Source: https://supreme.justia.com/cases/federal/us/370/460/
Timestamp: 2019-04-19 02:48:49+00:00

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The Government brought this suit to enjoin appellees from selling fluid milk in the Chicago area at prices which discriminate between independently owned grocery stores and grocery store chains, in violation of § 2(a) of the Clayton Act. The District Court found that the pricing plan of each appellee was a prima facie violation of § 2(a); but it concluded that these discriminatory prices were justified under the proviso of § 2(a) which permits price differentials which make only "due allowance for differences in the cost of manufacture, sale, or delivery." In doing so, it relied upon a showing by appellees that the average cost of sales and deliveries to all chain stores was lower than the average cost of sales and deliveries to all independent stores.
Held: the class cost justifications submitted to the District Court by appellees did not satisfy their burden under § 2(b) of showing that their respective discriminatory pricing plans reflected only a "due allowance" for actual cost differences, since there was not a sufficient resemblance of the individual members of each class in the essential cost-determinative factors on which the classifications were based. Pp. 370 U. S. 461-472.
"make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered."
cost-saving factors, [Footnote 3] we noted probable jurisdiction, 368 U.S. 924, and directed the parties to brief and argue the case separately as to each appellee, 368 U.S. 963. However, finding the same problem at the root of the cost justifications of each appellee, we have dealt with both in this single opinion. We have concluded that the class cost justifications submitted to the District Court by the appellees did not satisfy their burden of showing that their respective discriminatory pricing plans reflected only a "due allowance" for cost differences.
notwithstanding the consent decree. In defense the appellees, each introduced voluminous cost studies in justification of their pricing systems. The entire case was submitted via stipulations, depositions, and briefs. There was no dispute as to the existence of price discrimination; the sole question was whether the differences in price reflected permissible allowances for variances in cost.
officially labeled "independent" and "chain" prices, they were treated, called, and regarded as such throughout the record.
customers, the appellees introduced cost studies which will be described separately because of their differing content and analytical approach.
The Borden pricing system produced two classes of customers. The two chains, A & P and Jewel, with their combined total of 254 stores, constituted one class. The 1,322 independent stores, grouped in four brackets based on the volume of their purchases, made up the other. Borden's cost justification was built on comparisons of its average cost per $100 of sales to the chains in relation to the average cost of similar sales to each of the four groups of independents. The costs considered were personnel (including routemen, clerical and sales employees), truck expenses, and losses on bad debts and returned milk. Various methods of cost allocation were utilized: Drivers' time spent at each store was charged directly to that store; certain clerical expenses were allocated between the two general classes; costs not susceptible of either of the foregoing were charged to the various stores on a per stop, per store, or volume basis.
containers so that any product remaining unsold from yesterday will be sold first today, leave cases of products at different spots in the store, etc."
The experts conducting the study calculated as to these elements a "standard" cost per unit of product delivered: the aggregate time required to perform the services, as determined by sample time studies, was divided by the total number of units of product delivered. In essence, the Bowman justification was merely a comparison of the cost of these services in relation to the disparity between the chain and independent prices. Although it was shown that the five sample independents in the Government's prima facie case received the added services, [Footnote 6] it was not shown or found that all 2,500 independents supplied by Bowman partook of them. On the basis of its studies, Bowman estimated that about two-thirds of the independent stores received the "optional customer services" on a daily basis, and that "most store customers pay the driver in cash daily."
"this mode of classification is not wholly arbitrary -- after all, most chain stores do purchase larger volumes of milk than do most independent stores. [Footnote 7]"
We believe it was erroneous for the trial court to permit cost justifications based upon such classifications.
question before us is how accurate this showing must be in relation to each particular purchaser.
"[a]s a matter of practical necessity . . . , when a seller deals with a very large number of customers, he cannot be required to establish different cost-reflecting prices for each customer."
In this same vein, the practice of grouping customers for pricing purposes has long had the approval of the Federal Trade Commission. [Footnote 11] We ourselves have noted the "elusiveness of cost data" in a Robinson-Patman Act proceeding. Automatic Canteen Co. v. Federal Trade Comm'n, 346 U. S. 61, 346 U. S. 68 (1953). In short, to completely renounce class pricing as justified by class accounting would be to eliminate in practical effect the cost justification proviso as to sellers having a large number of purchasers, thereby preventing such sellers from passing on economies to their customers. It seems hardly necessary to say that such a result is at war with Congress' language and purpose.
classifications which are representative of a numerical majority of the individual members. At some point, practical considerations shade into a circumvention of the proviso. A balance is struck by the use of classes for cost justification which are composed of members of such self-sameness as to make the averaging of the cost of dealing with the group a valid and reasonable indicium of the cost of dealing with any specific group member. [Footnote 12] High on the list of "musts" in the use of the average cost of customer groupings under the proviso of § 2(a) is a close resemblance of the individual members of each group on the essential point or points which determine the costs considered.
"A cost justification based on the difference between an estimated average cost of selling to one or two large customers and an average cost of selling to all other customers cannot be accepted as a defense to a charge of price discrimination."
This volume gap between the larger independents and the chain stores was further widened by grouping together the two chains, thereby raising the average volume of the stores of the smaller of the two chains in relation to the larger independents. Nor is the vice in the Borden class justification solely in the paper volumes relied upon, for it attributed to many independents cost factors which were not true indicia of the cost of dealing with those particular consumers. To illustrate, each independent was assigned a portion of the total expenses involved in daily cash collections, although it was not shown that all independents paid cash, and, in fact, Borden admitted only that a "large majority" did so.
The appellees argue in the alternative that their cost justifications can be sufficiently unscrambled to remove any taint the Court may find in them, and still show a cost gap sufficient to justify the price disparity between the chains and any independent. This mass of underlying statistical data, not considered by the trial court and now tied together by untried theories, can best be evaluated on remand, and we therefore do not consider its sufficiency here.
Jurisdiction is conferred under § 2 of the Expediting Act of February 11, 1903, 32 Stat. 823, as amended, 15 U.S.C. § 29.
"Sec. 2. (a) That it shall be unlawful for any person engaged in commerce, in the course of such commerce, . . . to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, . . . and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, That nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered. . . ."
Bowman's contention that the Government by stipulation limited itself to specific objections which do not include the present one is without foundation in the record. At the time the stipulation was proposed, the trial court made it quite clear that the Government, by so stipulating, was not waiving its right to argue the legal sufficiency of the proffered cost studies.
At this same time, letters were sent to The Great Atlantic and Pacific Tea Company and The Jewel Food Stores granting them flat 8 1/2% discounts. A few of the larger independents by special arrangement were given an additional 1 1/2% discount, thereby raising their total discount to 5 1/2%.
In September, 1955, Borden discontinued the above discount system and utilized a net price scheme which resulted in even greater disparities between chains and independents.
During this same period, Bowman by letter granted The Great Atlantic and Pacific Tea Company and The Kroger Company flat 11% discounts. Goldblatt Bros., also a multi-store operation, was granted a flat 8 1/2%.
In 1955 and again in 1956, Bowman modified the brackets and percentages of its discount schedules, but not in a manner which reduced the disparity between independents and chains.
The third chain, Goldblatt Bros., also did not take these services.
The contention is made that the Government limited its prima facie case to a few stores on some routes, and that therefore cost justification was only necessary as to them. This overlooks the fact that sampling has long been a recognized technique in price discrimination cases, and that this offering was in support of the Government's position, found valid by the trial court, that the entire Chicago pricing scheme of each appellee, as evidenced by its published price lists, was in violation of § 2(a). In addition, appellee's cost justifications were not limited to the Government's sample stores.
Even the trial court was unwilling to give its "stamp of approval to all pricing policies and practices revealed by the evidence." But it concluded that to enjoin such practices would lead to regulation and would require the court continually "to pass judgment on the pricing practices of these defendants," a matter which might better be handled by proceedings before the Federal Trade Commission.
"Upon proof being made at any hearing on a complaint under this section, that there has been discrimination in price or services or facilities furnished, the burden of rebutting the prima facie case thus made by showing justification shall be upon the person charged with a violation of this section. . . ."
For a collection and discussion of the pertinent legislative history as well as the cases and treatises on the § 2(a) proviso, see Rowe, Price Discrimination Under the Robinson-Patman Act, c. 10 (1962).
"The differential granted a particular customer must be traceable to some difference between him and other particular customers, either in the quantities purchased by them or in the methods by which they are purchased or their delivery taken."
For a discussion of the Commission's position in this regard, see Rowe, op. cit., supra, note 9 § 10.6.
Advisory Committee on Cost Justification, Report to the United States Federal Trade Commission (1956), p. 8.
Another suspect feature is that classifications based on services received by independents were apparently frozen -- making it impossible for them to obtain larger discounts by electing not to receive the cost-determinative services -- with no justifiable business reason offered in support of the practice.
This is not a case that involves problems of centralized purchasing by a large enterprise for all its constituent members, where the volume involved reduces the unit cost. We have here purchases by constituent members of chain stores of milk and milk products that will be sold at the particular store. The competitor is not a member of a competing chain or, if it is, the chain of which it is a part is a smaller one. The costs studies here involved have little, if any, relation to centralized management. They in the main pertain to two factors to cost. First, is the volume of sales of milk and milk products to the individual store and the method of payment. Second, the degree to which the store relieves the seller of milk and milk products from the costs of handling the product as it enters the store, of stacking or storing the products, and of returning the empty bottles or cartons.
"differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered"
"This limits the differences in cost which may justify price differentials strictly to those actual differences traceable to the particular buyer for and against whom the discrimination is granted, to the different methods of serving them, and to the different quantities in which they buy."
"But such differentials, whether they arise in operating or overhead cost, must, as is plainly stated in the phrase quoted above, be those resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered."
"This, in its plain meaning, permits differences in overhead where they can actually be shown as between the customers or classes of customers concerned, but it precludes differentials based on the imputation of overhead to particular customers, or the exemption of others from it, where such overhead represents facilities or activities inseparable from the seller's business as a whole, and not attributable to the business of particular customers or of the particular customers concerned in the discrimination. It leaves open as a question of fact in each case whether the differences in cost urged in justification of a price differential -- whether of operating or of overhead costs -- is of one kind or the other. That is, whether or not it answers the above requirements as to differences resulting from differing methods or quantities in which such commodities are to such purchasers sold or delivered."
While in some cases costs relevant to the issue of discrimination under the Robinson-Patman Act may be computed class by class, the only costs relevant here are those computed store by store. The question of cost of delivery to all stores in the favored chain is irrelevant, because overhead costs applicable to a business as a unit have no bearing on any of the cost formulae presented by this record.
In the case of Bowman Dairy Co., as the Court points out, the company charged all independents for customer service rendered by Bowman's deliverymen, whether the independents availed themselves of the service or not. Bowman also charged independents for the time and expense of daily cash collections and for the costs of delays in collecting. These items were charged to independents even though it was not shown that their system of payment was always in cash, rather than by central billings, the system used by the chains.
In the Borden case, an independent who purchased substantially larger quantities than the average chain store could not qualify for the discount the chain store obtained. This resulted because the independents were treated as one class, the chain stores as another class. As in Bowman, the independents who did not make cash payments were treated as if they did; and they were not given the advantage which the chain stores enjoyed by reason of centralized billing, even though they were on a credit basis.
the sales to each customer must bear their proportionate share of the entire selling expense. A cost justification based on the difference between an estimated average cost of selling to one or two large customers and an average cost of selling to all other customers cannot be accepted as a defense to a charge of price discrimination."
Where centralized purchasing for many stores takes place, the costs of dealing with the group as a class become relevant to the problem under § 2(a). But where, as here, no centralized purchasing is involved, the store-by-store costs are the only criteria relevant to the § 2(a) problem. Otherwise those with the most prestige get the largest discounts, and the independent merchants are more and more forced to the wall.
the weapon. Here, it is the discount. Each leads to the same end -- the aggrandizement of power by the chains and the ploughing under of the independents. The antitrust laws, of which the Robinson-Patman Act is a part, were designed to avert such an inquest on free enterprise.
* See Curtiss Candy Co., 44 F.T.C. 237, 267-268, 274; International Salt Co., 49 F.T.C. 138, 153-155, 157; Champion Spark Plug Co., 50 F.T.C. 30, 43.
The Court treats this case as if the District Court had introduced novel and disruptive principles into the law of "cost justification" under § 2(a) of the Clayton Act.
Although I consider the respective cost studies much more adequate than the Court credits them with being, it is sufficient to say that, as I read the opinion below, the District Court judged their over-all adequacy in accordance with accepted principles of law in this field. The lower court indeed carefully refrained from giving unqualified approval to either set of cost studies, in substance merely holding (1) that the studies had been conscientiously prepared and prima facie appeared to justify generally the price discriminations arising from the appellees' discount practices (and, more particularly, to justify those specifically relied on by the Government as "trial" samples); and (2) that, in light of the long drawn-out history of this litigation, the appropriate disposition was to deny injunctive relief, allowing the Government to bring to the attention of the Federal Trade Commission any other specific price differentials which it believed not justifiable under these or other cost studies.
situation complained of by the Government have taken place since 1955.
* The delays occasioned by the overcrowded docket of this Court as well as the nature of the issues in this litigation again point up the inadvisability of vesting sole appellate jurisdiction over this type of case in this Court. See Brown Shoe Co. v. United States, 370 U. S. 294, 370 U. S. 357 (dissenting and concurring opinion).

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