UTAH PIE CO. v. CONTINENTAL BAKING CO. ET AL.
No. 18
Supreme Court of the United States
Argued January 17, 1967. - Decided April 24, 1967.
386 U.S. 685
John H. Schafer argued the cause and filed a brief for Continental Baking Co., Peter W. Billings argued
MR. JUSTICE WHITE delivered the opinion of the Court.
This suit for treble damages and injunction under
Each of the respondents is a large company and each of them is a major factor in the frozen pie market in one or more regions of the country. Each entered the Salt Lake City frozen pie market before petitioner began freezing dessert pies. None of them had a plant in Utah. By the end of the period involved in this suit Pet had plants in Michigan, Pennsylvania, and California; Continental in Virginia, Iowa, and California; and Carnation in California. The Salt Lake City market was supplied
The “Utah” label was petitioner‘s proprietary brand. Beginning in 1960, it also sold pies of like grade and quality under the controlled label “Frost ‘N’ Flame” to Associated Grocers and in 1961 it began selling to American Food Stores under the “Mayfresh” label.5 It also, on a seasonal basis, sold pumpkin and mince frozen pies to Safeway under Sаfeway‘s own “Bel-air” label.
The major competitive weapon in the Utah market was price. The location of petitioner‘s plant gave it natural advantages in the Salt Lake City marketing area and it entered the market at a price below the then going prices for respondents’ comparable pies. For most of the period involved here its prices were the lowest in the Salt Lake City market. It was, however, challenged by each of the respondents at one time or another and for varying periods. There was ample evidence to show that each of the respondents contributed to what proved to be a deteriorating price structure over the period covered by this suit, and each of the respondents in the course of the ongoing price competition sold frozen pies in the Salt Lake market at prices lower than it sold pies of like grade and quality in other markets considerably closer to its plants. Utah Pie, which entered the market at a price of $4.15 per dozen at the beginning of the relevant period, was selling “Utah” and “Frost ‘N’ Flame” pies for $2.75 per dozen when the instant suit was filed some 44 months later.6 Pet, which was offering pies at $4.92 per dozen in February 1958, was offering
We deal first with petitioner‘s case against the Pet Milk Company. Pet entered the frozen pie business in 1955, acquired plants in Pennsylvania and California and undertook a large advertising campaign to market its “Pet-Ritz” brand of frozen pies. Pet‘s initial emphasis was on quality, but in the face of competition from regional and local companies and in an expanding market where price proved to be a crucial factor, Pet was forced to take steps to reduce the price of its pies to the ultimate сonsumer. These developments had consequences in the Salt Lake City market which are the substance of petitioner‘s case against Pet.
First, Pet successfully concluded an arrangement with Safeway, which is one of the three largest customers for frozen pies in the Salt Lake market, whereby it would sell frozen pies to Safeway under the latter‘s own “Bel-air” label at a price significantly lower than it was selling its comparable “Pet-Ritz” brand in the same Salt Lake market and elsewhere.8 The initial price on “Bel-air”
| 1961 | ||
|---|---|---|
| Company | Volume (in doz.) | Percent of Market |
| Carnation | 20,067 | 8.8 |
| Continental | 18,799.5 | 8.3 |
| Utah Pie | 102,690 | 45.3 |
| Pet | 66,786 | 29.4 |
| Others | 18,565.5 | 8.2 |
| Total | 226,908 | 100.0 |
Second, it introduced a 20-ounce economy pie under the “Swiss Miss” label and began selling the new pie in the Salt Lake market in August 1960 at prices ranging from $3.25 to $3.30 for the remainder of the period. This pie was at times sold at a lower price in the Salt Lake City market than it was sold in other markets.
Third, Pet became more competitive with respect to the prices for its “Pet-Ritz” proprietary label. For 18 of the relevant 44 months its offering price for Pet-Ritz pies was $4 per dozen or lower, and $3.70 or lower for six of these months. According to the Court of Appeals, in seven of the 44 months Pet‘s prices in Salt Lake were lower than prices charged in the California markets. This was true although selling in Salt Lake involved a 30- to 35-cent freight cost.
The Court of Appeals first concluded that Pet‘s price differential on sales to Safeway must be put aside in considering injury to competition because in its view of the evidence the differential had been completely cost justified and because Utah would not in any event have been able to enjoy the Safeway custom. Second, it concluded that the remaining discriminations on “Pet-Ritz” and “Swiss Miss” pies were an insufficient predicate on which the jury could have found a reasonably possible injury either to Utah Pie as a competitive force or to competition generally.
We disagree with the Court of Appeals in several respects. First, there was evidence from which the jury
Second, with respect to Pet‘s Safeway business, the burden of proving cost justification was on Pet9 and, in our view, reasonable men could have found that Pet‘s lower priced, “Bel-air” sales to Safeway were not cost justified in their entirety. Pet introduced cost data for 1961 indicating a cost saving on the Safeway business greater than the price advantage extended to that customer. These statistics were not particularized for the Salt Lake market, but assuming that they were adequate to justify the 1961 sales, they related to only 24% of the Safeway sales оver the relevant period. The evidence concerning the remaining 76% was at best incomplete and inferential. It was insufficient to take the
With respect to whether Utah would have enjoyed Safeway‘s business absent the Pet contract with Safeway, it seems clear that whatever the fact is in this regard, it is not determinative of the impact of that contract on competitors other than Utah and on competition generally. There were other companies seeking the Safeway business, including Continental and Carnation, whose pies may have been excluded from the Safeway shelves by what the jury could have found to be discriminatory sales to Safeway.11 What is more, Pet‘s evidence that Utah‘s unwillingness to install quality control equipment prevented Utah from enjoying Safeway‘s private label business is not the only evidence in the record relevant to that question. There was other evidence to the con-
Third, the Court of Appeals almost entirely ignored other evidence which provides material support for the jury‘s conclusion that Pet‘s behavior satisfied the statutory test regarding competitivе injury. This evidence bore on the issue of Pet‘s predatory intent to injure Utah Pie.12 As an initial matter, the jury could have con-
It seems clear to us that the jury heard adequate evidence from which it could have concluded that Pet had engaged in predatory tactics in waging competitive warfare in the Salt Lake City market. Coupled with the incidence of price discrimination attributable to Pet,
Court‘s statement in F. T. C. v. Anheuser-Busch, Inc., supra, at 552, that “a price reduction below cost tends to establish [predatory] intent.” See also Ben Hur Coal Co. v. Wells, 242 F. 2d 481, 486, and Balian Ice Cream Co. v. Arden Farms Co., supra, at 368, in which the courts recognized the inferential value of sales below cost on the issue of intent.
II.
Petitioner‘s case against Continental is not complicated. Continental was a substantial factor in the market in 1957. But its sales of frozen 22-ounce dessert pies, sold undеr the “Morton” brand, amounted to only 1.3% of the market in 1958, 2.9% in 1959, and 1.8% in 1960. Its problems were primarily that of cost and in turn that of price, the controlling factor in the market. In late 1960 it worked out a co-packing arrangement in California by which fruit would be processed directly from the trees into the finished pie without large intermediate packing, storing, and shipping expenses. Having improved its position, it attempted to increase its share of the Salt Lake City market by utilizing a local broker and offering short-term price concessions in varying amounts. Its efforts for seven months were not spectacularly successful. Then in June 1961, it took the steps which are the heart of petitioner‘s complaint against it. Effective for the last two weeks of June it offered its 22-ounce frozen apple pies in the Utah area at $2.85 per dozen. It was then selling the same pies at substantially higher prices in other markets. The Salt Lake City price was less than its direct cost plus an allocation for overhead. Utah‘s going price at the time for its 24-ounce “Frost ‘N’ Flame” apple pie sold to Associated Grocers was $3.10 per dozen, and for its “Utah” brand $3.40 per dozen. At its new prices, Continental sold pies to American Grocers in Pocatello, Idaho, and to American Food Stores in Ogden, Utah. Safeway, one of the major buyers in Salt Lake City, also purchased 6,250 dozen, its requirements for about five weeks. Another purchaser ordered 1,000 dozen. Utah‘s response wаs immediate. It reduced
We again differ with the Court of Appeals. Its opinion that Utah was not damaged as a competitive force apparently rested on the fact that Utah‘s sales volume continued to climb in 1961 and on the court‘s own factual conclusion that Utah was not deprived of any pie business which it otherwise might have had. But this retrospective assessment fails to note that Continental‘s discriminatory below-cost price caused Utah Pie to reduce its price to $2.75. The jury was entitled to consider the potential impact of Continental‘s price reduction absent any responsive price cut by Utah Pie. Price was, a major factor in the Salt Lake City market. Safeway, which had been buying Utah brand pies, immediately reacted and purchased a five-week supply of frоzen pies from Continental, thereby temporarily foreclosing the proprietary brands of Utah and other firms from the Salt Lake City Safeway market. The jury could rationally have concluded that had Utah not lowered its price, Continental, which repeated its offer once, would have continued it, that Safeway would have continued to buy from Continental and that other buyers, large as well as small, would have followed suit. It could also have reasonably concluded that a competitor who is forced to
Even if the impact on Utah Pie as а competitor was negligible, there remain the consequences to others in the market who had to compete not only with Continental‘s 22-ounce pie at $2.85 but with Utah‘s even lower price of $2.75 per dozen for both its proprietary and controlled labels. Petitioner and respondents were not the only sellers in the Salt Lake City market, although they did account for 91.8% of the sales in 1961. The evidence was that there were nine other sellers in 1960 who sold 23,473 dozen pies, 12.7% of the total market. In 1961 there were eight other sellers who sold less than the year before—18,565 dozen or 8.2% of the total—although the total market had expanded from 184,569 dozen to 226,908 dozen. We think there was sufficient evidence from which the jury could find a violatiоn of
III.
The Carnation Company entered the frozen dessert pie business in 1955 through the acquisition of “Mrs. Lee‘s Pies” which was then engaged in manufacturing and selling frozen pies in Utah and elsewhere under the “Simple Simon” label. Carnation also quickly found the market extremely sensitive to price. Carnation decided, however, not to enter an economy product in the market, and during the period covered by this suit it offered only its quality “Simple Simon” brand. Its primary method of meeting competition in its markets was to offer a variety of discounts and other reductions, and the technique was not unsuccessful. In 1958, for example, Carnation enjoyed 10.3% of the Salt Lake City market, and although its volume of pies sold in that market increased substantially in the next year, its percentage of the market temporarily slipped to 8.6%. However, 1960 was a turnaround year for Carnation in
We need not dwell long upon the case against Carnation, which in some respects is similar to that against Continental and in others more nearly resembles the case against Pet. After Carnation‘s temporary setback in 1959 it instituted a new pricing policy to regain business in the Salt Lake City market. The new policy involved a slash in price of 60¢ per dozen pies, which brought Carnation‘s price to a level admittedly well below its costs, and well below the other prices prevailing in the market. The impact of the move was felt immediately, and the two other major sellers in the market reduced their prices. Carnation‘s banner year, 1960, in the end involved eight months during which the prices in Salt Lake City were lower than prices charged in other markets. The trend continued during the eight months in 1961 that preceded the filing of the complaint in this case. In each of those months the Salt Lake City prices charged by Carnation were well below prices charged in other markets, and in all but August 1961 the Salt Lake City delivered price was 20¢ to 50¢ lower than the prices charged in distant San Francisco. The Court of Appeals held that only the early 1960 prices could be found to have been below cost. That holding, however, simply overlooks evidence from which the jury could have concluded that throughout 1961 Carnation maintained a below-cost price structure and that Carnation‘s discriminatory pricing, no less than that of Pet and Continental, had an important effect on the Salt Lake City market. We cannot say that the evidence precluded the jury from finding it reasonably possible that Carnation‘s conduct would injure competition.
competitor does not, however, fall into that category, and neither, when viewed in the context of the Robinson-Patmаn Act, do persistent sales below cost and radical price cuts themselves discriminatory. Nor does the fact that a local competitor has a major share of the market make him fair game for discriminatory price cutting free of Robinson-Patman Act proscriptions. “The Clayton Act proscription as to discrimination in price is not nullified merely because of a showing that the existing competition in a particular market had a major share of the sales of the product involved.” Maryland Baking Co., 52 F. T. C. 1679, 1689, aff‘d, 243 F. 2d 716. In that case the local competitor‘s share of the market when price discrimination began was 91.3%, yet the Federal Trade Commission was not impressed by the argument that the effect of the discrimination had bеen to terminate a monopoly and to create a competitive market.
It is so ordered.
THE CHIEF JUSTICE took no part in the decision of this case.
MR. JUSTICE STEWART, with whom MR. JUSTICE HARLAN joins, dissenting.
I would affirm the judgment, agreeing substantially with the reasoning of the Court of Appeals as expressed
a standard which compels affirmance of the Court of Apрeals’ holding. But the cases upon which the respondents rely are readily distinguishable. In Anheuser-Busch, Inc. v. F. T: C., 289 F. 2d 835, 839, there was no general decline in price structure attributable to the defendant‘s price discriminations, nor was there any evidence that the price discriminations were “a single lethal weapon aimed at a victim for a predatory purpose.” Id., at 842. In Borden Co. v. F. T. C., 339 F. 2d 953, the court reversed the Commission‘s decision on price discrimination in one market for want of sufficient interstate connection, and the Commission‘s charge regarding the other market failed to show any lasting impact upon prices caused by the single, isolated incident of price discrimination proved. Absence of proof that the alleged injury was due to challеnged price discriminations was determinative in International Milling Co., CCH Trade Reg. Rep. Transfer Binder, 1963-1965, ¶ 16,494, 16,648. In Uarco, Inc., CCH Trade Reg. Rep. Transfer Binder, 1963-1965, ¶ 16,807, there was no evidence from which predatory intent could be inferred and no evidence of a long-term market price decline. Similar failure of proof and absence of sales below cost were evident in Quaker Oats Co., CCH Trade Reg. Rep. Transfer Binder, 1963-1965, ¶ 17,134. Dean Milk Co., 3 Trade Reg. Rep. ¶ 17,357, is not to the contrary. There in the one market where the Commission found no primary line injury there was no evidence of a generally declining price structure.
There is only one issue in this case in its present posture: Whether the respondents engaged in priсe discrimination “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. . . .”1 Phrased more simply, did the respondents’ actions have the anticompetitive effect required by the statute as an element of a cause of action?
The Court‘s own description of the Salt Lake City frozen pie market from 1958 through 1961, shows that the answer to that question must be no.2 In 1958 Utah Pie had a quasi-monopolistic 66.5% of the market. In 1961—after the alleged predations of the respondents—Utah Pie still had a commаnding 45.3%, Pet had 29.4%, and the remainder of the market was divided almost equally between Continental, Carnation, and other, small local bakers. Unless we disregard the lessons so laboriously learned in scores of Sherman and Clayton Act cases, the 1961 situation has to be considered more competitive than that of 1958. Thus, if we assume that the price discrimination proven against the respondents had any effect on competition, that effect must have been beneficent.
That the Court has fallen into the error of reading the Robinson-Patman Act as protecting competitors, instead of competition, can be seen from its unsuccessful attempt to distinguish cases relied upon by the respondents.3 Those cases are said to be inapposite because they
The Court of Appeals squarely identified the fallacy which the Court today embraces:
“. . . a contention that Utah Pie was entitled to hold the extraordinary market share percentage of 66.5, attained in 1958, falls of its own dead weight. To approve such a contention would be to hold that Utah Pie was entitled to maintain a position which approached, if it did not in fact amount to a monopoly, and could not exist in the face of proper and healthy competition.” 349 F. 2d 122, 155.
I cannot hold that Utah Pie‘s monopolistic position was protected by the federal antitrust lаws from effective price competition, and I therefore respectfully dissent.
Notes
The portion of
See ante, p. 691, n. 7.
Respondent Continental by counterclaim charged petitioner with violation of
See ante, p. 703, n. 15.
The order allowing certiorari requested counsel to brief and discuss at oral argument, in addition to the questions presented by the petition, the following questions:
“1. Whether, if this Court affirms the judgment and order of the Court of Appeals directing the District Court to enter judgment for respondents, petitioner can then make a motion for new trial under Rule 50 (c) (2) of the Federal Rules of Civil Procedure within 10 days of the District Court‘s entry of judgment for respondents?
“2. Whether, if under the order of the Court of Appeals, petitioner cannot make a motion for new trial under Rule 50 (c) (2) within 10 days of the District Court‘s entry of judgment against him, the order of the Court of Appeals directing the District Court to enter judgment for respondents is compatible with Rule 50 (b) as interpreted by this Court in Cone v. West Virginia Pulp & Paper Co., 330 U. S. 212; Globe Liquor Co. v. San Roman, 332 U. S. 571; and Weade v. Dichmann, Wright & Pugh, 337 U. S. 801?
“3. Whether Rule 50 (d) of the Federal Rules of Civil Procedure provides the Court of Appeals with any authority to direct the entry of judgment for respondents?”
In the light of our disposition of this case, we need not reach these questions.
Beginning in February 1960 petitioner sold frozen pies to a Spokane, Washington, buyer under the “Sonny Boy” label.
The prices discussed herein refer to those charged for apple pies. The apple flavor has been used as the standard throughout this case, without objection from the parties, and we adhere to the practice here.
The Salt Lake City sales volumes and market shares of the parties to this suit as well as of other sellers during the period at issue were as follows:
| 1958 | ||
|---|---|---|
| Company | Volume (in doz.) | Percent of Market |
| Carnation | 5,863 | 10.3 |
| Continental | 754 | 1.3 |
| Utah Pie | 37,969.5 | 66.5 |
| Pet | 9,336.5 | 16.4 |
| Others | 3,137 | 5.5 |
| Total | 57,060 | 100.0 |
| 1959 | ||
|---|---|---|
| Company | Volume (in doz.) | Percent of Market |
| Carnation | 9,625 | 8.6 |
| Continental | 3,182 | 2.9 |
| Utah Pie | 38,372 | 34.3 |
| Pet | 39,639 | 35.5 |
| Others | 20,911 | 18.7 |
| Total | 111,729 | 100.0 |
| 1960 | ||
|---|---|---|
| Company | Volume (in doz.) | Percent of Market |
| Carnation | 22,371.5 | 12.1 |
| Continental | 3,350 | 1.8 |
| Utah Pie | 83,894 | 45.5 |
| Pet | 51,480 | 27.9 |
| Others | 23,473.5 | 12.7 |
| Total | 184,569 | 100.0 |
The Pet-Safeway contract, entered into on January 1, 1960, obligated the Safeway organization to purchase a minimum of 1,000,000 cases (six pies per case) from Pet during the year. The contract was orally renewed for one year and thereafter to the time of the trial the production of “Bel-air” pies by Pet for Safeway was continued without a formal contract. All of the volume of the Safeway purchases under the contract of course did not find its way to the Salt Lake City market.
The only evidence cited by the Court of Appeals to justify the remaining 76% of Pet‘s sales to Safeway was Safeway‘s established practice of requiring its sellers to cost justify sales that otherwise would be illegally discriminatory. This practice was incorporated in the Pet-Safeway contract. We are unprеpared to hold that a contractual obligation to cost justify price differentials is legally dispositive proof that such differentials are in fact so justified: Pet admitted that its cost-justification figures were drawn from past performance, so even crediting the data accompanying the 1960 contract regarding cost differences, Pet‘s additional evidence would bring under the justification umbrella only the 1959 sales. Thus, at the least, the jury was free to consider the 1960 Safeway sales as inadequately cost justified. Those sales accounted for 12.3% of the entire Salt Lake City market in that year. In the context of this case, the sales to Safeway are particularly relevant since there was evidence that private label sales influenced the general market, in this case depressing overall market prices.
The jury was in fact charged that it could find for petitioner if from respondents’ conduct “there is reasonably likely to be a substantial injury to competition among sellers of frozen pies in the Utah area.” R., at 1355. (Emphasis supplied.)
The dangers of predatory price discrimination were recognized in Moore v. Mead‘s Fine Bread Co., 348 U. S. 115, where such pricing was held violative of
Chief Justice Hughes noted in a related antitrust context that “knowledge of actual intent is an aid in the interpretation of facts and prediction of consequences.” Appalachian Coals, Inc. v. United States, 288 U. S. 344, 372, and we do not think it unreasonable for courts to follow that lead. Although the evidence in this regard against Pet seems obvious, a jury would be free to ascertain a seller‘s intent from surrounding economic circumstances, which would include persistent unprofitable sales below cost and drastic price cuts themselves discriminatory. See Rowe, Price Discrimination Under the Robinson-Patman Act 141-150 (1962), commenting on the
See n. 12, supra.
It might be argued that the respondents’ conduct displayed only fierce competitive instincts. Actual intent to injure another
Each respondent argues here that prior price discrimination cases in the courts and before the Federal Trade Commission, in which no primary line injury to competition was found, establish