Case Name: A. E. STALEY MFG. CO. et al. v. FEDERAL TRADE COMMISSION
Court: United States Court of Appeals for the Seventh Circuit
Jurisdiction: United States
Decision Date: 1944-07-06
Citations: 144 F.2d 221
Docket Number: No. 8072
Parties: A. E. STALEY MFG. CO. et al. v. FEDERAL TRADE COMMISSION.
Judges: Before EVANS, MAJOR, and MINTON, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 144
Pages: 221–231

Head Matter:
A. E. STALEY MFG. CO. et al. v. FEDERAL TRADE COMMISSION.
No. 8072.
Circuit Court of Appeals, Seventh Circuit.
July 6, 1944.
Writ of Certiorari Granted Nov. 20, 1944.
See 65 S.Ct. 189.
C. C. LeForgee and Carl R. Miller, both of Decatur, Ill. (LeForgee, Samuels & Miller, of Decatur, Ill., of counsel), for petitioner.
Joseph J. Smith, Jr., Walter B. Wooden, Asst. Chief Counsel, and W. T. Kelley, Chief Counsel, Federal Trade Commission, all of Washington, D. C., for respondent.
Before EVANS, MAJOR, and MINTON, Circuit Judges.

Opinion:
MINTON, Circuit Judge.
The Federal Trade Commission filed a complaint against the A. E. Staley Manufacturing Company and the Staley Sales Corporation charging them with a violation of Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C.A. § 13(a). The Commission claimed that the discriminations which the petitioners practiced in violation of the above statute arose from the Staley companies' practices of applying the basing point system in formulating their prices and of permitting favored customers unfair use of the so-called "booking" privileges. The Commission found that there were discriminations and that such discriminations "have resulted, and do result, in substantial injury to competition among purchasers of glucose The Commission ordered the companies to cease and desist from the use of these practices. The companies filed their petition before us to review the order of the Commission and the Commission cross-petitioned for enforcement.
On such petition for review and the cross-petition for enforcement, this matter was before us at the April Session in 1943. On May 10, 1943, we held the complaint to be sufficient but remanded the cause to the Commission for "further consideration and hearings if necessary, in order to show with more clarity, if the Commission can, wherein the discriminations occur and how they substantially lessen competition and promote monopoly, and for proper findings thereon; and for consideration of the defense urged by the petitioners, and for findings in relation thereto." 135 F.2d 453, 456. Upon the remand, the Commission did not hear any additional evidence. It merely restated its findings of fact which were, for the most part, twenty-seven pages of argumentative dissertations in support of the Commission's thesis. The so-called findings of fact had to be sifted to find what the facts found were. The Commission again found that there was discrimination and that the effect of such discrimination "may be substantially to lessen competition or tend to create a monopoly," and left the order to cease and desist as originally entered. The matter is now before us for disposition after this remand and reconsideration.
The A. E. Staley Manufacturing Company operates a corn products processing plant at Decatur, Illinois. The Staley Sales Corporation is a wholly-owned subsidiary used for the purpose of marketing the manufactured products of the A. E. 'Staley Manufacturing Company. Among other things, the petitioners produce and sell in interstate commerce unmixed corn syrup, commonly called glucose. Shipments are usually made in tank cars but not in every instance. All shipments are made from Decatur. The companies' competitors are numerous other corporations who sell and ship similar syrup in interstate commerce. The glucose sold by the companies is used primarily in the manufacture of candy and mixed table syrup. Glucose comprises 5% to 90% of the finished weight of the candies produced and the prices paid for it are a substantial part of the total raw material cost of manufacture, especially in the cheaper lines of candy. Glucose is used in greater proportion in candies which are sold by candy manufacturers at a few cents a pound and on a narrow margin of profit. The margin of profit of such candy manufacturers is so narrow that business may be controlled on a concession of one eighth of a cent a pound. In the mixed table syrup, 85% of the mixture is glucose.
The so-called basing point system consists of taking the price of the commodity in Chicago and adding thereto the freight to the place of destination. As practiced by the petitioners, this was without regard to the fact that none of their shipments were made from Chicago but all were made from Decatur. Thus, a buyer who lived in Decatur, where the companies operate their plant, would pay the Chicago base plus freight from Chicago to Decatur, although the goods had never been in Chicago but were always in Decatur and were there delivered to the purchaser. The same thing was true on shipments to all other points, such as Kansas City, Dallas, Sioux City, Little Rock, St. Louis, St. Joseph, Missouri, and other cities. Notwithstanding the fact that Decatur is nearer to these cities and that the freight rate from Decatur to them was lower than the rate from Chicago, the purchasers in these cities were charged freight from Chicago, although the goods were shipped from Decatur. The maximum amount of discrimination is between Decatur and Chicago, and sometimes Decatur customers are discriminated against in favor of Chicago customers by as much as 16%. Wherever the actual cost of delivery from Decatur is less than the cost of delivery from Chicago, the companies added the difference to the net prices at Decatur. This is what the Commission des ignated as "phantom freight," for which the companies did not pay. Discriminations under this practice have resulted at various times in differences as great as:
33%0 a hundred between customers at Decatur and Chicago
27i/20 " " Kansas City and Chicago
25% 0 " " Dallas and Chicago
240 " " Sioux City and Chicago
20% 0 " " Little Rock and Chicago
200 " " St. Louis and Chicago
19%0 " " St. Joseph, Missouri, and Chicago
180 " " Shreveport and Chicago
If the freight rate from Decatur were reduced while the rate at Chicago remained the same, the benefit of the freight reduction would be withheld from the customers and be added to the price of the commodity. If the freight from. Decatur were increased and the rate from Chicago were increased still more, the price to the purchaser would be raised by the amount of the increase in the Chicago freight rate. If the rate from Decatur were reduced and the rate from Chicago were increased, the customers would not get the benefit of the reduced rate from Decatur but would have to pay the increased rate from Chicago. Such are the discriminations which the Commission found to exist in the application of the basing point principle, as employed by the companies.
The Commission also found that the petitioners' use of the "booking" practice resulted in discriminations which occurred by:
1. Permitting favored customers to take delivery at the old price long after the expiration of the thirty-day period within which all customers were supposed to exercise their option of converting their bookings into actual sales.
2. Converting into sales at the old price bookings made by salesmen without authorization of the customer, in anticipation of the increased price.
3. Selling favored customers at the old price where no bookings were even claimed to have been made and long after the period within which all customers were supposed to have indicated whether they desired to take advantage of the booking privilege.
4. Delivering glucose in tank wagons at old tank car prices plus an additional delivery charge to buyers who had booked glucose for delivery in tank cars, although the buyers had no facilities for tank car delivery, where delivery was made long after a higher tank car price had become effective for other buyers.
The amount of the discriminations against small buyers growing out of the booking practice ranged from 300 to 550 a hundredweight or from 15% to 25% of the purchase price. These discriminations the Commission found to be such as "may be substantially to lessen competition or tend to create a monopoly
There was substantial evidence in the record to warrant the finding of the Commission that these basing point and booking practices of the companies were discriminatory. In our opinion of May 10, 1943, we stated that, even though there had been a finding that these discriminations tended substantially to lessen competition or create a monopoly, there was no evidence in the record to support such a finding. On further consideration and study, we think that that statement was unwarranted. A consideration of the stipulation concerning the effect of these practices makes n. apparent that there was substantial • evidence in the record to support the Commission's finding on this second essential to the cause of action.
However, we do not find it necessary to decide whether or not the so-called basing point system is legal or illegal. The Commission found that as employed by the petitioners, it produced discriminations and these discriminations were such as may be "substantially to lessen competition or tend clear, therefore, that a prima facie case of to create a monopoly It is clear, therefore, that a prima facie case of unlawful discrimination was made out. These same practices have been condemned as discriminatory in an opinion by us this day in Corn Products Refining Co. v. Federal Trade Commission, 144 F.2d 211. While both cases agree that the pricing under the basing point and booking practices was discriminatory, the companies in the present case present a defense not considered in the Corn Products Refining Co. case.
The companies take the position that notwithstanding that a prima facie case may have been made out, they are entitled under Section 2(b) of the statute to rebut this prima facie case, if they could, by showing that their "lower price was made in good faith to meet an equally low price of a competitor. " 15 U.S.C.A. § 13(b).
It is stipulated that the A. E. Staley Manufacturing Company went into business in Decatur, Illinois, in 1920. They soon discovered that they could make as good glucose as their competitors but that its quality was not so superior to competitors' as to command the market and that business could be had only by meeting competitors' prices. -The company "sold such syrup at the same delivered prices as were quoted by competitors in the markets and at the destinations set forth" in the evidence. Their chief competitors and the largest corn syrup market in the country were in Chicago. They "found that large factories were manufacturing such syrup and delivering it in Chicago at prices which were lower than those prices then existing in any other market; that the delivered price in such other markets was generally equal to the Chicago delivered price plus the published freight rate on such syrup from Chicago to destination."
So, at the time the companies entered the business, their competitors were using the so-called basing point system. The prices they made conformed largely to that system. For the companies to get into the Chicago market under that system, they had to absorb the freight from Decatur to Chicago. The bulk of their business was in the Chicago market and their product was sold at a price to meet competitors' lower price in Chicago.
The petitioners claimed that in order to meet the competitive situation, they adopted the basing point price system in good faith, and later the so-called "booking" practice. The Commission found, however, that the companies "have not shown that the discriminations in price granted by them are within any of the excepting provisions of the statute." The Commission seeks to support this finding upon the following stipulation:
"That on several occasions, and since June 19, 1936, Respondents have increased and reduced their price per hundredweight for Corn Syrup for delivery in all markets by the same amount per hundredweight without and independent of any similar and prior action by competitors."
We do not think this is substantial evidence or that there is any other substantial evidence in the record to support the Commission's finding. The basing point practice was being used by their competitors when the A. E. Staley Manufacturing Company went into business. The booking practice developed as the business went along. The evidence in support of these facts is stipulated in the record and is not in dispute.
The stipulation above quoted does not say that such increases or .reductions of prices were related to the discriminatory practices with which the companies are charged. For aught that appears in that stipulation, such increases and reductions may have had nothing to do with the discriminatory practices of which the companies were found guilty. Certainly one cannot say that the booking practice discriminations were shown to be related to those independent price changes. Even if it may be inferred that all prices were pro mulgated by use of the basing point system so that the price-changing mentioned in the above stipulation should be considered within the basing point practice, still § 2(b) of the statute does not require that competitors' prices shall be first announced and promulgated before one may in good faith meet them. The companies may very well have known what the competitive situation in their industry was and what was certain to happen. In anticipation of what their competitors were certain to do, the companies promulgated prices to meet the foreseen competitive situation.
The fact that the companies were first in the field with a price is not controlling. The question here is: Were they first in the field to use the basing point pricing system? It is the use of the system that is complained of. The evidence and stipulations are all to the contrary. The companies' competitors were using the system when the companies entered the field. The companies merely followed the system and practices which had been established by their competitors. That this was done in good faith is not questioned in the evidence.
We think the prima facie case made out by the Commission has been rebutted by the showing made by the companies and, since there is no substantial evidence to the contrary, we would not be warranted in enforcing the Commission's order. The order to cease and desist is vacated and the Commission is ordered to dismiss the complaint.
"(a) It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, whore either or any of the purchases involved in sucb discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Oolumbia or any insular possession or other place under the jurisdiction of the United States, and where tke effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce ."
It was stipulated that the basing point practice had the following effect on competition among candy manufacturers :
"That the higher prices paid for such syrup by such candy manufacturers located as aforesaid other than in the City of Chicago, Illinois, contribute to a greater or lesser degree in their having higher raw material costs than those candy manufacturers located in Chicago, Illinois, the degree in each instance á? pending upon the difference in price ana the proportion of such syrup used in the candies manufactured;
"That the lower profits of these candy manufacturers paying higher prices for such syrup diminishes their incentive or desire to compete with those candy manufacturers paying the lower prices for such syrup and may deter potential new- candy manufacturers from entering the industry in cities where they would pay the higher syrup costs."
As to the mixed table syrup producers, the stipulation was essentially the same.