# Standard Oil Company v. Federal Trade Commission/Dissent Reed

* Court Documents
* Case Syllabus
* Opinion of the Court
* Dissenting Opinion Reed
United States Supreme Court
340 U.S. 231
Standard Oil Company v. Federal Trade Commission
Argued: Oct. 9, 1950. --- Decided: Jan 8, 1951
Mr. Justice REED, dissenting.
The Federal Trade Commission investigated practices of the Standard Oil Company of Indiana in selling its gasoline in the Detroit area at different prices to competing local distributors, in alleged violation of the Robinson-Patman (anti-price discrimination) Act. Standard's defense is not a denial of that discriminatory practice but a complete justification, said to be allowed by the Robinson-Patman Act, on the ground of trade necessity in order to meet an equally low price in Detroit of other gasoline refiners. On concluding that the practice violated federal prohibitions against discriminatory sale prices, the Commission entered a cease and desist order against Standard's sale system. The order was enforced by the Court of Appeals after a minor modification. 43 F.T.C. 56; 173 F.2d 210.
The need to allow sellers to meet competition in price from other sellers while protecting the competitors of the buyers against the buyers' advantages gained from the price discrimination was a major cause of the enactment of the 1936 Robinson-Patman Act. The Clayton Act of 1914 had failed to solve the problem. The impossibility of drafting fixed words of a statute so as to allow sufficient flexibility to meet the myriad situations of national commerce, we think led Congress in the Robinson-Patman Act to put authority in the Federal Trade Commission to determine when a seller's discriminatory sales price violated the prohibitions of the anti-monopoly statute, § 2(a), 49 Stat. 1526, and when it was justified by a competitor's legal price. The disadvantage to business of this choice was that the seller could not be positive before the Commission acted as to precisely how far he might go in price discrimination to meet and beat his competition. The Commission acted on its interpretation of the Act. Believing it important to support the purpose of Congress and the Commission's interpretation of the Act, with which we agree, we state our reasons.
The Court first condemns the Commission's position that meeting in good faith a competitor's price merely rebuts the prima facie establishment of discrimination based on forbidden differences in sales price, so as to require an affirmative finding by the Commission that nevertheless there may be enjoinable injury under the Robinson-Patman Act to the favored buyer's competitors. The Court then decides that good faith in meeting competition was an absolute defense for price discrimination, saying, 340 U.S. 253, 71 S.Ct. 250: 'On the other hand, the proviso is readily understandable as simply continuing in effect a defense which is equally absolute, but more limited in scope than that which existed under § 2 of the original Clayton Act.'
Such a conclusion seems erroneous. What follows in this dissent demonstrates, we think, that Congress intended so to amend the Clayton Act that the avenue of escape given price discriminators by its 'meeting competition' clause should be narrowed. The Court's interpretation leaves what the seller can do almost as wide open as before. See 340 U.S. 263, 71 S.Ct. 256, et seq., infra. It seems clear to us that the interpretation put upon the clause of the Robinson-Patman Act by the Court means that no real change has been brought about by the amendment.
The public policy of the United States fosters the free-enterprise system of unfettered competition among producers and distributors of goods as the accepted method to put those goods into the hands of all consumers at the least expense. There are, however, statutory exceptions to such unlimited competition. Nondiscriminatory pricing tends to weaken competition in that a seller, while otherwise maintaining his prices, cannot meet his antagonist's price to get a single order or customer. But Congress obviously concluded that the greater advantage would accrue by fostering equal access to supplies by competing merchants or other purchasers in the course of business.
The first enactment to put limits on discriminatory selling prices was the Clayton Act in 1914, 38 Stat. 730, § 2. Section 11 enabled the Commission to use its investigatory and regulatory authority to handle price discrimination. Section 2 provided for the maintenance of competition by protecting the ability of business rivals to obtain commodities on equal terms. The Robinson-Patman Act moved further toward this objective. In the margin appear the applicable words of the Clayton Act followed by those of the Robinson-Patman Act. Phrased summarily for this case, it may be said that the italicized words in the Clayton Act were the source of the difficulties in enforcement that Congress undertook to avoid by the italicized words of the Robinson-Patman Act.
It will be noted that unless the effect is given the Robinson-Patman amendment contended for by the Federal Trade Commission, there is little done to overcome the difficulties arising from the 'meeting competition' clause of the Clayton Act. Formerly 'discrimination in price in the same or different communities made in good faith to meet competition' was allowed as a complete defense. Now it is 'made in good faith to meet an equally low price of a competitor'. The Court says, 340 U.S. 241, 71 S.Ct. 245: 'It thus eliminates certain difficulties which arose under the original Clayton Act. For example, it omits reference to discriminations in price 'in the same or different communities * * *' and it thus restricts the proviso to price differentials occurring in actual competition. It also excludes reductions which undercut the 'lower price' of a competitor. None of these changes, however, cut into the actual core of the defense. That still consists of the provision that wherever a lawful lower price of a competitor threatens to deprive a seller of a customer, the seller, to retain that customer, may in good faith meet that lower price.'
We see little difference. The seller may still, under the Court's interpretation, discriminate in sales of goods of like quantity and quality between buyers on opposite corners, so long as one gets a lower delivered price offer from another seller, no matter where located. The 'actual core of the defense' remains intact.
Legislative History. Upon the interpretation of the words and purpose of this last addition by the Robinson-Patman Act to curbs on discrimination in trade, the narrow statutory issues in this case turn. Though narrow, they are important if trade is to have the benefit of careful investigation before regulation, attainable under the Federal Trade Commission Act but so difficult when attempted by prosecutions in courts with the limitations of judicial procedure. As an aid to the interpretation of § 2(b), we set out applicable parts of its legislative history.
The Clayton Act created a broad exception from control for prices made in good faith to meet competition. This raised problems of which Congress was aware. In reporting on a redrafted version of S. 3154, the Senate's companion bill to the House bill that became the Robinson-Patman Act, the Senate Committee on the Judiciary, February 3, 1936, pointed out the weakness of § 2 of the Clayton Act in permitting discrimination to meet competition, and suggested a harsh remedy, the elimination of its italicized proviso in note 6 supra, without the mollifying words of § 2(b) of the Robinson-Patman Act. In March, the House Committee on the Judiciary made its report on the bill that became the Act. Section 2(b) was then in substantially its present form. The report pointed out the draftsmen's purpose to strengthen the laws against price discrimination, directly or indirectly through brokerage or other allowances, services or absorptions of costs. It commented that the subsection that became s 2(b) let a seller 'meet the price actually previously offered by a local competitor.' The language used in regard to competition in the bills and in the Act seems to have been based on a recommendation of the Federal Trade Commission. The Commission had been unable to restore the desired competition under the Clayton Act, and Congress evidently sought to open the way for effective action.
Events in the course of the proposed legislation in the Senate and House have pertinence. The Senate inserted the original ineffective language of the Clayton Act in its exact form in the Senate bill. In the same draft it adopted an amendment similar to the proviso ultimately enacted. 80 Cong.Rec. 6426, 6435. In the House, Representative Patman explained his view of the dangers in the original proviso. It was taken out in Conference. The Chairman of the House managers, Mr. Utterback, before the Conference Report was agreed to by the House, received permission to print an explanation of his understanding of the proviso. He explained that the proviso 'does not set up the meeting of competition as an absolute bar to a charge of discrimination under the bill. It merely permits it to be shown in evidence. * * * It leaves it a question of fact to be determined in each case, whether the competition to be met was such as to justify the discrimination given, * * *.' The pertinent parts of the statement appear in the margin.
Statutory Interpretation. This re sume of the origin and purpose of the original § 2 of the Clayton Act and the amendments of the Robinson-Patman Act gives a basis for determining the effect of this section in a hearing before the Commission where the charge, as here, that a seller during the same period of time has sold the same commodities to various purchasers at different prices, is admitted, and the defense, the elements of which are likewise admitted, is that the discrimination was made in good faith to meet an equally low price of a competitor. Does meeting in good faith a competitor's price constitute a complete defense under the proviso to § 2(b)? Or does the fact of good faith reduction in price to a purchaser to meet a competitor's price merely rebut the prima facie establishment of discrimination, arising under the statute from proof of forbidden differences in price, so as to require under § 2(a) affirmative finding by the Commission that there may be injury to competition? Petitioner asserts that good faith meeting of a competitor's price is a complete defense. The Commission and the Court of Appeals take the opposite position, with which we concur.
This is our reason. The statutory development and the information before Congress concerning the need for strengthening the competitive price provision of the Clayton Act, make clear that the evil dealt with by the proviso of § 2(b) was the easy avoidance of the prohibition against price discrimination. The control of that evil was an important objective of the Robinson-Patman Act. The debates, the Commission's report and recommendation, and statutory changes show this. The Conference Report and the explanation by one of the managers, Mr. Utterback, are quite definitive upon the point. Because of experience under the Clayton Act, Congress refused to continue its competitive price proviso. Yet adoption of petitioner's position would permit a seller of nationally distributed goods to discriminate in favor of large chain retailers, for the seller could give to the large retailer a price lower than that charged to small retailers, and could then completely justify its discrimination by showing that the large retailer had first obtained the same low price from a local low-cost producer of competitive goods. This is the very type of competition that Congress sought to remedy. To permit this would not seem consonant with the other provisions of the Robinson-Patman Act, strengthening regulatory powers of the Commission is 'quantity' sales, special allowances and changing economic conditions.
The structure and wording of the Robinson-Patman Amendment to the Clayton Act also conduce to our conclusion. In the original Clayton Act, § 2 was not divided into subsections. In that statute, § 2 stated the body of the substantive offense, and the listed, in a series of provisos, various circumstances under which discriminations in price were permissible. Thus the statute provided that discriminations were not illegal if made on account of differences in the grade of the commodity sold, or differences in selling or transportation costs. Listed among these absolute justifications of the Clayton Act appeared the provision that 'nothing herein contained shall prevent discrimination in price * * * made in good faith to meet competition'. The Robinson-Patman Act, however, made two changes in respect of the 'meeting competition' provision, one as to its location, the other in the phrasing. Unlike the original statute, § 2 of the Robinson-Patman Act is divided into two subsections. The first, § 2(a), retained the statement of substantive offense and the series of provisos treated by the Commission as affording full justifications for price discriminations; § 2(b) was created to deal with procedural problems in Federal Trade Commission proceedings, specifically to treat the question of burden of proof. In the process of this division, the 'meeting competition' provision was separated from the other provisos, set off from the substantive provisions of § 2(a), and relegated to the position of a proviso to the procedural subsection, § 2(b). Unless it is believed that this change of position was fortuitous, it can be inferred that Congress meant to curtail the defense of meeting competition when it banished this proviso from the substantive division to the procedural. In the same way, the language changes made by § 2(b) of the Robinson-Patman Act reflect an intent to diminish the effectiveness of the sweeping defense offered by the Clayton Act's 'meeting of competition' proviso. The original provisos in the Clayton Act, and the provisos now appearing in § 2(a), are worded to make it clear that nothing shall prevent certain price practices, such as price 'differentials (making) * * * due allowance for differences in the cost of manufacture * * *,' or 'price changes * * * in response to changing conditions affecting the market for * * * the goods concerned * * *.' But in contrast to these provisions, the proviso to § 2(b) does not provide that nothing 'shall prevent' a certain price practice; it provides only that 'nothing * * * shall prevent a seller rebutting (a) * * * prima facie case * * * by showing' a certain price practice-meeting a competitive price. The language thus shifts the focus of the proviso from a matter of substantive defense to a matter of proof. Consistent with each other, these modifications made by the Robinson-Patman Act are also consistent with the intent of Congress expressed in the legislative history.
The Court suggests that former Federal Trade Commission cases decided here have treated the meeting competition clause of the Robinson-Patman Act as being an absolute defense, not merely a rebuttal of the discrimination charge requiring further finding by the Commission. Reference is made to Corn Products Refining Co. v. Federal Trade Comm., 324 U.S. 726, 65 S.Ct. 961, 89 L.Ed. 1320 and Federal Trade Comm., v. A. E. Staley Mfg. Co., 324 U.S. 746, 65 S.Ct. 971, 89 L.Ed. 1338. In the Corn Products case, dealing with a basing point scheme for delivered prices, this Court merely said, 324 U.S. at page 741, 65 S.Ct. at page 968:
'The only evidence said to rebut the prima facie case made by proof of the price discriminations was given by witnesses who had no personal knowledge of the transactions, and was limited to statements of each witness' assumption or conclusion that the price discriminations were justified by competition.'
And then went on to use the language quoted, 340 U.S. 244, 71 S.Ct. at page 246 of the Court's opinion. There was no occasion to consider the effect of a successful rebuttal. As authority for its statement, we there cited the Staley case at 324 U.S. 746, 65 S.Ct. 971, 89 L.Ed. 1138.
That citation included these words, 324 U.S. at pages 752 753, 65 S.Ct. at page 974: 'Prior to the Robinson-Patman amendments, § 2 of the Clayton Act provided that nothing contained in it 'shall prevent' discriminations in price 'made in good faith to meet competition.' The change in language of this exception was for the purpose of making the defense a matter of evidence in each case, raising a question of fact as to whether the competition justified the discrimination. See the Conference Report, H. Rep. No. 2951, 74th Cong., 2d Sess., pp. 6-7; see also the statement of Representative Utterbach (sic), the Chairman of the House Conference Committee, 80 Cong.Rec. 9418.'
After that statement, which it should be noted relies upon Mr. Utterback's interpretation quoted at note 14 of this opinion, the Court in the Staley case goes on to say that there was no evidence to show that Staley adopted a lower price to meet an equally low price of a competitor. Again there was no occasion for this Court to meet the present issue. We think our citation in Staley, quoted above, shows the then position of this Court.
There are arguments available to support the contrary position. No definite statement appears in the committee reports that 'meeting competition' is henceforth to be only a rebuttal of a prima facie case and not a full justification for discrimination in price. The proviso of § 2(b) can be read as having the same substantive effect as the provisos of § 2(a). The earlier provisos are treated by the Commission as complete defenses. Perhaps there is an implication favorable to the petitioner's position in Representative Patman's omission to state the Federal Trade Commission interpretation on the floor. See n. 12, supra.
The underlying congressional purpose to curtail methods of avoiding limitations on price discriminations, however, considered with the more specific matters discussed herein, satisfies us that we should adopt the conclusion of the Commission and the Court of Appeals. We believe that good faith meeting of a competitor's price only rebuts the prima facie case of violation established by showing the price discrimination. Whether the proven price discrimination is of a character that violates § 2(a) then becomes a matter for the determination of the Commission on a showing that there may be injury to competition.
Conclusion. In view of the Court's ruling, we will not enlarge this dissent by discussing other problems raised by the case. We have said enough to show that we would affirm the decree below in principle, even though we should conclude some amendment might be required in the wording of the order.
The CHIEF JUSTICE and Mr. Justice BLACK join in this dissent.

## Notes

* ↑ The difficulties of any other approach are illustrated by the attempt of Congress to clarify the Robinson-Patman Act. See President's veto message on S. 1008, 96 Cong.Rec. 8721, and conference reports, H.R.Rep.No.1422, 81st Cong., 1st Sess., October 13, 1949, and 2d Sess., H.R.Rep.No. 1730, March 3, 1950.
* ↑ Hearings before Subcommittee No. 1 of the House Committee on the Judiciary on S. 1008, 81st Cong., 1st Sess., June 8 and 14, 1949, p. 61.
* ↑ Associated Press v. United States, 326 U.S. 1, 13, 65 S.Ct. 1416, 1421, 89 L.Ed. 2013; United States v. Line Material Co., 333 U.S. 287, 309, 68 S.Ct. 550, 561, 92 L.Ed. 701.
* ↑ E.g., Interstate Commerce Act, § 5, 49 U.S.C. § 5, 49 U.S.C.A. § 5; Communications Act of 1934, § 221, 47 U.S.C. § 221, 47 U.S.C.A. § 221; Miller-Tydings Act, 15 U.S.C. § 1, 15 U.S.C.A. § 1. And see Mason, The Current Status of the Monopoly Problem in the United States, 62 Harv.L.Rev. 1265.
* ↑ For a discussion of the merits of the legislation, see Adelman, Effective Competition and the Anti-Trust Laws, 61 Harv.L.Rev. 1289.
* ↑ Clayton Act:
* ↑ S.Rep.No.1502, 74th Cong., 2d Sess., p. 4:
* ↑ H.R.Rep.No.2287, 74th Cong., 2d Sess., p. 3:
* ↑ Id., p. 16:
* ↑ Final Report on the Chain-Store Investigation, S.Doc.No.4, 74th Cong., 1st Sess., p. 96: 'A simple solution for the uncertainties and difficulties of enforcement would be to prohibit unfair and unjust discrimination in price and leave it to the enforcement agency, subject to review by the courts, to apply that principle to particular cases and situations. The soundness of and extent to which the present provisos would constitute valid defenses would thus become a judicial and not a legislative matter.
* ↑ Id., p. 64: 'If the discrimination is 'on account of differences in the grade, quality, or quantity of the commodity sold,' or makes 'only due allowance for difference in the cost of selling or transportation,' or is 'made in good faith to meet competition,' it is not unlawful, even though the effect 'may be to substantially lessen competition or tend to create a monopoly in any line of commerce.' Discriminatory price concessions given to prevent the loss of a chain store's business to a competing manufacturer, to prevent it manufacturing its own goods, or to prevent it from discouraging in its stores the sale of a given manufacturer's goods, may be strongly urged by the manufacturer as 'made in good faith to meet competition." See p. 90, id.,
* ↑ 80 Cong.Rec. 8235:
* ↑ H.R.Rep.No.2951, 74th Cong., 2d Sess., pp. 6-7:
* ↑ 80 Cong.Rec. 9418:
* ↑ See n. 6, supra.
* ↑ The Court's opinion in this case refers, 340 U.S. 244, 71 S.Ct. at page 247, notes 10 and 11, to the opinions of the Court of Appeals for the Seventh Circuit in Staley and Corn Products, 144 F.2d 211 and 221. But that court reversed its position in the opinion below, 173 F.2d 210, 216. It is fair to assume that reversal was because of our opinions in Corn Products and Staley.
* ↑ It is hardly necessary to note that the wisdom of the enactment is not for the Commission nor the courts in enforcing the Act. The Commission recently has advised Congress that while 'on balance it would be preferable to make the good-faith meeting of competition a complete defense,' it 'does not strongly urge either view upon the Congress.' Hearings before Subcommittee No. 1 of the House Committee on the Judiciary on S. 1008, 81st Cong., 1st Sess., June 8 and 14, 1949, p. 61. Compare Standard Oil Co. v. United States, 337 U.S. 293, 311, 69 S.Ct. 1051, 1060, 93 L.Ed. 1371. This statement confirmed the Commission's position taken in this case. There were other officials of the Commission who have taken the view adopted by the Court.
This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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