storing the products, and of returning the empty bottles or cartons.
The changes in the
“This limits the differences in cost which may justify price differentials strictly to those actual differences traceable to the particular buyer for and against whom the discrimination is granted, to the different methods of serving them, and to the different quantities in which they buy.
“But such differentials whether they arise in operating or overhead cost must, as is plainly stated in the phrase quoted above, be those resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered.
“This, in its plain meaning, permits differences in overhead where they can actually be shown as between the customers or classes of customers concerned, but it precludes differentials based on the imputation of overhead to particular customers, or the exemption of others from it, where such overhead represents facilities or activities inseparable from the seller‘s business as a whole and not attributable to the business of particular customers or of the particular customers concerned in the discrimination. It leaves open as a question of fact in each case whether the differences in cost urged in justification of a price differential—whether of operating or of overhead costs—is of one kind or the other. That is, whether or not it answers the above requirements as to differences resulting from differing methods or quantities in which such commodities are to such purchasers sold or delivered.” H. R. Rep. No. 2287, supra, p. 10. (Italics added.)
In the case of Bowman Dairy Co., as the Court points out, the company charged all independents for customer service rendered by Bowman‘s deliverymen whether the independents availed themselves of the service or not. Bowman also charged independents for the time and expense of daily cash collections and for the costs of delays in collecting. These items were charged to independents even though it was not shown that their system of payment was always in cash, rather than by central billings, the system used by the chains.
In the Borden case an independent who purchased substantially larger quantities than the average chain store could not qualify for the discount the chain store obtained. This resulted because the independents were treated as one class, the chain stores as another class. As in Bowman the independents who did not make cash payments were treated as if they did; and they were not given the advantage which the chain stores enjoyed by reason of centralized billing even though they were on a credit basis.
What was said in Champion Spark Plug Co., 50 F. T. C. 30, 43, is relevant here:
“Respondent‘s cost of doing business undoubtedly varied as among its different customers. All of its selling expenses were not applicable on a proportionately equal basis to sales to all of its customers. However, in the absence of a sound basis for determining the actual cost of selling to particular cus-
tomers, the sales to each customer must bear their proportionate share of the entire selling expense. A cost justification based on the difference between an estimated average cost of selling to one or two large customers and an average cost of selling to all other customers cannot be accepted as a defense to a charge of price discrimination.”
Where centralized purchasing for many stores takes place, the costs of dealing with the group as a class become relevant to the problem under
The case was argued as if the grant of discounts was a natural right and that the Act should be construed so as to make the granting of them easy. The Act reflects, however, a purpose to control practices that lead to monopoly and an impoverishment of our middle class. I would therefore read it in a way that preserves as much of our traditional free enterprise as possible. Free enterprise is not free when monopoly power is used to breed more monopoly. That is the case here unless store-by-store costs are used as the criteria for discounts. This case is thus kin to that in Moore v. Mead‘s Fine Bread Co., 348 U.S. 115, where the lush treasury of a chain was used to bring a local bakery to its knees. Here, as there, the chains obtain a “competitive advantage” not as a result “of their skills or efficiency” but as a consequence of other influences.* There price-cutting was
MR. JUSTICE HARLAN, dissenting.
The Court treats this case as if the District Court had introduced novel and disruptive principles into the law of “cost justification” under
Although I consider the respective cost studies much more adequate than the Court credits them with being, it is sufficient to say that, as I read the opinion below, the District Court judged their over-all adequacy in accordance with accepted principles of law in this field. The lower court indeed carefully refrained from giving unqualified approval to either set of cost studies, in substance merely holding (1) that the studies had been conscientiously prepared and prima facie appeared to justify generally the price discriminations arising from the appellees’ discount practices (and more particularly to justify those specifically relied on by the Government as “trial” samples); and (2) that, in light of the long-drawn-out history of this litigation, the appropriate disposition was to deny injunctive relief, allowing the Government to bring to the attention of the Federal Trade Commission any other specific price differentials which it believed not justifiable under these or other cost studies.
This seems to me an eminently sensible and fair disposition of this stale litigation which has now been in the courts for nearly 12 years. I can see no point whatever in this Court sending the case back to the District Court for what will presumably amount to a third trial, especially when it is apparent that drastic changes in the
Had what the record now reveals been fully appreciated at the time the Jurisdictional Statement was considered, a summary disposition of the case would have been called for.*
I would affirm.
Notes
| Average converted units per day: | Percent of discounts |
| 0-24 | 0 |
| 25-74 | 2 |
| 75-149 | 3 |
| 150 and over | 4 |
| Average converted points per day: | Percent of discounts |
| 0 to 10 | 3.0 to 3.4 |
| 10 to 20 | 3.4 to 3.8 |
| 20 to 30 | 3.8 to 4.2 |
| 30 to 40 | 4.2 to 4.6 |
| 40 to 50 | 4.6 to 5.0 |
| 50 to 60 | 5.0 to 5.2 |
| 60 to 70 | 5.2 to 5.4 |
| 70 to 80 | 5.4 to 5.6 |
| 80 to 90 | 5.6 to 5.8 |
| 90 to 100 | 5.8 to 6.0 |
| 100 to 110 | 6.0 to 6.2 |
| 110 to 120 | 6.2 to 6.4 |
| 120 to 130 | 6.4 to 6.6 |
| 130 to 140 | 6.6 to 6.8 |
| 140 to 150 | 6.8 to 7.0 |
| Average converted points per day: | Percent of discounts |
| 150 to 200 | 7.0 to 8.0 |
| Over 200 | 8.0 |