Earl Warren: Number 106, Federal Trade Commission, Petitioner, versus the Borden Company. Mr. Hummel, you may proceed with your argument.
Robert B. Hummel: Mr. Chief Justice, may it please the Court. This case is here on certiorari to the Court of Appeals for the Fifth Circuit. The Court of Appeals set aside an order of the Federal Trade Commission which had directed the Borden Company to cease discriminating in price between competing purchasers in a case which arose out of the sales of evaporated milk, allegedly in violation of Section 2 (a) of the Clayton Act as amended by the Robinson-Patman Act. It's pertinent here that Section 2 (a) makes it unlawful to discriminate in price between purchasers of commodities “of like grade and quality” where the effect maybe substantially to lessen competition. The Borden Company sells milk, evaporated milk under the well known Borden brands all over the United States. It also sells evaporated milk to certain customers under the brands of the labels of those customers referred to in this record as private label milk. Physically, the milk in each instance was identical both the milk itself and the containers and the question presented is whether the Borden label milk and the private label milk are to be considered commodities of like grade and quality within the meaning of Section 2 (a). The question arose very briefly in these circumstances. The Commission held that because the goods were physically identical, they were like grade and quality. It went on to find discrimination and injury and price between the customers for Borden and the customers for the private label milk. It concluded that the two-price system may have the effect substantially less than competition both at the primary line that is vis à vis the competitors of Borden, packers of milk and at the secondary line that is wholesale and retail customers for the Borden milk. Now, those findings are not an issue here because the court below did not reach them. We're not asking for review. I think whatever it is useful to put the legal issue in context to review just generally the basis for those conclusions. The Commission noted at the primary line level that there had been a decline generally in the evaporated milk sales throughout the industry, that 10 producers largely in the Midwest area had dropped out of this business since 1950 that there had been no new entrants and that in the circumstances, there was a little need to ship the competitive balance between competitors. It said that Borden was a large and powerful concern compared to its competitors and if the price structure which it was utilizing had placed a severe strain on small competitors, one it going out of business and all the others lost large and important accounts on a permanent basis. They found finally in this market setting that there was a clear threat to the entire Midwest competition if the discrimination were to be continued, and that the elimination or serious impairment of competition was likely. At the secondary line, the Commission found that there was large price differences between the competing customers, one in particularly to the Columbia, South Carolina area which is an area close to one of the Borden plants since Borden sold the private label milk at an FOB plant price whereas it sold the Borden brand milk at a delivered price, uniform throughout the United States. Now this in compared prices around the Borden plant, the Court -- the Commission found that there was a large discrepancy among customers. They found that there was a low or nonexistent profit margin in the sale of evaporated milk. It was largely handled by distributors as an accommodation and often used as a loss leader. It found that the effect of the -- of the discrimination was therefore to draw customers away not only with respect to evaporated milk but also with respect to other items handled by the wholesalers and retailers. It pointed a testimony that a price such as that which Borden offered with the private label milk would have been a great aid to the wholesalers and retailers in meeting their competition. It should have on these points and Borden says that it never refused to sell private label milk to any customer so long as it had productive capacity available, and that is not disputed in this record. But it is also undisputed however that Borden did not disclose the availability of the private label milk to all of its Borden plant customers. It -- at page 741 of the record, there's an exhibit which is a letter from Borden's merchandizing manager for evaporated milk in which he instructs the Atlanta office of Borden that brokers are not to discuss the terms of private label milk sales with customers and that all inquiries are to be referred to the home office. And at page 826 of the record is a another letter sent out by the Borden Merchandizing Manager in which he says and this is at page 827, “We are in a position to take on a few more selected accounts. Naturally, we prefer to deal with the best and the ones that can do us the most good. We certainly don't want to end up by soliciting a bunch of peanut accounts.” Now, the Commission went on to reject the cost justification which Borden had offered on the basis of an accounting analysis and that also is not at issue. I would say that this case was very much likely in Anheuser-Busch case, at 363 U.S. because the court below here did not reach either the injury to competition or the cost justification, or even the form of the order that all of these points were raised below. What the Court did was to foreclose the inquiry at the threshold issue of whether the goods were of like grade and quality. We think this is very much like Anheuser-Busch because there the question was whether or not there was a discrimination in price? The Court said that that was a threshold issue. That there was no -- there were no over tones of business backordering out of the conclusion of the discrimination in price and that the -- it was in fact a non directive phrase. Now, we're really dealing here with the other half of that phrase because the conclusion that the goods are of like grade and quality, simply leads to the conclusion that there is discrimination in price. The questions of injury to competition and the cost justification defenses which we contend think are the important issues for this case on its facts are over beyond this threshold issue.
Speaker: Does that mean if you prevail the case goes back to the Court of Appeals to review --
Robert B. Hummel: Exactly.
Speaker: -- to review it?
Robert B. Hummel: Exactly. We think however that this is also an important case for the Commission because without the finding of discrimination -- without the ability to find discrimination in a situation where you have a private label milk and an advertised milk, the Commission has foreclosed on the inquiry into the question of whether or not there is in fact injury to competition. But I think when I talk about the legislative history, it become apparent, this was not what Congress intended. Indeed, we think that in order to appraise the decision properly, the Court should assume that there is forbidden injury to competition here because the -- as I say the Commission found it and the Court of Appeals did not reach that issue. On the narrow issue as to whether or not that goods of like grade and quality, there is no dispute. The goods are physically identical. Goods or the milk is packed according to the Borden standards irrespective of whether it's sold as private label or Borden brand milk. It's printed exactly identical cans except for the label. The Court of Appeals found that there was an intense public demand, however, for the Borden brand milk. It noted that the Borden brand milk commands a higher price at all levels of distribution, that it is well advertised and promoted and that there is a testimony that the Borden brand -- Borden name does command great deal of consumer respect. Borden advertises it very extensively and it has the necessary consequences or at least the believed consequences of advertising that it is accepted by consumers. Now the reasoning of the Court of Appeals here was that when the labels are proven to have demonstrable, commercial significance, they “change the grade of a product.” It found that the label here had premium market value and commercial significance. It believed that Congress could not have intended that consumer preferences be ignored in determining when products maybe priced differently. It believed the Court concluded that in order to avoid price uniformity which would be in conflict with the general policies of the antitrust laws that it must necessarily recognize promotional values under the expression of like grade and quality. The Court did not focus on the language. It found no help in the legislative history. It pointed to no controlling of the case and indeed there is none. It believed that the administrative precedents were distinguishable and indeed, it found a conflict between the Commission's approached under the protection with the Section 2(b) defense that is the good faith meeting of competition defense with its approach to this case and our position briefly is that the Court was in error on virtually every one of those points. First, we think that the language is quite clearly in -- quite clearly supports the Commission's position. That when you look at the legislative history, you find indeed that Congress did have this problem presented to it and it rejected the opportunity to do what the Court of Appeals here did. Third, we think that the choice which Congress exercised makes good sense because it prevents foreclosing the inquiry before we reach the important questions to whether or not competition is injured. And finally, we think that this construction which the Commission advanced in this case is a view that it has held consistently since 1936 to change it now in our view would open the very dangerous that Congress was afraid of when it refused to make an allowance for brands when it passed the Robinson-Patman Act. And in the absence of some record that the Commission's construction to which it has adhered since 1936 and caused some kind of economic harm we think that that construction should be given great weight. Turning first to the language which we do not argue is necessarily decisive. We think nevertheless it clearly supports us. The whole notion of greater quality it seems to us is in conflict with the idea of promotional values because promotional values may very well reflect an erroneous review of the products' physical attributes and the Commission thinks that grade and quality means physical attributes. I think that we took an example, if I had two cans of milk here and they were perfectly identical and that's all we knew about them and I asked whether they were like grade and quality, I think it would be unanimously responded but of course they were of like grade and quality. If knowing just that and nothing more, I then added a label to one which said Borden and to the other which said Smiths and we were told that consumers were willing to pay more for the Borden can of milk, I think the reaction would be not that the Borden milk is of higher grade and quality but that the consumers are under misapprehension. They don't understand that physically they are the same. And Borden put in the record a survey which it conducted at page 24 and 25 of Volume 1 of the record and housewives were asked for why they -- for reasons as to why they preferred the Borden brand and if you look at those reasons, you see that they are almost unanimously physical attributes. They thought it was creamier, but it didn't have a can of taste, that it didn't sour, that they liked the flavor better, one said it was heavier, and one said it was lighter, one said it was thick and it didn't have a canny taste. Now, these are all physical attributes and what Borden is in effect asking here what the Court of Appeals rule is that we make a circle through the consumer's misapprehension that there is a difference. We are now to conclude that this changes the grade and quality and that --
Speaker: Well wasn't -- wasn't there evidence at least there -- the claimants make in the briefs as I read them before the argument that -- that are some truths in some of these comments because of the scrupulous care which the Borden Company uses in the marketing of its branded product and that unless that care is used milk can get tin can taste, it can curdle, it can turn sour, and so on. And that Borden doesn't presume to exercise any such marketing control over it's -- over the brand name product -- I mean, over the trade name for the consumer's name product, but only over its own part Borden?
Robert B. Hummel: There are two observations that need to be made in that connection. If that is correct then that is in effect of the confession of error because the Court of Appeals assumed that they were identical and what this is, is an argument that they are physically different, but as to the precise question as to what the record shows on it, the record shows that Borden's salesmen, it had some 200 retail representatives, who traveled around among the stores and offered this service turning the cans and looked over every 30 days or actually not I mean 30 days. The testimony was that it needed to be done every 30 days that the salesmen got around anywhere from four to six weeks and did try to turn the cases over, tried to turn the cans of milk over to keep the milk from coagulating.
Potter Stewart: And this was the Borden brand milk --
Robert B. Hummel: This was with the Borden brand. However, one important or two important qualifications. Those salesmen did not visit stores according to the testimony where the volume of sales did not worth their visiting stores and there is a testimony that at least in one district, that volume say the stores doing over $200,000 worth of business a year. So that if there was a difference, if there was a difference in this milk, it only took place in those large and – stores and those large customers. Furthermore, many of the chain stores according to the testimony would not let the salesmen in the stores at all so that that argument as to the difference in the milk as it actually reached the consumer pursuant to some Borden guarantee is only applicable, (a) to the large stores and (b) to the -- those chain stores where a Borden's representatives were permitted in a store and then I might add that it really is a confession of error because it means that the milk is different.(Voice Overlap)
Byron R. White: Well, isn't really so that --
Potter Stewart: It comes out of the as it puts into the can.
Robert B. Hummel: Yes, except that Borden is supplying an additional service with it which is -- which tends to keep it that way.
Byron R. White: Really that it may not go to the difference in the quality of the milk but it's first putting it in the can. I mean, I bought the same milk and if you put in the can of Borden, and it costs more from there on but doesn't that evidence why would you make a forth comment this evidence really should be directed to the cost justification?
Robert B. Hummel: No. It was directed to cost justification.
Byron R. White: And it is --
Robert B. Hummel: I beg your pardon.
Byron R. White: And it should be.
Robert B. Hummel: Yes. That is -- that is the way it was offered and that was the way it was considered by the Commission as part of the cost justification defense. Any way it seems to me that the language supports the Commission's construction like grade and quality has that common kind of tension, the physical difference, but turning to the legislative history, we find that it conflicts with the notion that brand differences can lead to differences in the grade and quality. The problem was pointed out at page 355 of the House here and it is now -- we don't have this citation for this point in our brief, but I've advised counsel that I intended to refer to it. At 355 of the House hearings, a witness pointed out that the like grade and quality language would interfere with the sale of well-known and private label brands at different prices. It was suggested that this might be taken care of under the advertising allowance provision but the witness felt that it ought to be taken care of in connection with the like grade and quality phrase. The next day at the hearings, a proposal was made to remedy that defect. The -- a witness offered an amendment so that the phrase would read like grade and quality end brands. We suggest that the effect of that amendment would have been exactly what the Court of Appeals here decided that is in this case the Court of Appeals held that these were unlike brands. It said that it wasn't just a question of attaching the label, but that these were labels of some significance and so in effect, it ruled that they were unlike brands. Now that would have been the effect of the amendment, had it been accepted by Congress.
William J. Brennan, Jr.: [Inaudible]
Robert B. Hummel: Yes, that is what I was saying that it in effect held that they were --
William J. Brennan, Jr.: [Inaudible]
Robert B. Hummel: I think not because --
William J. Brennan, Jr.: [Inaudible]
Robert B. Hummel: Well I take it that if the brand is to be compared with Smith and Jones both unknown brands even though they were not identical, they would not be considered to like brands but there would be a significant -- I mean, I'm sorry, that they would be considered like brands, that there would be no significant difference between them.
William J. Brennan, Jr.: [Inaudible]
Robert B. Hummel: That's the way I would read it. And in any event, Mr. Teegarden who had been the -- according to the legislative history, very clearly the draftsman of the proposed patent bill and who was counsel for the United States Wholesale Grocers Association, responded with the letter to the Committee in which he said, that to add the idea and the brands to the phrase “like grade and quality” would be to destroy the efficacy of the bill against large buyers.” He said that under the bill as it stood, “sellers were still free to make private brands, but if they did so for one, they must be ready to do so on the same terms for everybody.” The manner then came up on the floor during the debate and we've quoted both this and the Teegarden letter in our brief. The Teegarden letter is at pages 14 and 15 of our brief and the colloquy on the floor is at pages 13 and 14 of our brief and I'd like to read it, it's very brief. Mr. Taylor of South Carolina said, “There has grown up of practice on the part of manufacturers of making certain brands of goods for particular chain stores. Is there anything in this bill calculated to remedy that situation?” Mr. Patman then said, “I have no time to discuss that feature, but the bill will protect the independent in that way because they will have to sell to the independents at the same price for the same product where they put the same quality of merchandise in a package and this will remedy the situation to which the gentleman refers.” And Mr. Taylor of South Carolina then said, “Irrespective of the brand” and Mr. Patman said, “Yes, so long as it is in the same quality.” Now at the minimum, that shows that Congress was aware of the distinction between brands and quality and in all of these passages, Congressman and the witnesses are talking about private label or other brand merchandises compared to the national advertised brands. None of them suggests that nationally advertised brands would not be of like grade and quality with local or off brands or private label. All of them are assuming that they will be treated alike under the statute. Now, I would point out also that this congressional refusal to make special exception for brand differences makes pretty good sense and it should prevail even if the language and the legislative history were less clear. First at the primary level that is competition with the seller, there is a clear possibility of use of private brands as what used to be called fighting brands, a practice of which the original 1914 Clayton Act was aimed, as well as the Robinson-Patman Act. All that needs to be done is that the seller puts out a quality product at a low price but calls it brand X where he wants to defeat his competitors, meanwhile, holding up the market for his well-known brand name by the heavy advertising which he has done. At the secondary level which was the particular focus of the Robinson-Patman Act, it would be similarly easy to give in to the demands of large customers that they have a special brand made available to them while smaller customers who were unable to pressure the seller could be turned away.
Byron R. White: Well, but would you -- would you be here -- would the Government's bill be here if it could be clearly shown that Borden made an offer to put out private brand for any customer that wanted it just for the -- just that its request.
Robert B. Hummel: At the same -- on the same terms I think not. And as a matter of fact --
Byron R. White: Well, I mean they would still sell their Borden brand at the higher price, but sell the private labels at the same price to anybody that wanted them if there was a real modified they offered everybody --
Robert B. Hummel: The Commission would not be here in those circumstances and --
Byron R. White: Even though the entry of the secondary level – on the primary level would be the same.
Robert B. Hummel: Yes, as a matter of fact, the -- well, excuse me. I should --
Potter Stewart: As I understand it, the case is over if you wouldn't be here, because as I understand it that's the year -- problems can see that much and exactly that they are in their duty to offer brand names to private brand to everybody and they say they did in this case. It shows that --
Robert B. Hummel: Well, I mis-answered Justice's question. at the primary level, there is still a question of whether or not, the relationship between the prices and the practices in a particular market setting would constitute a violation to Robinson-Patman Act --
Byron R. White: Even though --
Robert B. Hummel: In this case --
Byron R. White: Even though it submitted that any retailer could have bought either the private or the Borden brand at will. You would still say that you wouldn't dismiss this case? The Commission wouldn't even have brought it if it were clear.
Robert B. Hummel: Let me say this. The order in this case is a secondary line order. It prohibits selling at different prices to competing purchasers --
Byron R. White: Yes, but you sustain your competition argument is that -- of course that hasn't been determined in the Court of Appeals, does it?
Robert B. Hummel: That's correct.
Byron R. White: If you make the argument that the injury of primary line sustains the injury to competition.
Robert B. Hummel: That is correct and that's a very difficult question which is not before the Court at this time but I might say this that the order in this case is purely a secondary line order. And before the Court of Appeals, the Commission in an authorized brief conceded that if Borden made the private label milk equally available to all competing purchasers, then it would not be considered a violation of the order.
Abe Fortas: Mr. Hummel you'd have to learn of a lot of things, wouldn't you before you made that decision on that point because the charge the -- the law of violation here is discrimination in prices, isn't it? That's what they're charging.
Robert B. Hummel: That's the -- that's the threshold issue.
Abe Fortas: That -- that is the violation of law and then in order to establish a discrimination in the price, it has to appear that the goods in question are of like grade and quality, is that right?
Robert B. Hummel: So far that's correct. Yes, sir.
Abe Fortas: And so that if Borden has made private label milk available for sale generally, the -- your question would -- the illegal question, the fundamental legal question would still be are they discriminating between competing purchasers and to [Inaudible] you would have to know a lot of things and it would take us a couple of months to know and to even to discuss here, isn't that right?
Robert B. Hummel: In part, that's just a threshold question because the -- the next question is whether there was injury to competition.
Abe Fortas: I see --
Robert B. Hummel: We think this is in sum the problem under the Court's construction. We have an all or none construction of the statute. If you establish that the brand is -- has some consumer acceptance and how you -- objectively how you set that is not clear over and beyond the private label goods, then the threshold question is decided against the Commission's construction. It never reaches the question of whether or not, the practice might injure competition either at the primary or the secondary level.
Potter Stewart: Do you understand the Commission's order to require Borden to sell if Borden branded milk and its private branded milk at the same price?
Robert B. Hummel: Well --
Potter Stewart: I'm reading the order which is in the footnote at the bottom of page 21 of your brief and that's way I read it.
Robert B. Hummel: Before the --
Potter Stewart: But you seem to disavow that reading at least so far as secondary line injury is concerned.
Robert B. Hummel: Well first of all, the order only covers secondary. The instance where there might be secondary line injury it says to competing purchasers. Second, as we -- as we note, before the Court of Appeals, the Commission conceded that there would be no disfavored purchasers if everybody could take advantage of the opportunity to buy the private label milk. I'm not sure, does that -- whether that answers Your Honor's question.
Potter Stewart: Am I -- am I quite wrong in reading the order as requiring that the -- that the -- that all the milk of the same kind of quality which you would say all this milk could be sold at the same price too?
Robert B. Hummel: Any purchaser who in fact competes with the purchaser paying higher prices. Now that -- that limits it to the secondary line situation. And secondly, the Commission conceded that you could -- you could hardly claim a discrimination with respect to a purchaser who had an opportunity to buy the milk at the lower price.
Potter Stewart: Buy both.
Robert B. Hummel: Yes, to buy both. That is in other words, Borden customers must be treated equally. They all must know that the milk is available and have the opportunity to buy it on equal terms. This we think as what the -- thus assuming that the failure to do so would cause injury and assuming that the price difference could not be cost justified.
Abe Fortas: The order itself in the customary Federal Trade Commission manner is not to say that, does it?
Robert B. Hummel: Well, it does not say that.
Potter Stewart: It had to be all explained to the Court of Appeals apparently in the brief and -- but the order is the order. The explanation doesn't go with it.
Robert B. Hummel: Well I may say also that the order has not been -- the problem with the order has not been considered by the Court of Appeals here either. It's deprived of the order. And we have assumed that it was not within the question of (Voice Overlap)
Potter Stewart: Oh, that's correctly seen. It's not in any event your claim here that -- that the -- that all Borden milk has to be made available at the same price to competing customers whether it's branded Borden or branded Safeway or John Smith.
Robert B. Hummel: Well it is our position that assuming the final competitive injury, then it must be made available to all competitive purchasers on equal terms. That means that the -- if there is a price discrepancy between the two, between the private label and the Borden brand milk, that all customers must have the opportunity, all customers for the Borden brand must also have the opportunity to buy a private label milk comparable for this.
Potter Stewart: At the same differential --
Robert B. Hummel: That's correct.
Potter Stewart: Isn't that right -- isn't that right?
Abe Fortas: Excuse Mr. Hummel but see this -- so you're explaining this and would still take the position however that the private label milk and the Borden label milk are of like grade and quality. But the point is that you would not take the position for that there was a direct -- it was an injury of competition if the private label milk were offered to everybody at the same price even though that price might be different from the price of the Borden label, is that correct as I --
Robert B. Hummel: I agree with -- I agree with the point. I would quibble with somewhat as to the terms. We would say that there were no disfavored purchasers. In fact, no one was being discriminated against it for all purchasers --
Abe Fortas: Well, then -- alright.
Robert B. Hummel: -- but the point if I would agree with you exactly. We do not take the position that the economic value between the Borden over the economic value -- the difference of economic value between the Borden brand and the private label milk. It is something that must be ignored if the Court of Appeals maybe stray in part on that issue. The point is where your consideration of these problems does the Commission and should the Courts take account of those economic differences. And we say in short, like grade and quality is not the part of the statute which should be the basis for that solution of that problem. We think it's -- as I said summing up finally that the language is clear, the legislative history if anything reenforces the language. The Commission has been construing the statute just this way since 1936 and that in order to keep the focus of this statute where it belongs with this Court indicated in Anheuser-Busch that it belongs, that is on the injury to competition and on the cost justification problems. This difference in the economic value of the advertised brand and the private label milk should not be given recognition under the like grade and quality test. Accordingly, we ask that the case be reversed and remanded to the Court of Appeals for determination of other questions in the case. I would like to save five minutes for possible rebuttal.
Earl Warren: Mr. Wood.
John E. F. Wood: Mr. Chief Justice, may it please the Court. My main point for which I argue today, if it please the Court, is that the decision of the Court of Appeals in this case is fully consonant with the objective of the Robinson-Patman Act to protect against harmful use of the buying power of large purchasers and at the same time avoids the error of giving to the Act a reading which would have any competitive effects inconsistent with the basic antitrust policies laid down by Congress. I think it's important at the outset that I was asking the Court to focus on three main points of facts about this case because they help to define just what the court below decided and help to lay aside matters which the court below did not decide and which not -- would not be involved in an affirmance of that decision. The first of these points of facts and I don't believe there's any question about any of the uses between part, this dichotomy between the premium brands and private labels in the evaporated milk business is something that which has existed in the evaporated milk business for great many years. It was not created by the Borden Company. It didn't come into existence as a result of the prices complained of in this case. It was a situation which the Borden Company based as having been in existence for years when it was invited to supply private label milk to customers. These premium brands Borden, Carnation, Pet offered on a national basis of having wide national demand, commanding a premium price in the market. And along side of those for years, had been the products of a number of manufacturers who have specialized in private label production in the Maine and they've packed milk for various wholesalers or retailers under the labels belonging to those wholesalers or retailers. These private labeled products were less acceptable to the public than the premium brands and if they were to be sold at all, it had to be sold at a lower price in the premium brand. The record is perfectly clear on that. The court below found that in effect. The wholesalers and retailers who were the customers of the private label or the premium brand packers knew that they would have to resell the product for a lesser price than they could resell the premium brands. And therefore, they were only willing to buy them if they could get to them at a lesser price. The matter was summed up colorably if somewhat ungrammatically by one of the chief retailer witnesses for the Commission. He said, “Private label is no good for nobody unless there's a price on it” and he went on to say that the differential in his experience has to be from $1.50 to $2.00 a case which by the way the hearing examiner found was greater than any differential involved in the Borden Company's pricing and he went on to say that the retailers in this area hadn't been much interested in it. The point of this, may it please the Court, is that the premium brands where a standard item bought by virtually all grocers, the private labels were paralleling these at lower prices bought by some customers but not by all desired by some customers, but not desired by all, and the distinction between them was genuine and firmly rooted at all levels of this distribution.
Abe Fortas: Mr. Wood, does the record show how many private labeled customers Borden has?
John E. F. Wood: Yes.
Abe Fortas: Well, take your time to find it and I'd like to know when it can be.
John E. F. Wood: I'll get that information.
Byron R. White: Does it feel the relative, the relationship between quantity wise between the private label business and the Borden label business?
John E. F. Wood: Well, there is a at -- in volume 3 of the record at page 809, there is a stipulation which lists customers of Borden's private label evaporated milk at several pages and then in the same stipulation beginning at 815, it lists customers for the Borden brand. I'm not sure that they constitute all the customers in that stipulation.
Byron R. White: But could you just tell me your -- if you know or if the record shows that what percentage of their milk business is private labeled. Is it over half or 40% or 60%?
John E. F. Wood: You mean what percentage of the Borden Company's evaporated milk business or the percentage of purchases of the customers?
Byron R. White: Well, those -- what percentage of Borden sales of evaporated milk is private label as compared with -- how does their total evaporated milk business (Voice Overlap) Borden and their private label?
John E. F. Wood: I'll see if we can find that in the record, Mr. Justice White. I don't have that for memory. A second matter of fact which I would like to bring to the Court's attention has to do with the suggestion that were made by Mr. Hummel that this preference of the consumers for Borden brand, the strong consumers preference were perhaps just all misapprehension on their part. I would not have the Court think that the standing of the Borden brand product in the marketplace and most particularly among the consumers because that's what governs here was something that was based simply on the work of Madison Avenue and the facts on these are very clear. For the many years that the Borden Company has been making and selling Borden brand evaporated milk, it has taken extensive and expensive steps to make sure that the product reaches the hands of the ultimate consumer in this nearly possible as possible perfect condition. And they have done things in this regard which as a practical manner is not feasible for them to do with respect to private label milk. Now, evaporated milk is perishable. It cannot be kept too long. When it is stored, it must be kept in carefully controlled conditions as to temperature. If these things are not properly taken care of, the milk will become lumpy and stringy, crystals of mineral substance will form in the milk, color will turn, and it will be generally unacceptable to any user. Now regard against these things, the Borden Company has taken a number of important steps. First, it provides during the period of this record, the number was 15 cold storage warehouses at proper locations throughout the country. So that the milk can be kept under carefully controlled conditions and that doesn't mean under the same temperature everyday because as they move it nearer to the point of exit from the warehouse, the temperature has to be modified. And this is an elaborate and painstaking operation to make sure that the milk is properly cared for while it is kept in storage. Beyond that, the company operates under rigid requirements as to the time of shipment of milk that first packed first shipped is the rule and even though that means shipping milk across the country rather than shipping it from the nearest warehouse, that practice is followed. The reason for that is that if that isn't done, milk will tend to be backed up in some warehouse and becomes stale or unusable for some reason. And then when the milk has gotten into the hands of the -- the retail grocery, well theoretically, Borden has nothing more to do with it. The company follows it there and these 200 men that Mr. Hummel referred to go into the stores, they check as to the age of the milk, on occasion they open cans to see what condition the milk is actually in, they check with the store rooms to make sure that the milk is rotated out in the store in the proper way so as to prevent it being backed up. This isn't just turning cans over every 30 days, may it please the Court, it's vastly more than that. And these steps having been carried on for years, have given to the customers throughout the country assurance that when they buy a Borden brand milk, they're getting something that is in the same condition as nearly as possible in which it was when it was put into the can in effect. (Voice Overlap).
Earl Warren: May I ask -- may I ask you if -- if one of these men opens a case of -- in the hands of one of the purchasers and finds that the milk has deteriorated, what is -- what happens?
John E. F. Wood: I think the record is not explicit as to the financial aspects, the milk is not sold. The milk is disposed off.
Earl Warren: I thought it was already sold?
John E. F. Wood: Well, I mean, it's not sold to a consumer.
Earl Warren: How -- how --
John E. F. Wood: It comes off the shelf.
Earl Warren: What authority this -- what authority this Borden have to get it off the shells if it's already been purchased by somebody else?
John E. F. Wood: I assume Mr. Chief Justice it has no legal authority but if the man says to the proprietor of the store, this milk is not fit to be sold, I'll give you another case. It doesn't --
Earl Warren: Do they give them -- do they -- do they replace?
John E. F. Wood: I cannot represent that the record shows that fact. I believe that is the fact. It happens within the testimony of the question of what was done if some unfit milk was discovered, you would not ask.
Abe Fortas: Are these warehousing and shipping procedures applicable only to Borden brand milk?
John E. F. Wood: Yes, sir. Only to Borden brand milk.
Abe Fortas: On private label milk does the record show whether that is canned only upon receipt of a particular order and immediately shipped out?
John E. F. Wood: Well, it's a -- it is canned only on the receipt of an order which may contemplate shipments over a period of time but it is shipped out not immediately upon its being packed. It will be held a reasonable time at the plant for the customer to come to get it. But I was going to explain Your Honor that the difference as to the private label packed by Borden is that as to that product, the Borden Company washes its hands off it at the factory door.
Abe Fortas: Well, that's where it is sold, isn't it?
John E. F. Wood: Yes, sir. It sold FOB of the plant. The customer comes and takes it away. The customer is the owner of the private label and it's his product, his goodwill that's involved in that label and he decides where to ship it and how. He decides where to store it and how and for how long. He decides what to do about it through the channels of distribution. Some of them may decide those questions one way. Some may decide them the other way. The consequence is that in the private label business, there is no assurance that the care is taken with milk that it needs to be held and given to it according to the Borden Company's experience. Now, I call Your Honors' attention to the fact that the relationship between the packer of private label such as Borden or some other company and the owner of the private label is not a long-term contract relationship or an exclusive contract relationship. The Borden Company may pack private label with some wholesaler today. Somebody else may that pack milk for him tomorrow and indeed, the record shows instances when at the same time the owner of a private label was obtaining his milk for those private labeled cans from different suppliers.
Speaker: What -- and there's to it, what is the state of the record? What does the record show precisely as to the availability of private label milk, Borden private label milk to all kinds?
John E. F. Wood: The most succinct some reactive use, Mr. Justice Harlan --
Speaker: Yes.
John E. F. Wood: – is that the hearing examiner found that Borden had never refused to make private label available to anybody who asked for it.
Speaker: Whatever the quantity that was asked for?
John E. F. Wood: Whatever the quantity that was asked for and it was supplied to all big or small at the same price out of the same plant.
Speaker: That's the finding of the examiner.
John E. F. Wood: The examiner. The Commission made no contrary finding. The Commission did not discuss that question in the --
Potter Stewart: The Commission did set aside the findings of the examiner though, didn't they?
John E. F. Wood: They set aside the whole (Voice Overlap) --
Potter Stewart: As a whole.
John E. F. Wood: Yes, Your Honor. But the Commission made no contrary finding that this one of the hearing examiner. Now as to the evidence, according to the hearing examiner's finding, it is clear that I submit on the evidence that the Borden Company stood ready to pack private label milk for anybody who wanted it on even terms at all times. It -- it is also clear that the company did not actively seek the business. It did not send salesmen out ringing doorbells, asking people to buy private label. It promoted its Borden brand milk. It treated the private label business as something to be done to the extent that there was a demand for it. Now, the testimony of the wholesalers or retailers which was presented before the hearing examiner is very interesting. They all came from the southeastern part of the country, the South Carolina and North Carolina I believe. They were men who were in an area in which private label evaporated milk had been sold for at least 30 years. Everybody knew it and almost without exception, they hadn't bothered to buy any from anybody. One of them had bought some from Railroad salvage a few times. Another one had bought some from the Armor and Company in Chicago for a brief period of time but he discontinued that. This man who said that private label -- private label is no good for nobody unless there's a price on it, says that the retailers in his area have not been much interested in it. Two of them, I believe, it is have started buying from the Borden Company just before they testified. And they bought some six months in one case and 18 months in the other case after they were solicited by a wholesaler grocer to whom Borden was selling private label milk. I say to the Court confidently that the record does not support in any substantial way, a contention that the Borden Company has refused to sell private label milk to anybody or has failed to make it generally available to anybody who wanted it. And as I say, the Commission has made no finding contrary to what I have said.
Byron R. White: Well what if that's true, what is the consequence?
John E. F. Wood: Well, one consequence Your Honor is that as we contended below and as the hearing examiner found that there would be no possible contention of competitive injury at the secondary -- at the secondary level.
Byron R. White: Why? How about the primary?
John E. F. Wood: Well, these facts wouldn't bear on the primary line. As to the primary line, I just may comment. The record shows that some of the private label packers in the Midwest lost some business to the Borden Company when it began packing private label at two of its plants in south, Chester, South Carolina and Lewisburg, Tennessee. Customers located near those plants, who had been buying evaporated milk from firms out in Wisconsin and Kansas, found they could handle it much more cheaply from this plant that was near to their homes and they bought for Borden and really that's what started this case. But the same statistic showed that these packers in the Midwest had picked up business from other sources too. And so, there were ups and downs as among them but in the Maine, the trend of their business was up during the period covered by the evidence. And in terms of market share, there was no decline in market share among this group of the old line (Voice Overlap) --
Byron R. White: But did the Commission apply in both primary and secondary of the line of injury?
John E. F. Wood: Yes, Your Honor. The hearing examiner found no injury in either level in either line. The Commission found injury in both lines. I want to say one more word on that sir, if I may, it asserted that one of these packers went out of business as a result of Borden Company's getting into the private label business. The difficulty with that proposition is that he was asked where his problems were and he stated them, and that is not what he said. He was located out of the line in the Midwest where the freight rates were adverse to him in the territory where he was trying to do business. And he said his friends in Ohio, where is this other gentleman that the Government says were being injured, his friends in Ohio had been able to put their milk down in the east to get in more cheaply than he could and he found it very difficult so he got out of the evaporated milk business. And getting out of the evaporated milk business is not the testimony that getting out of business sometimes sounds like, may it please the Court. A milk processor has a number of different products that he can make, cottage cheese, powdered milk, ice cream mix, one thing and another and his choice of product to make from time to time would vary depending upon the amount of raw milk available in his neighborhood, on price conditions or these other things. So the fact that people are in and out of the processing of some of these milk products is not -- does not signify that they are going out of business. It simply signifies that they're adjusting their operations so as to get do the things that they regard as the most profitable. Well as a result of this, if I may come back to this matter of the quality aspects, after packing, of course they're of the same quality when they're put in the can, there's no question about that, the Borden Company is unable to and does not seek to follow this private label milk through the channels of distribution. And over the years, other private labeled packers have not been able to do that. And the consequence is that there cannot be the assurance that private label evaporated milk on the grocery shelves where the housewife buys, is as well cared for, is indeed in the same condition as it was in when it left the factory. And the record shows that consumers have had unsatisfactory experiences with private label evaporated milk. The survey which Mr. Hummel has referred to demonstrated that the list of reasons from which he read was the selection made by the hearing examiner. There were many others in the returns and time after time, the reasons had to do with experiences that the person have had with some private label evaporated milk, stringy, lumpy, curdly, specs in it, bad color.
Abe Fortas: Does Safe Point buy private label milk from you?
John E. F. Wood: Yes, sir and although it makes sense --
Abe Fortas: And they sell --
John E. F. Wood: I beg your pardon.
Abe Fortas: And they sell in accordance?
John E. F. Wood: Yes, sir.
Abe Fortas: Now, does the record show whether your lab and go into -- the Safeway allows you to go in there or turn the milk cans over in their stores?
John E. F. Wood: I don't believe that as the record does show that. Incidentally, the --
Abe Fortas: Now, do you ship this milk to the private label Safeway for private label milk to Safeway warehouses that you make store deliver?
John E. F. Wood: To Safeway warehouses. I should say Your Honor Safeway, I think packs most of its own private label milk. It has its own plants as to be most of the national chains --
Abe Fortas: Right.
John E. F. Wood: --and the -- it relies on outside packers only to a limited extent.
Abe Fortas: And I suppose refer to your cost justification case was that I was saving to you because you warehouse -- incur warehouse expenses on your Borden label and don't incur them on private label, is that right?
John E. F. Wood: Yes, Your Honor and I have this quite bit of information although it's not before the Court to be proved to our own satisfaction and to the satisfaction of the hearing examiner that we more than cost justify this differential by a considerable margin. That is not before the Court to do that.
Abe Fortas: Now, I understand if I may refer to a lot of manner that you were discussing a few moments ago looking at some of these exhibits. I get the impression that before a broker or a salesman fully accept the private label order that the offer had to be sent from the home office?
John E. F. Wood: Yes, sir.
Abe Fortas: Was that true in the case of Borden label milk as distinguished from private label?
John E. F. Wood: Only in part. I have to explain that in the distribution system after the milk left these cold storage warehouses that I have referred to, there was also a network of so-called consignment warehouses which were nearer to the location of where the customers would be. Milk could be sold out of those consignment warehouses without any arrangements with the --
Abe Fortas: You mean private label milk?
John E. F. Wood: I beg your pardon.
Abe Fortas: Private label milk?
John E. F. Wood: I thought you were referring only to Borden brand.
Abe Fortas: Well, I ask you about both? I understand from some of these exhibits for example, number 30 (b) on page 743, I get the impression rather that before anybody was allowed to take an order for private label, the reference had to be made in the home office.
John E. F. Wood: Well, I think that's correct. The arrangements -- the arrangements were made at the home office.
Abe Fortas: Well, if that was not true and I understand you to say that that was not true with respect to Borden label milk. In other words --
John E. F. Wood: At least in a number of cases, it was --
Abe Fortas: I see. Then I notice on the facing page there on page 742, an indication that that particular case inquiry was made presumably to home office and the communication to the salesman said that our policy has not changed with respect to private label. We have not solicited not as Telly says, we have not solicited any business and do not intend doing so. We now have however left it of what has been offered and have accepted somewhat a permanent basis where it fitted into our production situation and long term plans. Now is that -- is that reflect that special made policy or is that an isolated situation, if you understand the record?
John E. F. Wood: I think that was an isolated situation and if I read this correctly Your Honor, this had to do in part at least with compensation to a broker and that was one of the sore points in the management of the company when they sold that Borden brand milk in certain areas of the country where they engaged brokers, the broker received a broker's fee. In handling of the private label milk, they did not use the brokers, they made the arrangements directly with the customer but the brokers wanted a fee and they had to do some negotiating and they got the fee reduced to half of the standard fee, but they didn't like to have the brokers' even inquiring about it and I think that's part --
Abe Fortas: Well, that would be some other exhibits from where in which there is a reference to the approval of private label orders where the customer has been handling large amounts of competitor or brands that remember Carnation and Pet milk being referred to.
John E. F. Wood: Yes.
Abe Fortas: And does the record show that that was a type of consideration that was taken into account in determining whether to accept or reject the private label offer?
John E. F. Wood: I don't think so, Your Honor. I think as a matter of fact, I'm not sure that the record will show this completely but I think it will show it to a considerable extent. All the people who bought private label milk from Borden were also buying Borden brand milk and were probably also buying Carnation and Pet. Though the Carnation and Pet and Borden were standard items that almost every wholesale grocer certainly had in his rooms and many of the larger retailers would have. And they bought the private label not as a substitute for the premium brand, this is one of the key facts in this case. When that they thought they were getting the same thing for less money, they knew they were getting what was in commercial fact a different product and they kept right on buying and the hearing examiner found this and the Court of Appeals found it. They kept right on buying the Borden brand in undiminished qualities after they began to buy the private label. So that this was not a case of getting something just as good for less money.
Earl Warren: Now as I understood Mr. Hummel to say that this inspection service to your Borden customers was limited to the larger customers and was not -- it was not open to the -- to the smaller ones. Is that true?
John E. F. Wood: It's true that they tried to confine their activities as far as possible to stores doing a volume of $200,000 a year or more. That's not $200,000 a year for evaporated milk and it's not $200,000.00 a year for Borden products. It's $200,000 a year for everything that store handled and it would be a very small grocery store that didn't move $200,000 worth of goods a year. So that is not a significant limitation on the availability of that service Your Honor. I must move to my third main point of fact that I want to stress because I think this has a fundamental bearing on the approach of this case. The packing of private label milk by the Borden Company was in no sense a favoring of large buyers over small ones and that's why I say with so much confidence that the decision in this case is consonant with the basic objective of the Robinson-Patman Act to prevent the favoring of large buyers over small. No distinctions were made at all by Borden in between the large customers and the small in selling evaporated milk, the private label or Borden brand.
Hugo L. Black: I suppose that ordinary customers are forbidden so it would make a big difference, wouldn't it? One of the small ones, they don't have $200,000 business a year, it is not liable to have a private brand -- brand, isn't it?
John E. F. Wood: No, sir. But he's very liable to buy from a wholesaler who would have a private brand and many of the customers to whom Borden sold private label milk were wholesalers, who were serving the independent grocer, the small grocer. Also, many of the customers where Borden sold were buying groups who were buying for the independent grocers. And there was no distinction or whatever made. Now of course Borden sold to some chains too, although, as I've indicated most of the national change have their own packing plants and rely on outside packers only to a limited extent, Borden sold nothing to First National Stores, nothing to Kroger, nothing to American Stores and to that roughly two and a half years that was involved in the study in this case sales day and fee of the private label amounted to less than 1200 cases out of over a billion and a half cases. This was not the situation, may it please the Court, of seeking out the big chain stores and saying, “Let's make a special deal with you now to give you a fancy price.” This was a case of saying to all commerce, wholesalers who were serving the small grocer, buying groups who were serving the small grocer, regional chains, any chain, will pack for you all on the same terms. Everybody who buys in this plant will pay us exactly the same price at the factory door.
Hugo L. Black: Did the record show whether or not any wholesalers who sell to small grocers have private labels of their own as wholesalers?
John E. F. Wood: Yes Your Honor the record is full of that. A company in the southeast known as Thomas & Howard is one of the Borden customers. Representatives of that firm testified in this case, witnesses. They -- they had a private label which they called “Miss Virginia” and they sold that to retailers throughout the southeast.
Abe Fortas: What's the name of that?
John E. F. Wood: Miss Virginia.
Abe Fortas: No, I mean the company.
John E. F. Wood: Thomas & Howard.
Abe Fortas: Was there a chain of retail stores wholesale sponsor by Thomas & Howard? In other words, isn't that kind of a fraud of wholesale [Inaudible]
John E. F. Wood: Well, it's for the wholesalers I think Your Honor.
Abe Fortas: It what – affiliated retail stores, isn't it, or my recollection is wrong?
John E. F. Wood: Well, they may have some affiliated retail stores but they also sell them in the independent retailers because some of the independent retailers who testified in this case were purchasers from Thomas & Howard.
William O. Douglas: Was Miss Virginia a part for that?
John E. F. Wood: Yes, sir. Well, it was to some extent at least. We don't know to what extent Thomas & Howard may have bought it from somebody else also --
William O. Douglas: Or Borden made it --
John E. F. Wood: -- or did make --
William O. Douglas: Oh! Borden made it?
John E. F. Wood: Borden -- Borden made it for Thomas & Howard, and Thomas & Howard sold it to any retailer who wanted to buy it in the area where they could sell. One of the buying groups for which Borden packed a private label milk, bought there over a thousand small retailers. This is not a picture of making special deals to take care of some big chains. It simply didn't work that way.
Potter Stewart: And customer who want to buy that brand just ordering the brand he wants so far as Borden is concerned?
John E. F. Wood: Yes, it's his brand. He can call it X, Y, Z or A, B, C (Voice Overlap)
Potter Stewart: I suppose that he has to accept some to put on the Carnation label on it or Pet label, it would be a little --
John E. F. Wood: I suppose the legal department might have trouble with that.
Potter Stewart: But he can order any brand he wants.
John E. F. Wood: Yes, Your Honor. It's his brand.
Potter Stewart: And he could make his brand and that his brand --
John E. F. Wood: It's his brand.
Abe Fortas: Does the record show what's the smallest private label order that Borden accepted?
John E. F. Wood: I'm sure it does but I'm not able to state what it is. I'll try to find out and supply the information. There are a number of the invoices in the record but I haven't checked it for that particular fact. Well, now I -- a question was asked before us to the relative volume of sales by Borden of private brand and of its Borden brand and private label. For the year 1957, the record shows and this is at page of Volume 3 Exhibit -- on page 894 -- 895, I beg your pardon.
Byron R. White: You need to repeat it if it's in the record there.
John E. F. Wood: Well it's very easy it just have two figures and I have read the instance to the lower court had realized that sales by Borden the Borden brand was 4,314,000 cases of private label of 1,104,000.
Hugo L. Black: What -- what do you say about the legislative history that the Government points out, statements by Mr. Patman and others?
John E. F. Wood: Well --
Hugo L. Black: Decided the same price when you call it.
John E. F. Wood: Well as to Mr. Patman, Your Honor --
Hugo L. Black: I presume he was the most active man in connection with this legislation, wasn't he?
John E. F. Wood: Well, he was certainly one of the most and that or his name.
Hugo L. Black: [Inaudible] his name in connection with --
John E. F. Wood: Yes, sir. I think -- I must say with respect that Mr. Patman himself -- when he was asked this question, he made perfectly clear that he didn't intend to discuss it. He didn't have time. The Government quotes part of the language but I'd like to quote it all. It's found at page 21 of our brief. A question was asked to him which Mr. Hummel read. He said, “I only have a very short time and I must finish my statement,” he was making a general statement about the bill. “I only have a very short time and I must finish my statement. I have no time to discuss that feature” and then he brushed it off (Voice Overlap), I beg your pardon sir.
Hugo L. Black: That next doesn't look to me like he brushed it off?
John E. F. Wood: He didn't say a word about grade and that's one of the (Voice Overlap)
Hugo L. Black: What he's trying to do is protect these independents from having to say more and they had asked him about in connection with the different brands, doesn't it?
John E. F. Wood: Well, I'm -- I don't know. I concede to Your Honor. I don't know precisely what Mr. Patman was saying there. I think the statement is not very clear and I submit to Your Honor, it's very difficult to draw much of a conclusion.
Hugo L. Black: He said so long as it is the same quality.
John E. F. Wood: Yes, sir and what did he mean by that?
Hugo L. Black: Well, I would suppose it meant that if you find commodity, presenting a commodity, you had to sell that commodity at the same price to one that you did to others, if it is of same quality.
John E. F. Wood: Well, during this very same period, Judge Learned Hand had said --
Hugo L. Black: But he wasn't in the Congress (Laughter)
John E. F. Wood: But his judicial views were widely read and he regarded the grade and quality as involving the concept of public acceptability and he so held in one of the cases cited in our brief. It seems to me Your Honor that the principle point about the legislative history here and the one that I would like most to address myself too is the fact that Congress did not adopt this proposal to add the words ‘and brands' to the legislation. As the bill then stood, it said that it referred to commodities of like grade and quality and the proposal was made to amend it by adding the words ‘and brands' and Mr. Teegarden wrote a letter which had put the Congress in the record in which he said that, “While at first blast this seems alright,” it really isn't and then he pointed out that each brand of the private label, it is -- there's just one for that owner. And so if one made a private label for the A company and then another private label product for the B company, and then another private label for the great national C company. Under that proposal, there could be complete discrimination among those buyers and that would defeat the purposes of the Act because in actual economic market fact, in most situations, at least so far as evaporated milk is concerned, the private label market is one thing, the premium brand market is another, and things in the private label market tend to be equated with each other and the refusal of Congress to adopt that amendment, I submit, does not suggest that the decision of the court below is wrong. The court below said it would not accept the view that any change in labels would make the difference as between grade and quality. And the Court said, you've got to look at the facts and there's only if there is a genuine, a real, a substantial commercial significance --
Hugo L. Black: But that -- but that is really what it's based on it, isn't it --
John E. F. Wood: Yes, Your Honor.
Hugo L. Black: You claim that if your brand would bring a higher price, then you don't have to keep that price under the label with the others --
John E. F. Wood: Yes, Your Honor.
Hugo L. Black: -- commercially speaking?
John E. F. Wood: That's right and I'll put it on another way.
Hugo L. Black: And if you do that by saying that comes in to the quality, definition of the quality would come out.
John E. F. Wood: I would say grade rather than quality.
Hugo L. Black: For grade and quality.
John E. F. Wood: Yes, sir and putting it in another way, I say that it really did not make much sense to say that Congress was going to mandate the price uniformity as between products which in a free market could not be sold at uniform prices. On the facts as found in this case, when the Borden Company was asked to pack private label evaporated milk, it would either have had to refuse to do so or it would have had to sell that milk at a lower price than the price of its Borden brand and I submit that there's nothing in the objectives of the Robinson-Patman Act than nothing in the language to justify a conclusion that Congress was meaning to say though you can't sell this product at the same price but we tell you that unless you do you're going to be subject to a Federal Trade Commission proceeding.
Byron R. White: Well, the Court of Appeals [Inaudible]
John E. F. Wood: Well, I think perhaps not so much if you're doing Kansas, if you do and must than you may. It must if you're going to sell both products at all.
Byron R. White: [Inaudible] Court of Appeals say –
John E. F. Wood: Well it seems to me that's the effect of it.
Byron R. White: [Inaudible]
John E. F. Wood: And then you wouldn't sell anymore private brand, what the private label price then go so that -- no on the facts of this case so long as the Borden Company proposes to sell Borden brand and private label, the pricing of private label has got to be lower.
Byron R. White: [Inaudible]
John E. F. Wood: No, I put it the other way around Your Honor. The Act does not mandate price uniformity where the market forbids price uniformity.
Byron R. White: [Inaudible]
John E. F. Wood: Well, yes, if there is a real and a genuine market evaluation of these two things as different products.
Byron R. White: If you go over the years of -- I would think that if you get under the Court of Appeals [Inaudible] time over the years you sold -- you have these two price -- this price differential all of countrywide. I don't know what else would prove a commercial acceptance of the price differential.
John E. F. Wood: Well an existence of it among other buyers and sellers would have a bearing, the length of time that it has been in effect, the rational basis for it or lack of rational basis. There are a number of factors that might well be pertinent in deciding whether this was a real and a genuine product differentiation. That's --
Byron R. White: That's not all the Court of Appeals went on that there was a difference and then for a long time and customer referred, they want to put up with it.
John E. F. Wood: Well, there were some other points that could have been made in that opinion which I think was supported. As to the language of the Act, if I may say a word about that, they say the -- first I think it's clear and I believe it's common to the counsel that this formula as to commodities of like grade and quality is intended to be and it's a limitation on the power of the Commission and its limitation imposed so as to prevent having to dig into price differentials except in situations defined by Congress as calling for such digging and it's clear as counsel for the Commission say in their brief that the Commission is not to have power and the Act is not to be in effect with respect to differentials where you have unlike products or where there's another place in the brief it said where there is significant differences. Well that raises the question, what likeness in what respect? What are significant differences? I submit Your Honors that in a trade regulation statute which is regulating the pricing of goods, the relevant factors --the significant factors are those which govern the pricing of goods in the market. That Congress wasn't legislating to make sure that everybody got the finest quality of merchandize or to see to it that public health laws were observed. This was a pricing statute and what is significant as to pricing is simply what as a matter of fact governs pricing in a free market. Now that maybe physical identity, but it very often maybe public acceptability, which is the situation that we have in this case.
Hugo L. Black: But does it not -- does it not remain the same grade and quality and milk is out.
John E. F. Wood: No, Your Honor my point is that the significant difference is that if you can't sell it at the same price. It's not on the same grade and quality.
Hugo L. Black: They say grade and quality.
John E. F. Wood: Yes, sir. Well, the grade --
Hugo L. Black: You don't agree if I see [Inaudible]
John E. F. Wood: No, but what they're talking about is the price of which you could sell it.
Hugo L. Black: Is it?
John E. F. Wood: And grade and --
Hugo L. Black: And ultimately you -- you're talking to say that it's the same grade and quality --
John E. F. Wood: Yes, sir.
Hugo L. Black: -- you must sell it at the same price, doesn't it?
John E. F. Wood: Yes ,sir.
Hugo L. Black: And it is the same -- it's the same identical milk, isn't it?
John E. F. Wood: To start with, yes, sir-- when Borden sells that it is. Well the antitrust commentator, some of them when we've cited in our brief, think of grade as relating to marketability, the degree of acceptance of the product, quality as relating to its inherent physical characteristics. That seems to be the use of the words which was adopted by the Commission.
Abe Fortas: Someone had said that.
John E. F. Wood: I beg your pardon.
Abe Fortas: Someone had said that. Someone who say opposite, don't you think? Not the meaning of grade?
John E. F. Wood: Yes, sir. As long we cited in our brief are the one who said that. [Laughter] Now that's referred to also in the brief.
Hugo L. Black: Does it compares.
John E. F. Wood: Yes, sir. The -- in the Callaway Mills case, Chairman Dixon writing for the Commission made the same distinction. That was one of these four Goodyear cases where they were comparing prices for purposes of testing whether there was a good faith in meeting competition. And he said when the hearing examiner made the finding of like grade and quality as he had the -- he made a mistake because he didn't look at both quality which is intrinsic characteristics and intends public demand which he agreed.
Abe Fortas: Mr. Wood. One of the things about this maybe about the argument that the Court of Appeals,perhaps part of what you've said is that if we should adopt that definition of grade and quality and if by the same ordinance made a private label only for the Great Atlantic and Pacific Tea company and Safeway and Kroger let's say and didn't make it available to anybody else. If we adopted the idea of that commercial differentiation in market acceptability just by as a lower price for the private label product, there would be no way of reaching that situation. Am I correct in that observation?
John E. F. Wood: I believe not Your Honor. I think --
Abe Fortas: I wish you would help me and explain it --
John E. F. Wood: I think that the -- I think that the decision below and an affirmance of that decision here would leave the Commission entirely free to deal with the case you put because as I understand the case and as I present it, we're dealing here with the situation where it was clearly overwhelmingly shown as a matter of commercial fact that there were two separate markets, it would be premium brand market, the private label market and we're dealing here with the facts of this case. Now if a case arises in which Borden or somebody else, who make some special deals with the Grand Union or somebody, or if another Goodyear case arises, the Commission can deal with those without being in anyway cramped by this. And the illustration of that is the case that is cited in our brief in this very Fifth Circuit not long before this case was argued there. They came down with a decision in a private triple damage action holding that two products were of like grade and quality, although, they bore different labels. And the Commission said that that's just what we say and the Court had no difficulty at all with that and Judge Reeves who wrote the opinion, in that other case, who joined in the unanimous opinion here. On the facts of this case, you've got a clear substantial, unquestioned differentiation in the market between these products. You have in truth and in fact different products. In a situation, where some (Voice Overlap)
Abe Fortas: I suggest stayed exactly the same if the sale of the private label product would be finally in the Safeway and Kroger?
John E. F. Wood: Well, I suggest not Your Honor because there would be a grave suspicion that this seller was not undertaking to provide a general private label market which is what Borden is doing here. The very fact that it picks out one or two big chains and makes a special deal with them it's almost that they'd give away that that is not the fact. And I have no doubt that the expertise of the Federal Trade Commission would enable them to deal with that situation very readily. Well, if I may summarize for just a minute, the -- I would reassert that the decision of the Court of Appeals on the facts of this case is consonant with the objective of the Robinson-Patman Act and it is pro-competitor. The Borden Company has not discriminated at all as among the Borden brand customers. There's no question about that. It has not discriminated at all among the private label customers and there's no question about that. The products are evaluated in the market as being different products and there's no question about that. Now a reversal, an announcement that the Borden Company could only engage in the distribution of private label milk at the peril of facing a Federal Trade Commission proceeding would be to say, “you'd better stratify this industry.” Let the -- let the Borden, the premium brand producers stick to their daily rate. Let the other stick to theirs and let's not have competition between them. I submit to the Court that a decision which would have that implication ought not to be rendered unless it is clearly called for by the language and the objectives of the Robinson-Patman Act and I submit that it is not.
Earl Warren: Well, we will recess.