TEXACO INC., PETITIONER V. RICKY HASBROUCK, D/B/A RICK'S TEXACO, ET
AL.

   No. 87-2048

   In the Supreme Court of the United States

   October Term, 1989

   On Writ of Certiorari to the United States Court of Appeals for the
Ninth Circuit

   Brief for the United States and the Federal Trade Commission as
Amici Curiae Supporting Petitioners

            TABLE OF CONTENTS
   Question Presented
   Interest of the United States and the Federal Trade Commission
   Statement
   Introduction and summary of argument
   Argument:
      The Robinson-Patman Act does not impose liability on a
      supplier for pricing disparities resulting from the decision
      of an independent firm to pass through a portion of a
      legitimate functional discount
      A. The regulation of functional discounts does not further
         Congress's intent to ensure equality of competitive
         opportunity to purchasers at the same functional
         level
      B. The requirement that functional discounts be "cost
         based" if an independent supplier passes them on to
         firms lower in the chain of distribution would present
         difficult compliance problems and would directly
         conflict with policies embodied in the antitrust laws
      C. Neither the legislative history of the Robinson-Patman
         Act nor the decisions of this Court support
         the significant limitations placed on functional discounts
         by the court of appeals
      D. The judgment in this case must be reversed because a
         portion of the damages award against petitioner may
         reflect injury from pricing practices that did not
         violate the Robinson-Patman Act
   Conclusion
   Appendix

                          QUESTION PRESENTED

   The United States will address the following question:

   Whether a supplier is liable under Section 2(a) of the
Robinson-Patman Act, 15 U.S.C. 13(a), if it gives a functional
discount to an independent wholesaler in excess of the wholesaler's
costs, and the wholesaler passes on a portion of that discount to
retailers, thereby undercutting the price that the supplier offers
directly to retailers.

   INTEREST OF THE UNITED STATES AND THE FEDERAL TRADE COMMISSION

   The Department of Justice and the Federal Trade Commission enforce
the federal antitrust laws.  The Federal Trade Commission has
developed much of the jurisprudence under the Robinson-Patman Act
through administrative enforcement proceedings.  This case presents
the question whether a supplier is liable under Section 2(a) of the
Robinson-Patman Act, 15 U.S.C. 13(a), if it gives a functional
discount to a wholesaler in excess of the wholesaler's costs, and the
wholesaler "passes on" a part of that discount to certain retailers,
thereby injuring other retailers who purchase directly from the
supplier.  Because this question implicates the procompetition
policies underlying the antitrust laws and the proper interpretation
of the Robinson-Patman Act, the government has a strong interest in
its correct resolution.  At the certiorari stage, the government filed
a brief in response to the Court's invitation to the Solicitor General
to express the views of the United States.

                               STATEMENT

   1. Petitioner Texaco Inc. sold gasoline and other petroleum
products in the Spokane, Washington area until 1981.  Respondents are
12 individuals (or their successors in interest) who, from 1972 to
1981, operated retail gasoline stations in Spokane that sold gasoline
under the Texaco brand name.  J.A. 19-20.

   Texaco sold gasoline directly to the respondents at a delivered
"retail tank wagon" (RTW) price.  It sold the same gasoline to at
least two other firms in Spokane -- the Dompier Oil Company and the
Gull Oil Company -- at a lower price, under distributor contracts
providing for a discount from the RTW price.  At some points during
the relevant period, both Dompier and Gull sold some gasoline to
retail stations neither owned nor controlled by them at prices that
were lower than the RTW price charged by Texaco to retailers.  The
prices paid by respondents and by the customers of Dompier and Gull
for gasoline were reflected in the pump prices charged to motorists.
Pet. App. A4-A5;  J.A. 27, 136-137, 149.

   2. a. In January 1976, respondents filed suit against Texaco in the
United States District Court for the Eastern District of Washington.
The complaint, as amended, alleged that Dompier and Gull competed with
respondents "in the resale of gasoline motor fuels" and that
petitioner's sale of gasoline to Dompier and Gull at lower prices than
those charged the respondents for gasoline of "like kind and quality"
tended to "substantially lessen competition" between the respondents
and Dompier, Gull, and the stations Dompier and Gull supplied, in
violation of Section 2(a) of the Robinson-Patman Anti-Discrimination
Act (Robinson-Patman Act), 15 U.S.C. 13(a).  C.A. E.R. 13-14.

   After a four week trial in late 1979, the jury rendered a verdict
in favor of each respondent on the Robinson-Patman Act claim and
awarded damages totalling $849,484.  Petitioner moved for judgment
notwithstanding the verdict challenging, inter alia, the court's
instructions on damages.  The district court granted the motion
because it concluded that the damages theory under which the case had
been submitted to the jury was no longer valid, and respondents
appealed.  While the appeal was pending, this Court addressed the same
damages issue in J. Truett Payne Co. v. Chrysler Motors Corp., 451
U.S. 557 (1981), and rejected the view that plaintiffs in a
Robinson-Patman Act case are entitled to "automatic damages" equal to
the amount of an illegal price discrimination.  Thereafter, the court
of appeals held that respondents were entitled to attempt to prove
damages under a theory consistent with J. Truett Payne, and it
remanded the case for a new trial on both liability and damages.
Hasbrouck v. Texaco, Inc., 663 F.2d 930 (9th Cir. 1981), cert. denied,
459 U.S. 828 (1982).

   b. The case was tried again in June 1985.  Petitioner stipulated
that it charged respondents a higher price for gasoline than it
charged Dompier or Gull.  See J.A. 29-31.  At trial, the evidence
showed that the stations owned or supplied by Dompier often posted
retail prices that were barely, if at all, higher than the wholesale
(RTW) price that petitioner charged respondents for their gasoline.
/1/ In addition, a number of respondents testified about complaints
they received from customers concerning the difference between their
retail prices and the prices charged by the stations owned or supplied
by Dompier.  /2/

   Respondents also introduced evidence that they had complained
repeatedly to petitioner, and that petitioner was aware that its
discount to Dompier and Gull conferred a competitive advantage on
stations owned or supplied by distributors receiving the discount.
Respondents argued that the wholesale services allegedly performed by
Dompier were nonexistent or de minimis and, in any event, were fully
covered by a "hauling allowance" petitioner granted Dompier in
addition to its discount.  Finally, there was evidence that Dompier's
purchases of gasoline from petitioner increased substantially while
respondent's purchases decreased.  Respondents presented several
different damage estimates based on differing assumptions as to how
petitioner might have eliminated the challenged price difference.

   Petitioner argued that the lower prices to Dompier and Gull were
"functional discounts" reflecting various wholesale services Dompier
and Gull performed.  Petitioner also urged that respondents had failed
to demonstrate that the challenged price differences caused any harm
to competition because:  (1) petitioner did not control the price at
which Dompier or Gull resold gasoline at either the wholesale level or
the retail level;  (2) the respondents were not in substantial
competition with Dompier, Gull, or any of the stations they owned,
operated or supplied;  and (3) factors other than the discounts to
Dompier and Gull were responsible for the respondents' lost sales.
/3/

   The jury found for each respondent and awarded damages totalling
$1,349,700 after trebling.

   c. The district court denied petitioner's motions for a new trial
and for judgment notwithstanding the verdict.  Pet. App. B1-B17.  The
court acknowledged that "functional discounts" -- those given to a
buyer higher up in a supplier's distribution chain -- generally do not
trigger Robinson-Patman Act liability.  The court, however, believed
that this is not always so because "the critical question in
determining the legality of a functional discount is whether the price
differential has an adverse effect on competition * * *." Id. at B3.
The court found that in this case, even though the "favored buyer(s)"
(Dompier and Gull) were not in competition with the "disfavored
buyers" (respondents), the evidence demonstrated that petitioner's
discounts to Dompier and Gull adversely affected competition at the
retail level.  The court based its conclusion on the fact that the
discounts given to Dompier and Gull exceeded the cost of the functions
they performed, and those discounts were, in part, passed along to
retail competitors of respondents.  Id. at B4-B6.

   3. The court of appeals affirmed.  Pet. App. A1-A20.  The court
rejected petitioner's arguments that the Robinson-Patman Act requires
only that all customers in a given functional class be treated equally
and that any harm respondents suffered because Dompier "passed
through" its discount to the stations it supplied in its wholesale
capacity could not support a finding of Robinson-Patman Act liability.
 Id. at A7-A10.  The court agreed that the Robinson-Patman Act allows
"(m)anufacturers * * * to use price differentials, commonly known as
wholesale or functional discounts," and that "goods generally may be
sold to wholesalers at a lower price than that charged to retailers."
Id. at A7.  It also acknowledged that, "at least in their capacities
as wholesalers, (Dompier and Gull) did not compete directly" with the
respondents.  Id. at A8.  Nonetheless, the court concluded that "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." Ibid.

   In the court's view, a discount to the favored buyers higher in the
distribution chain would violate the Act 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 (the disfavored
buyer)." Pet. App. A8.  The court found that the evidence supported a
finding in respondents' favor on both issues.  As to whether the
discount to Dompier and Gull was "cost-based," the court noted that
the respondents had introduced evidence that the wholesale "services
performed by Gull and Dompier were insubstantial." The court also
agreed with the district court that petitioner "made 'no serious
attempt' to provide a quantitative justification" for the discounts.
As to whether the discount was passed on to stations buying from
Dompier and Gull, the court pointed to evidence that "some retail
stations operated or supplied by Dompier and Gull purchased gasoline
at prices lower than those paid by" respondents.  The court also
referred to evidence that "service stations operated or supplied by
Dompier often sold gasoline at retail prices that were only two or
three cents higher than the price" respondents paid petitioner.  Pet.
App. A8-A9.

   Thus, the court concluded that "(w)here, as here, the discount
given to a customer higher in the distributive chain is sufficiently
substantial and is unrelated to the costs of the customer's function,"
a supplier can be held liable under the Robinson-Patman Act for
adverse competitive effects at the lower market level of the
disfavored customer.  Pet. App. A9-A10.  /4/

                 INTRODUCTION AND SUMMARY OF ARGUMENT

   The court of appeals concluded that a supplier violates Section
2(a) of the Robinson-Patman Act if it grants a wholesale discount to a
firm and a jury finds (1) that the discount was not "cost based" and
(2) that all or part of the discount was passed on to retailers, to
the injury of other retailers who purchase directly from the supplier.
 In our view, that statement of the law is incorrect.  Functional
discounts extended to firms higher in a supplier's distribution chain
are intended generally to recognize and compensate for the different
marketing and distribution roles played by wholesalers and retailers.
Imposing liability for downstream competitive effects of legitimate
functional discounts does not advance the Act's purpose of ensuring
equality of competitive opportunity to firms at the same functional
level.  It also threatens to undermine other policies expressed in the
antitrust laws, and creates burdensome compliance requirements for
suppliers engaging in dual distribution through both wholesale and
retail channels.  Consequently, we urge the Court to reject a
construction of the Robinson-Patman Act that imposes a new
cost-justification requirement on a traditional activity that the Act
was not intended to govern.

   A. Price differentials between wholesalers and retailers are a
sensible, routine, and pervasive means of doing business, and have
long been woven into the distribution system of our economy.  There is
no persuasive evidence that Congress intended to alter those
traditional patterns of trade in the Robinson-Patman Act.  There is
even less reason to believe that Congress contemplated that the
Robinson-Patman Act would require suppliers to monitor their
wholesalers' prices in a fashion that seriously undermines the
policies of the antitrust laws.

   The complex and imprecise language of the Robinson-Patman Act does
not compel the holding of the court appeals.  As it has done in other
settings, the Court should interpret the Robinson-Patman Act in a
fashion that accommodates the policies expressed in both
Robinson-Patman and the Sherman Act.  Such a reconciliation can be
effected by holding that legitimate functional discounts to
independent purchasers do not have an anticompetitive "effect" at
lower levels of distribution.  Because any competitive consequences at
those levels are solely the result of the favored wholesaler's
independent decision to "pass on" the supplier's discount, those
consequences should not be deemed an effect of the original functional
discount under Section 2(a).

   B. The court of appeals' rationale would engender serious practical
difficulties for firms seeking to comply with it, and would undermine
well-established antitrust policies.  Under the court of appeals'
ruling, a supplier could incur Robinson-Patman Act liability even
though it complied with the Act's fundamental mandate to treat
similarly situated purchasers equally.  To avoid liability, a supplier
would be required either (1) to attempt to preclude the independent
wholesaler from passing through a portion of a wholesale discount, or
(2) to eliminate the system of dual distribution.  Even if the
formidable practical obstacles to the former alternative could be
surmounted, the likely result would be to penalize the most efficient
and aggressively competitive wholesalers.  And the latter alternative
would directly threaten the very independent merchants that Congress
sought to protect in the Robinson-Patman Act, as well as the consumers
whose welfare is the focus of the antitrust laws generally.

   C. Neither the legislative history nor the decisions of this Court
support the application of the Robinson-Patman Act to legitimate
functional discounts.  The legislative history reveals that Congress
considered protecting functional discounts by writing an exception
into the Act that would govern different prices given to different
classes of buyers.  While this provision was not ultimately enacted,
all available sources indicate that the buyer classification language
was deleted in response to entirely separate concerns, not because
Congress wanted to proscribe functional discounts.  Given that a
principal purpose of the Act was to protect independent wholesalers,
and given the absence in the legislative history of any criticism
directed at functional discounts as such, we do not read that history
to mean that Congress intended to alter a traditional method of
compensating independent distributors.

   Nor do the precedents of this Court support the court of appeals'
holding.  The court of appeals relied on FTC v. Morton Salt Co., 334
U.S. 37 (1948);  Falls City Industries, Inc. v. Vanco Beverage, Inc.,
460 U.S. 428 (1983);  and Perkins v. Standard Oil Co., 395 U.S. 642
(1969), interpreting those decisions to hold that any adverse
competitive effect on "customers of the favored buyer" who "compete
with the disfavored buyer or its customers" can trigger
Robinson-Patman Act liability.  Those decisions, however, stand for
far narrower propositions.  Morton Salt holds only that a supplier
cannot give a retail customer a steeper discount than a wholesale
customer.  And Falls City merely holds that a discriminatory discount
given to one wholesaler relative to another wholesaler can trigger
liability if the customers of each wholesaler compete.  Neither of
those situations is present here.

   The Court's opinion in Perkins could be read to apply here, but in
light of the distinctive facts involved in that case, it should not be
interpreted so broadly.  In Perkins, the favored buyer, unlike the
favored buyer here, passed on a discount through a series of
subsidiary firms.  Consequently, the competitors in Perkins can be
seen as two vertically integrated firms in direct competition at the
retail level.  In this light, the case stands for the unremarkable
proposition that a supplier that discriminates between firms at the
same functional level can be held liable for anticompetitive effects.
Perkins should not be extended to a case in which the original price
discrimination reflects a legitimate functional discount given to a
firm whose independent pricing policies then produce competitive
consequences further down the chain of distribution -- consequences
for which the supplier is not responsible.

   D. Applying the principles described above, we believe that the
judgment should be reversed.  For at least a portion of the time
covered by the damages award, Dompier may have functioned as a
wholesaler in reselling gasoline to respondents' competitors.  Any
damages to respondents flowing from those sales should not be
recoverable under the Robinson-Patman Act.  Accordingly, the case
should be remanded to the court of appeals to determine the
appropriate remedy on the basis of this record.

                               ARGUMENT

   THE ROBINSON-PATMAN ACT DOES NOT IMPOSE LIABILITY ON A SUPPLIER FOR
PRICING DISPARITIES RESULTING FROM THE DECISION OF AN INDEPENDENT FIRM
TO PASS THROUGH A PORTION OF A LEGITIMATE FUNCTIONAL DISCOUNT

   Section 2(a) of the Robinson-Patman Act prohibits a supplier from
"discriminat(ing) in price between different purchasers" of goods
where the effect may be 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).  This case presents the question of how this general
language should be applied to functional discounts.  Specifically, the
issue is whether the Robinson-Patman Act imposes liability on a
supplier for charging a lower price to a wholesaler than a retailer if
that functional discount is subsequently determined to exceed the
wholesaler's costs and the wholesaler has "passed on" all or part of
that discount to other retailers.

   A functional discount is one given to a purchaser based on its role
in the supplier's distribution system, reflecting, at least in a
generalized sense, the services performed by the purchaser for the
supplier.  /5/ As the Federal Trade Commission has observed:

         Functional discounts long have been a traditional pricing
      technique by which sellers compensated buyers for expenses
      incurred by the latter in assuming certain distributive
      functions.  The typical functional discount system provided for
      graduated discounts to customers classified in accordance with
      their place in the distribution chain, namely, wholesaler,
      retailer and consumer in diminishing amounts.  They were
      intended to reflect, at least from an economic viewpoint, the
      seller's estimates of the value of the marketing functions
      performed by the various classes of customers.

   Doubleday & Co., 52 F.T.C. 169, 207 (1955).  As a rule, such
discounts are not tied to any exact measure of the marketing costs
performed by the customer.  See McNair, Marketing Functions and Costs
and the Robinson-Patman Act, 4 Law & Contemp. Probs. 334, 347 (1937).
And, of course, functional discounts do "not merely cover the buyer's
costs," but also include "some allowance for profit." Ibid.

   If read without consideration of Congress's purposes and
objectives, the enigmatic phrasing of the Robinson-Patman Act could be
interpreted to prohibit petitioner's conduct in this case.  Petitioner
is a "person engaged in commerce";  it "discriminate(d) in price
between different purchasers";  the "effect of (the) discrimination"
was, arguably, to "injure * * * competition";  and the competitive
injury was visited upon the supplier, the favored purchaser, or -- in
a phrase that applies to respondents -- "customers of either of them."
15 U.S.C. 13(a) (emphasis added).  As Justice Frankfurter long ago
observed, however, "precision of expression is not an outstanding
characteristic of the Robinson-Patman Act." Automatic Canteen Co. v.
FTC, 346 U.S. 61, 65 (1953).  /6/ Consequently, this Court has not
reflexively applied the language of the Act to new situations, but
instead has carefully analyzed a particular challenged pricing
arrangement in order to determine how to apply the policies and
purposes of the Act.  Ibid.  The Court has also insisted that the
Robinson-Patman Act be read with due regard for the procompetition
policies expressed in the antitrust laws.  See United States v. United
States Gypsum Co., 438 U.S. 422, 456-458 (1978);  Great Atlantic &
Pacific Tea Co. v. FTC, 440 U.S. 69, 80-81 (1979);  Automatic Canteen
Co., 346 U.S. at 63, 74.  In our view, therefore, the language of the
Robinson-Patman Act should not be construed to impose liability on a
supplier where the supplier gives a legitimate functional discount to
a purchaser, and the purchaser makes an independent decision to pass
along all or part of that discount to its customers.  In those
circumstances, the discount should not be regarded as a form of
discrimination that has "the effect of * * * injur(ing), destroy(ing),
or prevent(ing) competition with * * * the customers of either" the
supplier or the favored purchaser.

   A. The Regulation Of Functional Discounts Does Not Further
Congress's Intent To Ensure Equality Of Competitive Opportunity To
Purchasers At The Same Functional Level

   The Robinson-Patman Act was intended to remedy what Congress
perceived as unfair and economically unjustified pricing concessions
granted to large retail chains at the expense of competing independent
merchants.  See FTC v. Fred Meyer, Inc., 390 U.S. 341, 349-350 (1968);
 FTC v. Henry Broch & Co., 363 U.S. 166, 169 (1960);  Hearings on H.R.
8442, H.R. 4995, and H.R. 5062 Before the House Committee on the
Judiciary, 74th Cong., 1st Sess. 5-6 (1935);  F. Rowe, Price
Discrimination Under the Robinson-Patman Act 3-11 (1962);  1 ABA
Antitrust Section, Monograph No. 4, The Robinson-Patman Act:  Policies
and Law 8-21 (1980).  The overriding theme of the congressional debate
on the Act was the need to combat the "increased market power and
coercive practices of chainstores and other big buyers that threatened
the existence of small independent retailers." Great Atlantic &
Pacific Tea Co., 440 U.S. at 75-76.  Congress sought to "assure, to
the extent reasonably practicable, that businessmen at the same
functional level would start on equal competitive footing so far as
price is concerned." FTC v. Sun Oil Co., 371 U.S. 505, 520 (1963)
(emphasis added).  See also Abbott Laboratories v. Portland Retail
Druggists Ass'n, 425 U.S. 1, 12 (1976) ("the focus of Robinson-Patman
is on competition 'at the same functional level'").  /7/

   The objectives of the Robinson-Patman Act would not be served by
extending its reach to discounts to firms at different functional
levels in a distribution system.  /8/ Functional discounts have long
been thought to fall outside of the coverage of the Robinson-Patman
Act precisely because they do not raise the concern for a "level
playing field" for competitors that the Act sought to protect.  Thus,
as the Federal Trade Commission observed in Doubleday & Co., 52 F.T.C.
at 207-208, "(a) discount granted to * * * wholesalers (does) not
injure retailers who received no equivalent price reduction, since
they (do) not compete for the consumer's business." Consequently,
"functional discounts to single-function distributors were considered
above legal reproach." Id. at 208.  See also Boise Cascade Corp., 107
F.T.C. 76, 199 (1986) ("If the wholesaler does not sell to end-user
customers in competition with the retailer, the difference in the
prices that the wholesaler and the retailer pay cannot support a claim
of secondary line competitive injury under the Act."), rev'd on other
grounds, 837 F.2d 1127 (D.C. Cir. 1988);  General Foods Corp., 52
F.T.C. 798, 824 (1956) ("a seller is not forbidden to sell at
different prices to buyers in different functional classes" that do
not compete).  The lower courts have generally agreed with this view.
/9/

   It is thus no surprise that functional discounts have long been
assumed to be fully consistent with the Robinson-Patman Act.  The
marketing strategy of using a "dual distribution" network, in which a
firm sells directly at different prices to retailers and wholesalers,
was a prevalent practice at the time the Act was passed.  /10/ Far
from seeking to disrupt this traditional pattern of trade, with its
multiple layers of independent firms, Congress enacted the
Robinson-Patman Act in response to the vertical integration of "chain
stores" that were using their buying leverage to extract more
favorable prices than true wholesalers were getting, to the detriment
of independent wholesalers and their retail customers.

   Accordingly, the text of the Robinson-Patman Act should not be read
to regulate legitimate functional discounts.  /11/ The Act governs
pricing disparities only when "the effect of such discrimination may
be * * * to injure, destroy, or prevent competition" with the
supplier, the favored buyer, or customers of either of them.  15
U.S.C. 13(a).  The natural "effect" of legitimate functional discounts
is not to produce competitive harms at the different levels of
distribution involved.  Consequently, the competitive effects that
flow from a wholesaler's independent decision to "pass on" the
supplier's functional discount should not be deemed an effect of the
original discount.  /12/

   B. The Requirement That Functional Discounts Be "Cost Based" If An
Independent Supplier Passes Them On To Firms Lower In The Chain Of
Distribution Would Present Difficult Compliance Problems And Would
Directly Conflict With Policies Embodied In The Antitrust Laws

   1. The court of appeals recognized the existence and legitimacy of
"functional discounts." Nevertheless, the court insisted on severely
restricting the circumstances in which a dual distributing supplier
may safely extend them.  Read most broadly, the court's opinion would
require a supplier to show that a functional discount is justified by
the wholesaler's costs in order to protect itself from liability
arising from the wholesaler's "passing on" of the discount to
retailers that compete with retailers who purchase directly from the
supplier.  /13/

   Such a requirement would deprive suppliers who engage in dual
distribution of any adequate means of avoiding Robinson-Patman Act
liability.  A supplier could not find refuge in conduct that would
normally provide a safe harbor under the Robinson-Patman Act:
treating all purchasers at the same functional level equally.  Rather,
it would be forced to undertake a potentially expensive compliance
program, with uncertain results.  The court of appeals' approach would
thus undermine the ability of firms to establish pricing programs that
satisfy the Act.  This Court should hesitate before embracing a rule
whose ramifications make it extraordinarily burdensome for firms to
achieve compliance, yet simultaneously exposes them to treble damages.
 /14/ An additional factor that also counsels restraint is the absence
of any reason to believe that the facts of this case are
representative of a widespread "problem" calling for a solution that
imposes across-the-board regulatory restraints on all dual
distributors.  /15/

   2. More fundamentally, the court's rule transgresses this Court's
admonition that the Robinson-Patman Act must be construed, whenever
possible, in a manner that is consistent with the procompetition
policies expressed in the antitrust laws.  See United States v. United
States Gypsum Co., 438 U.S. 422, 456-458 (1978);  Great Atlantic &
Pacific Tea Co. v. FTC, 440 U.S. 69, 80-81 (1979).  /16/ There is
without question a degree of tension between the policy of the Sherman
Act to protect the competitive process, not competitors, and the
objective of the Robinson-Patman Act to regulate seller pricing
practices in order to protect some individual competitors.  But the
Court has sought to reduce the friction between the two statutes by
declining to expand the coverage of the Robinson-Patman Act in ways
that would "help give rise to a price uniformity and rigidity in open
conflict with the purposes of other antitrust legislation." Automatic
Canteen Co., 346 U.S. at 63.

   The court of appeals gave insufficient attention to Sherman Act
concerns.  To begin with, a supplier cannot directly prevent an
independent wholesaler from undercutting the supplier's price to
retailers.  An agreement between the supplier and wholesaler
concerning the wholesaler's resale price would be a per se violation
of the Sherman Act.  Business Electronics Corp. v. Sharp Electronics
Corp., 108 S. Ct. 1515 (1988);  Monsanto Co. v. Spray-Rite Service
Corp., 465 U.S. 752, 763 (1984);  Dr. Miles Medical Co. v. John D.
Park & Sons Co., 220 U.S. 373 (1911).

   Nor are the other possibilities any more satisfactory.  In theory,
the supplier could offer to match the lowest price offered by any
independent wholesaler with which it deals, thereby equalizing the
competitive environment.  But in practice it is doubtful that a
supplier could determine the lowest price being offered by independent
firms, and make the corresponding adjustments to its own prices, on a
continuing basis -- particularly in an industry such as the one
involved in this case where prices may change daily on a
market-by-market basis.  Moreover, the supplier might not be able to
match the lowest price available from a wholesaler without pricing
below its own costs (and possibly opening itself to a charge of
predatory pricing).  Indeed, the more efficient the wholesaler, the
less likely it is that the supplier could match the lowest prices
available from the wholesaler.  /17/

   A supplier would also encounter difficulties in seeking to tailor
the wholesale discount precisely to the costs and pricing strategies
of the individual wholesalers, with the goal of eliminating any
possibility that the discount could be passed through.  The supplier
is unlikely to have the necessary information about the costs and
marketing strategies of the firms with which it competes for sales to
retailers.  Cf. Automatic Canteen Co. v. FTC, 346 U.S. at 68-69
(noting the impracticality of charging buyer with responsibility of
discovering seller's costs that are not only not in its hands, but
"are ordinarily obtainable even by the seller only after detailed
investigation of the business").  Nor is the wholesaler likely to be
eager to provide information that may result in its wholesale discount
being reduced.

   Moreover, the burden of requiring such customer-by-customer
tailoring of the discount could be overwhelming.  The Court has
consistently refused to construe the Robinson-Patman Act to impose
such burdens.  Cf. Falls City Industries, Inc. v. Vanco Beverage,
Inc., 460 U.S. 428, 449 (1983) (a requirement that the "meeting
competition" defense be applied on a customer-by-customer basis might
make meaningful price competition unrealistically expensive);  United
States v. Borden Co., 370 U.S. 460 (1962) (the cost justification
defense can be based on customer groups rather than individual
customers).  And if the seller failed to calibrate the discount
precisely, its discrimination among wholesalers could cause precisely
the type of injury to wholesalers that the Robinson-Patman Act is
designed to forestall.

   Faced with no adequate means of limiting their exposure to
Robinson-Patman Act liability under the court of appeals' theory, many
suppliers might forego dual distribution altogether.  Some might
abandon wholesalers (or eliminate the wholesale discount, which is
tantamount to the same thing) and deal only with retailers.  Others
might refuse to sell directly to retailers, channeling all of their
goods through wholesalers.  Still other suppliers might be encouraged
to integrate vertically downstream, perhaps by absorbing smaller
marketing organizations.  In any of these situations, the losers would
include the nonintegrated "independent merchant," FTC v. Fred Meyer,
Inc., 390 U.S. at 349-350 -- resulting in the very type of harm that
Congress intended to avoid under the Robinson-Patman Act.

   Also among the losers would be consumers.  Depriving consumers of
the benefits of efficient distribution systems is not only
irreconcilable with the procompetition policies of the Sherman and
Clayton Acts, but also runs flatly contrary to the purposes of
Congress in enacting the Robinson-Patman Act.  See, e.g., Automatic
Canteen, 346 U.S. at 72 n.11 ("Time and again there was recognition in
Congress of a freedom to adopt and pass on to buyers the benefits of
more economical processes.");  Silcox & MacIntyre, The Robinson-Patman
Act and Competitive Fairness:  Balancing the Economic and Social
Dimensions of Antitrust, 31 Antitrust Bull. 611, 663 (1986).

   3. For precisely the reasons outlined above, the only other
reported appellate decision to hold a supplier liable under the
Robinson-Patman Act for comparable independent pricing decisions by a
wholesaler has been roundly criticized.  See Standard Oil Co. v. FTC,
173 F.2d 210 (7th Cir. 1949), rev'd on other grounds, 340 U.S. 231
(1951).  As a remedy in that case, where the wholesaler had resold to
retail stations below Standard's price, the Commission ordered
Standard not to charge its wholesalers a price lower than Standard's
price to its retail customers when the wholesalers were reselling
below Standard's retail price.  173 F.2d at 217.  The court of
appeals, recognizing the manifest impossibility of compliance with
this provision as written, modified it to direct Standard not to sell
gasoline to wholesalers at prices less than its retail price, in
circumstances where Standard knew or had reason to know that the
wholesalers would undercut Standard's retail price in reselling to
retailers who compete with the direct purchasing retailers.  Ibid.

   With rare unanimity, commentators have condemned the Standard Oil
order.  /18/ The Report of the Attorney General's National Committee
to Study the Antitrust Laws 206-207 (1955) (footnotes omitted) (quoted
at 3 E. Kintner & J. Bauer, supra Section 22.15, at 320 n.306),
explained the concerns raised by the order in terms that apply with
equal force here:

         A supplier according functional discounts to a wholesaler or
      other middleman while at the same time marketing directly to
      retailers encounters serious legal risks under the Commission's
      Standard Oil ruling.  The 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 retailer
      customers.  Alternatively, the seller may forego his operational
      freedom by matching his quotations to retailers with theirs.  Of
      course the supplier may avoid these risks by abolishing the
      functional differential or abandoning sales to middlemen
      altogether.

   The Committee concluded that "imposing on any dual supplier a legal
responsibility for the resale policies and prices of his independent
distributors contradicts basic antitrust policies." Ibid.

   Indeed, the Federal Trade Commission itself later abandoned this
theory.  In subsequent proceedings in the Standard Oil case, the
Solicitor General, in a brief filed on behalf of the Commission in
this Court, expressly disavowed any purpose "to require Standard to
eliminate legitimate functional pricing or to make it responsible for
the pricing practices of its wholesaler(s)." As one factor supporting
that decision, the Solicitor General noted the conflict between the
order and " 'broader antitrust policies.' " See Gov't Reply Br. at 32
in FTC v. Standard Oil Co., 355 U.S. 396 (1958).  /19/

   C. Neither The Legislative History Of The Robinson-Patman Act Nor
The Decisions Of This Court Support The Significant Limitations Placed
On Functional Discounts By The Court Of Appeals

   In light of the practical problems that the court of appeals' rule
would spawn, as well as its capacity to undermine sound antitrust
policies, this Court should not endorse such a construction of the
Act's inherently imprecise language unless compelled to do so by
evidence of congressional intent or precedents of this Court.  Neither
the legislative history nor this Court's decisions require that
result.

   1. The Robinson and Patman bills as originally introduced exempted
from their coverage differences in price based on the classification
of the buyer.  /20/ Counsel to the United States Wholesale Grocers
Association and principal draftsman of the Robinson-Patman bill, H.B.
Teegarden, explained that these bills would "permit() manufacturers
and others to continue, so far as they desire, to give differentials
between those classes of buyers as they have since time immemorial."
House Hearings on H.R. 8442, H.R. 4995, H.R. 5062, 74th Cong., 1st
Sess. 106 (1935).  /21/

   The bills that emerged from the Committees retained the protection
for discounts based on the class of buyer.  The Senate and House
Committee Reports explained that "(s)uch differentials, so long as
equal treatment is required within the class, do not give rise to the
competitive evils at which the bill is aimed;  while to suppress them
would produce an unwarranted disturbance of existing habits of trade."
S. Rep. No. 1502, 74th Cong., 2d Sess. 5 (1936);  H.R. Rep. No. 2287,
74th Cong., 2d Sess. 8-9 (1936).

   Although the proposed exemption for class-of-buyer discounts was
ultimately deleted, the legislative materials suggest that this was
not because Congress rejected the theory supporting it, as expressed
in the Committee reports.  Rather, the exemption was deleted because
farm interests objected to certain language in the provision, for
reasons unrelated to functional discounts as such.  As reported out of
committee, the House bill not only exempted class-of-buyer discounts
from the nondiscrimination rule, but also included complex provisions
governing the classification of vertically integrated buyers.  See
H.R. Rep. No. 2287, supra, at 8-9.  The bill provided that when a
buyer functioned both on the wholesale and retail levels, it would be
classified by the "character of the selling." Id. at 1-2.  Farm
interests were concerned that under that provision agricultural
cooperatives might fail to qualify for wholesale discounts.  /22/
Consequently, although the buyer-classification provision passed in
the Senate bill, /23/ it was deleted from the House bill, /24/ and the
Senate acceded to the House version without explanation.  /25/

   This legislative record discloses no intention on the part of
Congress to call into question the practice of offering functional
discounts, or to compel suppliers to continue dual distribution
programs only on pains of monitoring the costs and prices of their
wholesale customers.  "(F)unctional discounts were a common business
practice when the Act was passed, and it might be presumed that
Congress would not have acted merely by omission if it truly wanted to
forbid such a common practice." Boise Cascade Corp., 107 F.T.C. 76,
209 (1986), rev'd on other grounds, 837 F.2d 1127 (D.C. Cir. 1988).
At best, the record suggests that Congress evinced special solicitude
for functional discounts, intended to protect them, and dropped
specific language for doing so only because objections were raised on
entirely other grounds (by farm interests afraid of losing their
functional discounts).  Even if read less sympathetically, the history
suggests at most that the question is an open one under the Act.  Cf.
107 F.T.C. at 209 (finding the legislative history to be
"inconclusive" on the practice of giving functional discounts).

   2. The court of appeals relied on three decisions of this Court to
support the proposition "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." Pet. App. A8, citing FTC v. Morton Salt Co., 334 U.S.
37, 43-44 (1948);  Falls City Industries, Inc. v. Vanco Beverage,
Inc., 460 U.S. 428, 434-435 (1983);  Perkins v. Standard Oil Co., 395
U.S. 642, 646-647 (1969).  None of those decisions justifies the
analytical approach to functional discounts that the court of appeals
adopted.

   In FTC v. Morton Salt Co., a large, vertically integrated retail
buyer was able to obtain quantity discounts from the supplier that
were not available to the wholesaler, and, consequently, the
wholesaler's customers were harmed in competition with the favored
buyer.  Morton Salt thus involved "the paradigm setting envisioned by
Congress -- a quantity discount to large buyers." Boise Cascade Corp.
v. FTC, 837 F.2d 1127, 1139 (D.C. Cir. 1988).  That decision is not at
all applicable to a case such as this one in which the supplier
charges a higher price to a retailer than a wholesaler.  See F. Rowe,
supra, at 198 n.103 ("(T)he Supreme Court's Morton Salt decision bars
a lower price to a retailer than to wholesalers whose customers
competed with the 'favored' retailers * * *.").

   In Falls City Industries, Inc. v. Vanco Beverage, Inc., a supplier
charged two wholesalers different prices, which were then passed on to
competing retailers.  Although the wholesalers were precluded from
competing with each other as a matter of state law, 460 U.S. at 432,
the Court found that the requirement of competitive injury was
satisfied, explaining that "the competitive injury component of a
Robinson-Patman Act violation is not limited to the injury to
competition between the favored and disfavored purchaser;  it also
encompasses the injury to competition between their customers." Id. at
436.  Falls City governs cases in which the supplier has created the
disparity between the purchase prices of businesses operating at the
same functional level, and can therefore reasonably anticipate that
the disparity it has created will persist downstream.  The Court had
no occasion to consider functional discounts given to firms at
different competitive levels.

   The only decision of this Court that lends some support to the
court of appeals' formulation is Perkins v. Standard Oil Co.  In that
case, the disfavored buyer, Perkins, purchased gasoline from Standard
Oil in wholesale and retail capacities.  Standard's favored buyer was
Signal Oil, which passed on the discounts to its 60% owned subsidiary
Western, which in turn passed on the discounts to its 55% owned
subsidiary Regal.  Regal operated retail stations in competition with
Perkins and was able to undercut Perkins' prices.  Perkins sued the
supplier, alleging that its retail operations were harmed by price
discrimination in favor of Signal.  395 U.S. at 645-646.  The Court
held that Regal should be considered a "customer" of Signal (the
favored purchaser), and that Perkins could recover for its competitive
injury, because a contrary reading of the statute "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.

   Perkins need not and should not be read more broadly than its
distinctive facts.  The favored buyer in Perkins was part of a linked
chain of corporate entities functioning at the wholesale and retail
levels.  395 U.S. at 645, 648.  Taking into account those corporate
affiliations, the supplier's violation in Perkins consisted simply in
discriminating in price between two rival businesses that competed as
vertically integrated retailers.  /26/ The discrimination, therefore,
was given to customers at the same functional level.  /27/ In this
case, by contrast, independent pricing decisions by wholesalers are an
intervening factor between the supplier and the ultimate retail
customer.  Because the considerations bearing on competitive
consequences in this setting are quite different, and were not
examined or applied in Perkins, that case should not be extended here.
 /28/

   D. The Judgment In This Case Must Be Reversed Because A Portion Of
The Damages Award Against Petitioner May Reflect Injury From Pricing
Practices That Did Not Violate The Robinson-Patman Act

   Under the principles described above, the judgment against
petitioner cannot stand.  It appears that for at least a portion of
the time during which petitioner sold gasoline to Dompier at lower
prices than it sold to respondents, Dompier functioned as a wholesaler
reselling gasoline to retail stations that competed with respondents.
Because any such sales by petitioner could reflect legitimate
functional discounts, the court below would have erred in holding
petitioner liable for downstream injuries caused by the resale of that
gasoline at prices that undercut petitioner's sales to respondents.

   To be sure, as we noted in our brief at the certiorari stage, the
jury may in fact have viewed Gull and Dompier largely as retailers in
competition with respondents and thus may have imposed liability
without regard to any "pass-through" of a wholesale discount.  Gov't
Amicus Br. 16-17.  To the extent that the damages award rested on such
a finding, it would not be improper under Section 2(a), as we construe
it.  However, even though Gull apparently never operated solely as a
wholesaler, and Dompier concededly was in the retail business
beginning in 1974 (in the early portion of the damages period) the
record suggests that for a time Dompier may have sold gasoline at
wholesale to stations that it did not own.  See Gov't Amicus Br. 17 &
n.23;  cf. Br. in Opp. 4-5 & n.7;  18.  The record also suggests that
the proof of damages was not segregated by time period so as to permit
ready elimination of any impermissibly imposed amounts.  For those
reasons, we believe that the judgment must be reversed and the case
remanded for further proceedings in the lower courts.  /29/

                              CONCLUSION

   The judgment of the court of appeals should be reversed and the
case remanded for further consideration.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   JUDY WHALLEY

      Acting Assistant Attorney General

   THOMAS W. MERRILL

      Deputy Solicitor General

   MICHAEL R. DREEBEN

      Assistant to the Solicitor General

   CATHERINE G. O'SULLIVAN

   STEVE MACISAAC

      Attorneys

   KEVIN J. ARQUIT

      General Counsel Federal Trade Commission

   AUGUST 1989

   /1/ See, e.g., Tr. 243, 351, 400, 493, 600, 640.  Respondents
introduced evidence pertaining to both Dompier and Gull, but the case
focused primarily on the effect of the challenged discount on their
ability to compete with stations that Dompier owned or supplied.

   /2/ See, e.g., Tr. 238, 243, 249, 401, 600-601.  Several former
customers of particular respondents testified that they started
purchasing some or all of their gas from the Dompier stations instead
of respondents because of these retail price differences.  See, e.g.,
Tr. 480, 639-640, 1537-1539, 1586-1589, 1596-1597.

   /3/ Petitioner also sought to establish that its discounts were
lawful under the "cost justification" and "meeting competition"
provisos of Section 2(a) and (b), 15 U.S.C. 13(a) and (b).  The
district court, however, excluded the evidence on which petitioner
primarily based its cost justification defense (Tr. 2871) and refused
to submit the issue to the jury.  The jury was instructed on
petitioner's meeting competition defense.

   /4/ The court of appeals also rejected petitioner's contention that
respondents had failed to demonstrate the requisite injury to
competition, noting among other things that there was "direct evidence
of displaced sales." Pet. App. A10-A12.  Finally, the court rejected
petitioner's argument, based on J. Truett Payne, that the damages
verdict was infirm because it supposedly could have rested on the
amount of "overcharges" to respondents.  Pet. App. A16-A17.

   /5/ See Calvani, Functional Discounts Under the Robinson-Patman
Act, 17 B.C. Indus. & Com. L. Rev. 543, 545 n.9 (1976);  Rill,
Availability and Functional Discounts Justifying Discriminatory
Pricing, 53 Antitrust L.J. 929, 935-936 (1985);  Shniderman, "The
Tyranny of Labels" -- A Study of Functional Discounts Under the
Robinson-Patman Act, 60 Harv. L. Rev. 571, 572-575 (1947).  Throughout
this brief, we will for simplicity's sake use the terms "wholesaler"
and "retailer" to refer to the differing levels in the chain of
distribution that each is ordinarily understood to occupy:  the
retailer sells to end-users, and the wholesaler sells to retailers.
Discounts based on the position occupied by a firm in the chain of
distribution have sometimes been referred to as "trade discounts," and
have been contrasted with discounts designed to reflect the specific
function performed by a customer, regardless of its formal position in
the chain of distribution, which have been labeled "functional
discounts." See Pet. App. B2-B3 n.2.  Because we believe that the key
distinction for Robinson-Patman purposes is whether firms in the
distribution chain compete for resale customers, we do not believe it
useful to explore those fine distinctions here.  Nor do we believe it
necessary to develop in this case a comprehensive analysis to deal
with the increasingly common but more complex problems that arise from
functional discounts given to vertically integrated firms.  Compare
Doubleday & Co., 52 F.T.C. 169 (1955), with Mueller Co., 60 F.T.C. 120
(1962).

   /6/ See also FTC v. Fred Meyer, Inc., 390 U.S. 341, 349 (1968)
("Robinson-Patman amendments by no means represent an exemplar of
legislative clarity.");  id. at 359-360, 362 (Harlan, J. dissenting)
(describing the Robinson-Patman Act as "confusing," "inconsistent,"
and a "notoriously amorphous statute").

   /7/ The Act did not outlaw all price differences.  Thus, sellers
remain free under the Act to demonstrate that a lower price to a
particular purchaser reflects "only due allowance for differences in
the cost of manufacture, sale, or delivery" (15 U.S.C. 13(a)), to
charge lower prices in response to "an equally low price of a
competitor" (15 U.S.C. 13(b)), and to adjust prices as necessary to
accommodate a variety of market conditions that might arise in the
ordinary course of business.  15 U.S.C. 13(a).

   /8/ Of course, the discounts must be provided to firms that are
"higher" in the distribution chain.  Giving a greater discount to a
retailer than a wholesaler can indeed violate the Act and was one of
the principal problems at which Congress aimed.

         A typical price discrimination detrimental to competition
      arises from lower prices granted to large retailers than to
      wholesalers or jobbers.  For in such a case, the retailer paying
      the preferential price can resell to consumers at lower prices
      than those retailers who pay more to the wholesalers which are
      charged a higher price by the supplier.  Hence the forbidden
      statutory "injury" to competition with the recipient of the
      discriminatory lower price -- the retailer paying less -- may
      readily come to pass on the retailer level.

   F. Rowe, supra, at 175 & n. 9 (citing FTC v. Morton Salt Co., 334
U.S. 37 (1948) as the "classic case" of this genre).  But "there will
normally be no Robinson-Patman problems if a seller charges a higher
price to its customers further down the distributional chain, e.g., if
the seller charges more to retailers than to wholesalers." 3 E.
Kintner & J. Bauer, Federal Antitrust Law Section 22.14, at 307
(1983).

   /9/ Statements in a number of opinions reflect this assumption.
See, e.g., O'Byrne v. Cheker Oil Co., 727 F.2d 159, 164 (7th Cir.
1984);  Dart Industries, Inc. v. Plunkett Co. of Oklahoma, Inc., 704
F.2d 496, 499 (10th Cir. 1983);  FLM Collision Parts, Inc. v. Ford
Motor Co., 543 F.2d 1019, 1024 (2d Cir. 1976), cert. denied, 429 U.S.
1097 (1977);  American Oil Co. v. McMullin, 508 F.2d 1345, 1353 (10th
Cir. 1975).  But see Standard Oil Co. v. FTC, 173 F.2d 210 (7th Cir.
1949), rev'd on other grounds, 340 U.S. 231 (1951), discussed infra at
20-22.

   /10/ See, e.g., McNair, supra, 4 Law & Contemp. Probs. at 346
("Among the earliest straddles of this type were those made by
manufacturers who decided to sell part of their output directly to
retailers while continuing to sell the rest of it through wholesalers.
 The trade discount was the characteristic pricing device used to meet
the requirements of this situation.");  1 J. von Kalinowski, Antitrust
Laws and Trade Regulation Section 2.04(1), at 2-105 to 2-106 (1989)
(noting that distribution through "middlemen, i.e., wholesalers or
jobbers, who, in turn, supplied the retailers with whom the ultimate
consumer dealt" was a standard mode of distribution when Clayton Act
was originally passed in 1914;  the impetus for passage of
Robinson-Patman Act amendments to Clayton Act was the threat to the
"established manufacturer-wholesaler-retailer hierarchy (posed) by the
emergence of new forms of marketing organizations," primarily chain
stores, "which usurped the functions of the middleman or combined the
functions of all three businesses into one operating unit").  See
generally J. Palamountain, The Politics of Distribution 18-23 (1955)
(describing traditional distribution systems).

   /11/ In order to be "legitimate," a functional discount must be
given to a firm that performs some services for the supplier (such as
physically delivering products on resale, managing inventory, or
assuming credit risks) not performed by firms further down the chain
of distribution.  Clearly, therefore, suppliers that employ
discriminatory pricing tactics at the retail level by means of a
"dummy" wholesaler, controlled by the supplier, cannot evade liability
under the Act.  In that situation, the dummy firm's customers would be
deemed the customers of the supplier for purposes of the Act.  Cf.
Purolator Products, Inc. v. FTC, 352 F.2d 874 (7th Cir. 1965), cert.
denied, 389 U.S. 1045 (1968);  General Auto Supplies, Inc. v. FTC, 346
F.2d 311 (7th Cir.), cert. dismissed, 382 U.S. 923 (1965).  Cf. FTC v.
Fred Meyer, Inc., 390 U.S. 341, 353 (1968) (discussing doctrine of
liability under 15 U.S.C. 13(d) when "a supplier in effect supplants
his intermediate distributors in dealings with those to whom the
distributors resell and favors some of the distributors' accounts over
others").  Likewise, a functional discount must accurately reflect
competitive realities.  "(A)mbiguous labels, which might be used to
cloak discriminatory discounts to favored customers" cannot defeat the
coverage of the Act.  FTC v. Ruberoid Co., 343 U.S. 470, 475 (1952)
(disregarding supplier's classification of certain buyers as
"wholesalers" when they in fact competed with other purchasers at the
"applicator" level).

   /12/ While it would be possible under the literal language of the
Act to trace the competitive effects of functional discounts to the
next competitive level under the "customers" clause of Section 2(a),
Congress obviously intended that this Court give the broad commands of
the antitrust laws, of which the Robinson-Patman Act is a part,
concrete and particularized content in light of their history,
policies, and purposes.  For example, the Sherman Act's sweeping
prohibition of any "restraint of trade," if read literally, "would
outlaw the entire body of private contract law," Business Electronics
Corp. v. Sharp Electronics Corp., 108 S. Ct. 1515, 1526 (1988)
(Stevens, J., dissenting), but this Court has recognized that Congress
obviously had no such intention.  Accordingly, the Court has construed
Section 1 to encompass only "unreasonable" restraints of trade.  See,
e.g., NCAA v. Board of Regents, 468 U.S. 85, 98 & n.17 (1984).
Similar principles should be applied here.

   /13/ The contours of the court's holding are uncertain, as the
court stated that suppliers may be held responsible for retail level
disparities if a functional discount is "sufficiently substantial" and
is "unrelated to the costs of the customer's function," without
affording more precise definitions of those terms.  Pet. App. A9.

   /14/ Imposing such a framework on dual distributors seems
particularly unwarranted because, absent special circumstances (for
example, where one group of retailers has a lower elasticity of demand
for the supplier's product and is contractually bound or otherwise
constrained to purchase only from the supplier rather than from an
independent wholesaler), a supplier would have no economic incentive
to charge its own retailers a higher price than the effective price
charged by independent wholesalers.

   /15/ This case appears to reflect rather anomalous behavior on the
part of the supplier.  One possible explanation for what happened here
is afforded by Federal Energy Administration (FEA) regulations that
governed the pricing of petroleum products in the 1970s, and which
apparently constrained to some degree petitioner's flexibility in
adjusting its prices.  See generally Typhoon Car Wash, Inc. v. Mobil
Oil Corp., 770 F.2d 1085, 1087-1088 (Temp. Emer. Ct. App.), cert.
denied, 474 U.S. 981 (1985);  Tr. 2083-2086 (explanation by
petitioner's witness that altering price to distributors in the
Spokane market would have "cost" petitioner several million dollars
under FEA "cost bank" accounting procedures).  Petitioner apparently
attempted to reduce its wholesale discount in 1973 and 1977, but that
effort was challenged on the basis that it violated then-applicable
FEA regulations.  Tr. 2038, 2084-2085.  The district court rejected
petitioner's asserted defense based on the FEA regulations the first
time the case was tried.  That ruling was affirmed on appeal (663 F.2d
at 933) and is not at issue here.

   /16/ In United States Gypsum Co., the Court held that the "meeting
competition" defense under the Robinson-Patman Act could not justify
interseller verification of prices because of the vast potential of
that practice to engender price fixing (438 U.S. at 458-459).  In
Great Atlantic & Pacific Tea Co., the Court held the same defense did
not compel buyers to disclose to sellers the quotes of their
competitors because of concerns that such a requirement would
"frustrate competitive bidding" (440 U.S. at 80).

   /17/ A supplier could try the alternative strategy of reducing the
wholesale discount in order to eliminate the threat that a wholesaler
would undercut the supplier's retail prices.  But this would only
penalize all but the most efficient wholesalers and, by driving some
wholesalers out of business, would reduce price competition between
wholesalers and the supplier, undermining the pro-consumer
congressional policy embodied in the antitrust laws.  See Reiter v.
Sonotone Corp., 442 U.S. 330, 343 (1979).

   /18/ See, e.g., F. Rowe, supra, at 196-205 (criticizing Standard
Oil and arguing that "any lower price in favor of a distributor always
creates a capacity to 'pass it on' and underprice the supplier (or
other distributors) in resales to the 'retailer' level") (emphasis
omitted);  C. Edwards, The Price Discrimination Law 304-313 (1959)
(noting "unavoidably awkward" consequences of holding manufacturers
liable for differences in prices paid by directly supplied retailers
and those who purchase through distributors);  5 J. von Kalinowski,
Antitrust Laws and Trade Regulation Sections 31.02-03, at 31-66 to
31-91 (1989);  3 E. Kintner & J. Bauer, supra Section 22.15, at 320
(criticizing Standard Oil and Perkins, and suggesting that they be
understood as "arising in unusual circumstances, which should preclude
them from being extended beyond their facts").  See also Rowe, Price
Discrimination, Competition, and Confusion:  Another Look at
Robinson-Patman, 60 Yale L.J. 929, 942-944 (1951).

   /19/ We have reproduced the relevant portion of the government's
brief in Standard Oil in an appendix, infra, 1a-2a.

   /20/ In each chamber, the bills provided that "nothing herein
contained shall prevent differentials in prices between purchasers
depending solely upon whether they purchase for resale to wholesalers,
to retailers, or to consumers * * *." H.R. 8442, 74th Cong., 1st Sess.
(1935);  S. 3154, 74th Cong., 1st Sess. (1935).

   /21/ The bill introduced by Rep. Utterback as an alternative to the
Patman bill contained a similar exemption for "differences in price or
in terms of sale founded solely and in good faith upon classification
of customers as wholesalers or jobbers, remanufacturers, or
processors, retailers or consumers." H.R. 10486, 74th Cong., 2d Sess.
(1936);  House Hearings on H.R. 4995, H.R. 8442, H.R. 10486, 74th
Cong., 2d Sess. 271 (1936).  As Rep. Utterback explained, the purpose
of the legislation was not to prohibit all price discrimination, but
only discrimination in cases where "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." 80 Cong. Rec. 9416 (1936).

   /22/ In debate on the provision, Rep. Patman addressed the
"opposition by the farm organizations (to) the classification
section," explaining that "(t)hey were opposed to the classification
of wholesalers and retailers." 80 Cong. Rec. 8113 (1936).  Letters
from these groups reprinted in the Congressional Record make plain
that the ground for their objection was that under "the
classifications of purchasers * * * farmer-owned and farmer-controlled
cooperative associations would be deprived of their wholesalers' and
jobbers' discounts." One letter proposed that "this classification
(be) eliminated entirely or an exemption granted to cooperative
associations." Id. at 8116-8118.

   /23/ 80 Cong. Rec. 6427-6428, 8418-8419 (1936).

   /24/ 80 Cong. Rec. 8122-8123 (1936) (remarks of Rep. Boileau)
(describing Judiciary Committee's agreement to deletion of buyer
classification language, as suggested by the farm organizations,
"primarily, because it would be detrimental to the best interests of
the farmer cooperatives");  id. at 8139 (remarks of Rep. Miller)
(offering amendment to delete buyer classification subsection);  id.
at 8223 (passing the amendment without further discussion).

   /25/ See H.R. Conf. Rep. No. 2951, 74th Cong., 2d Sess. 6 (1936).
Accounts of those events are provided in C. Edwards, supra, at 25 n.8,
42-44;  Silcox & MacIntyre, supra, 31 Antitrust Bull. at 637;  F.
Rowe, supra, at 18;  J. Palamountain, supra, at 226-227;  Shniderman,
supra, 60 Harv. L. Rev. at 585-586;  Calvani, supra, 17 B.C. Indus. &
Com. L. Rev. at 545-546 n.14;  and McNair, supra, 4 Law & Contemp.
Probs. at 349-ILLEGIBLE).

   /26/ This was the view of the case held by Justice Marshall, 395
U.S. at 651 (concurring in part and dissenting in part), who would
have treated the parent and subsidiaries as essentially one business
entity and would therefore have treated Signal as a competitor of
Perkins, without "intimat(ing) even by indirection, what the result
would be if wholly independent firms had intervened in the
distribution chain." Although the Court did not respond to the point,
it is not entirely clear today that the Court would treat the
interlocking entities in Perkins as other than a single economic unit
for antitrust purposes.  Cf. Copperweld Corp. v. Independence Tube
Co., 467 U.S. 752 (1984).

   /27/ The court in Perkins may also have viewed Perkins as being a
wholesaler itself, just as the favored purchaser was characterized as
a wholesaler.  See 395 U.S. at 644.

   /28/ To be sure, some statements in the majority opinion in
Perkins, taken out of context, could be read to support the court of
appeals' holding that competitive injury can be found if "the
customers of the favored buyer compete with the disfavored buyer * *
*." Pet. App. A8.  See 395 U.S. at 647-648, 649.  But the opinion in
Perkins did not expressly consider claims (like those asserted here)
of injury flowing from competition between the disfavored buyer and
unaffiliated customers of the favored buyer.  Indeed, the Court in
Perkins did not even cite the Standard Oil decision -- the only case
that supports the court of appeals' approach here that a wholesale
discount "passed on" through independent pricing policies can give
rise to Robinson-Patman liability on the level of directly purchasing
retailers.

   /29/ Even if the Court rejects our position and agrees with the
court of appeals that a supplier may in certain circumstances be held
liable under the Robinson-Patman Act for independent pricing decisions
by an unaffiliated wholesaler who received a functional discount, it
is important to clarify the standards under which such a finding of
such liability would be appropriate.  At a minimum, we think a
supplier would have to be shown to have had a degree of knowledge that
a functional discount would be passed on before liability would attach
in these circumstances.  That test could perhaps encompass imputed
knowledge when reasonable to do so, but should not be so stringent as
to require suppliers to set up price monitoring systems that might
encourage anticompetitive behavior.  Cf. United States v. United
States Gypsum Co., supra.

   In addition, the court of appeals failed to articulate precise or
workable standards for implementing its principle that a functional
discount that is passed on must be "cost based" in order to pass
muster under the Act.  Uncertainty and confusion over the legal
boundaries of the decision could unduly discourage dual distribution
systems.  For example, it would be important to recognize that a
discount provided to wholesalers may reflect the value of services
that are not obvious on their face (such as assuming credit risks);
moreover, the discount would normally include a profit component.
Consequently, it should not be sufficient merely to show knowledge on
the part of a supplier that the discount exceeds more obvious or
readily quantifiable costs, such as transportation expenses.
Furthermore, any evaluation of costs, in our view, should operate on a
general level without insisting upon detailed cost accounting by a
supplier before it may extend a discount.  It would not generally be
efficient to force a supplier to learn its wholesaler's business in
such detail as to be able to evaluate costs with precision.  Finally,
in light of the fact that the Robinson-Patman Act covers a wide
universe of business relations, any cost-based test should be
sensitive to particular facts, methods, customs, and understandings
that prevail in different commercial environments.

   APPENDIX