Automatic Canteen Co. of America v. Federal Trade Commission
Automatic Canteen Co. of America v. Federal Trade Commission
Opinion of the Court
delivered the opinion of the Court.
The Robinson-Patman Act, directed primarily against sellers who discriminate in favor of large buyers, includes a provision under which proceedings may be had against buyers who knowingly induce or receive discriminatory prices. That provision, § 2 (f) of the Act, is here for construction for the first time as a result of a complaint issued by the Federal Trade Commission against petitioner, a large buyer of candy and other confectionary products for resale through 230,000-odd automatic vending machines operated in 33 States and the District of Columbia. Petitioner, incorporated in 1931, has enjoyed rapid growth and has attained, so we are told, a dominant position in the sale of confectionary products through vending machines.
The Commission introduced evidence that petitioner received, and in some instances solicited, prices it knew were as much as 33% lower than prices quoted other purchasers, but the Commission has not attempted to show that the price differentials exceeded any. cost savings that sellers may. have enjoyed in sales to petitioner. Petitioner moved to dismiss the complaint on the ground that the Commission had not made a prima facie case. This motion was denied; the Commission stated that a prima facie case of violation had been established by proof that the buyer received lower prices on like goods than other buyers, “well knowing that it was being favored over competing purchasers,” under circumstances where the
Section 2 (f) of the Robinson-Patman Act, roughly the counterpart, as to buyers, of sections of the Act dealing with discrimination by sellers, is a vital prohibition in the enforcement scheme of the Act. In situations where buyers may have difficulty in proving their sellers’ costs, § 2 (f) could, if the Commission’s view in this case prevails, become a major reliance for simplified enforcement of the Act not only by the Commission but by plaintiffs suing for treble damages. Such enforcement, however, might readily extend beyond the prohibitions of the Act and, in doing so, help give rise to a price uniformity and rigidity in open conflict with the purposes of other antitrust legislation. We therefore thought it necessary to grant certiorari. 344 U. S. 809.
Since precision of expression is not an outstanding characteristic of the Robinson-Patman Act, exact formulation of the issue before us is necessary to avoid inadvertent pronouncement on statutory language in one context when the same language may require separate consideration in other settings. Familiar but loose language affords too ready a temptation for comprehensive but loose construction. We therefore think it imperative in this case to confine ourselves as much as possible to what is in dispute here.
We are here asked to settle a controversy involving simply the burden of coming forward with evidence under § 2 (f) of the Act. The record, so abundant in its instances of individual transactions that the Commission itself felt bound to animadvert on undue proliferation of the evidence by Government lawyers,
The Commission made no finding negativing the existence of cost savings or stating that whatever cost sav
Petitioner claims that the Commission has not, on this record, made a prima facie case of knowing inducement of prices that “made more ‘than due allowance for’ ” cost differences, while the Commission contends that it has established a prima facie case, justifying entry of a cease and desist order where the buyer fails to introduce evidence. Before proceeding to an examination of the statutory provisions, it is desirable to consider the kind of evidence about which this dispute centers. Petitioner is saying in effect that, under the Commission’s view, the burden of introducing evidence as to the seller’s cost savings and the buyer’s knowledge thereof is put on the buyer; this burden, petitioner insists, is so difficult to meet that it would be unreasonable to construe the language Congress has used as imposing it. If so construed, the statute, petitioner contends, would create a presumption so lacking rational connection with the fact established as to violate due process.
No doubt the burden placed on petitioner to show his sellers’ costs, under present Commission standards, is heavy. Added to the considerable burden that a seller himself may have in demonstrating costs is the fact that the data not only are not in the buyer’s hands but are ordinarily obtainable even by the seller only after detailed investigation of the business. A subpoena of the seller’s records is not likely to be adequate. It is not a question of obtaining information in the seller’s hands.
This is not to say, however, that the converse follows, for § 2 (f) does not reach all cases of buyer receipt of a prohibited discrimination in prices. It limits itself to cases of knowing receipt of such prices. The Commission seems to argue, in part, that the substantive violation occurs if the buyer knows only that the prices are lower than those offered other buyers. Such a reading not only distorts the language but would leave the word “knowingly” almost entirely without significance in § 2 (f). A buyer with no knowledge whatsoever of facts indicating the possibility that price differences were not based on cost differences would be liable if in fact they were not. We have seen above that § 2 (f) does not refer to all price differentials. But we do not think that price differentials, even as a matter of uncritical impression, come so often within the prohibited range of price discriminations that the language can in any way be read one way for some purposes and another in relation to the word “knowingly.”
The Commission’s attempts in this case to limit the word “knowingly” to a more reasonable area of prohibition are not, we think, justified by the language Congress has used. The Commission argues that Congress was attempting to reach buyers who through their own activities obtain a special price and that “knowingly to induce or receive” can be read as charging such buyers
The Commission also urges, from legislative explanation of similar language in § 2 (a), that the word “receive” can in some way be limited to a continued and systematic receipt of lower prices that could fairly charge the recipient with knowledge of illegality.
Not only are the arguments of the Commission unsatisfying, but we think a fairer reading of the language and of what limited legislative elucidation we have points toward a reading of § 2 (f) making it unlawful only to induce or receive prices known to be prohibited discrimi-nations.
We therefore conclude that a buyer is not liable under § 2 (f) if the lower prices he induces are either within one of the seller’s defenses such as the cost justification or not known by him not to be within one of those defenses. This conclusion is of course only a necessary preliminary in this case. As we have noted earlier, the precise issue in the case before us is the burden of introducing evidence — a separate issue, though of course related to the substantive prohibition. This issue, involving as it does some of the same considerations, requires us further to consider a balance of convenience in the light of whatever evidentiary rules Congress has laid down for proceedings under the Act. Assuming, as we have found, that there is no substantive violation if the buyer did not know that the prices it induced or received were not cost-justified, we must in this case determine whether proof that
The Commission, in support of its position that it need only show the buyer’s knowledge that the prices were lower, employs familiar interpretative tools without adequate regard to their immediate serviceability. It labels a seller’s defense, such as the cost justification, as an “exception to the general prohibition” and from this argues that under conventional rules of evidence the Commission need come forward with evidence of violation only of the “general prohibition.” This interpretation has foundation in the many commonsensical readings of comparable prohibitions so as to put the burden of showing a justification on the one who claims its benefits. We have said as much even in connection with that part of § 2 (b) of the Robinson-Patman Act which attempts to lay down the rules of evidence under the Act.
We need not concern ourselves with the Commission’s interpretation of the words “prima-facie case thus made” in § 2 (b) and the resulting conclusion that if § 2 (a) and § 2 (f) are to be read as counterparts, the elements necessary for a prima facie case under § 2 (a) are sufficient for a prima facie showing of the “discrimination in price which is prohibited by this section” in § 2 (f). However that may be, the Commission recognizes that there is an “additional element” resulting from the word “knowingly” in § 2 (f), and, of course, it is that element about which the controversy here centers and to which we must address ourselves. We may, however, note in passing that consistency between § 2 (a) and § 2 (f) both as to what constitutes the prohibited “discrimination in price” and as to the elements of a prima facie showing of the
The Commission argues that a prima facie case of knowledge is made out when it is shown that the buyer knew the facts making the price differential violative of § 2 (a). At another point it urges that it must now show only “that the buyer affirmatively contributed to obtaining the discriminatory prices by special solicitation, negotiation or other action taken by him.” However the argument is phrased, the Commission is, on this record, insisting that once knowledge of a price differential is shown,
To this it is answered that although § 2 (b) does speak not of the seller but of the “person charged with a violation of this section,” other language in § 2 (b) and its proviso seems directed mainly to sellers,
If the requirement of knowledge in § 2 (f) has any significant function, it is to indicate that the buyer whom Congress in the main sought to reach was the one who, knowing full well that there was little likelihood of a defense for the seller, nevertheless proceeded to exert pressure for lower prices. Enforcement of the provisions of § 2 (f) against such a buyer should not be difficult. Proof of a cost justification being what it is, too often no one can ascertain whether a price is cost-justified. But trade ex
What other circumstances can be shown to indicate knowledge on the buyer’s part that the prices cannot be justified we need not now attempt to illustrate;
Because of our view of the balance of convenience in these circumstances, we do not reach petitioner’s claim that the Commission is in effect saying that knowledge of a difference in prices creates a presumption of knowledge that the price was unlawful, a presumption it claims would fall for lack of rational connection under Tot v. United States, 319 U. S. 463. Cf. Note, E[dmund]
The judgment of the Court of Appeals, accordingly, is reversed as to the charges in Count II of the complaint (Count I is not before us), and the case is remanded to that court with instructions to remand it to the Federal Trade Commission for such further action as is open under this opinion.
It is so ordered.
The Court also granted enforcement of the order on a cross-petition by the Commission. The Commission concedes the impropriety of this action under our decision in Federal Trade Commission v. Ruberoid Co., 343 U. S. 470, rendered after the decision of the Court of Appeals in the case now before us. In view of this concession, we assume that the Court of Appeals, on the remand of this case, will, without further direction, reconsider its order for enforcement.
The two prohibitions are as follows:
“Sec. 2. (a) That 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, where either or any of the purchases involved in such 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 Columbia or any insular possession or other place under the jurisdiction of the United States, 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: ....
[The other provisos of § 2 (a), not relevant here, concern the grant of authority to the Commission to establish quantity limits, recogni*65 tion of the seller’s right to select his customers under certain conditions, and exemption of price changes made in response to changing market conditions.]
“ (f) That it shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section.”
The Commission recognized the need, common in antitrust litigation, for care on the part of the prosecuting officers not to overburden the record. “The record in this case does not disclose the reason for such a plethora of cumulative evidence as was adduced by Government counsel in the instant matter. Neither harassment of litigants nor the waste of Government funds in needless reiteration through cumulative evidence should be countenanced, nor does it seem that it was necessary to name 14 sellers as typical of a group from
Although the Commission recited such instances, it did not relate them to what the buyer should have known as to costs. It did not find from such instances that the circumstances should have provoked inquiry in the mind of a prudent businessman. In short, we do not have a case in which the Commission in its informed judgment was led to conclude that in the circumstances knowing acceptance or inducement of a preference justified an inference of knowledge as to costs.
For a collection of relevant authorities and secondary material available on cost showings under the Act, see Note, 65 Harv. L. Rev. 1011. See also Fuchs, The Requirement of Exactness in the Justification of Price and Service Differentials under the Robinson-Patman Act, 30 Tex. L. Rev. 1; Haslett, Price Discriminations and their Justifications under the Robinson-Patman Act of 1936, 46 Mich. L. Rev. 450, 472; Sawyer, Accounting and Statistical Proof in Price Discrimination Cases, 36 Iowa L. Rev. 244. For discussion of specific cost cases under the Act, see Aronson, Defenses under the Robinson-Patman Act, in Business and the Robinson-Patman Law (Werne ed.), 212, 227; Taggart, The Cost Principle in Minimum Price Regulation, 110, 8 Mich. Bus. Studies 151, 260 (1938); War-mack, Cost Accounting Problems Under the Robinson-Patman Act, CCH Robinson-Patman Act Symposium (1947) 105; Comment, 35 Ill. L. Rev. 60.
Federal Trade Commission rulings in some cost cases “demonstrate that expert testimony and other evidence extrinsic to an actual cost analysis will be given little weight by the Commission. The FTC apparently believes that such materials lack the objectivity and relevance of the approved method of analysis.” Note, 65 Harv. L. Rev. 1011, 1013-1014. See also Warmack, supra, note 5. Compare In re Minneapolis-Honeywell Regulator Co., 44 F. T. C. 351, 394, a case
See, e. g., Warmack, supra, note 5, at 107, 110.
Cf. Longman, Distribution Cost Analysis, 250, and articles cited supra, note 5.
See, e. g., 80 Cong. Rec. 6428, 9419; H. R. Rep. No. 2951, 74th Cong., 2d Sess. 8.
Were that the case, it might strictly be argued that the seller’s “defenses” are not relevant in a § 2 (f) proceeding and that what is prohibited is the knowing inducement or receipt of a price lower than that accorded competing buyers. Such an interpretation has ambiguous legislative support. Congressman Utterback, in submitting the conference report to the House, stated, . .a discrimination is more than a mere difference. Underlying the meaning of the word is the idea that some relationship exists between the parties to the discrimination which entitles them to equal treatment, whereby the difference granted to one casts some burden or disadvantage upon the other.” 80 Cong. Rec. 9416. Plainly enough, under this statement, a discrimination in price may mean either a price differential in sales to two competitors, or a price differential in sales to two competitors which, because of an absence of cost or other justification, puts the unfavored competitor at a disadvantage. Compare Haslett, supra, note 5, at 453-466, with McAllister, Price Control by Law in the United States, 4 Law & Contemp. Prob. 273, 291. In any event, controversy over the meaning of the isolated phrase “discrimination in price” is beside the point here.
Time and again there was recognition in Congress of a freedom. to adopt and pass on to buyers the benefits of more economical processes, see, e. g., H. R. Rep. No. 2287, 74th Cong., 2d Sess. 10, 17; 80 Cong. Rec. 9415, 9417; buyer pressure to obtain the benefits of such savings could certainly not be undue pressure. Cf. Edwards, Maintaining Competition, 161. The Commission’s findings do not suggest such a discrepancy in bargaining position between this buyer and his suppliers as to warrant characterizing the buyer as “bludgeoning.” The Commission did find that those on whom the greatest “pressure” was exerted were such not inconsiderable candy manufacturers as the Curtiss Candy Co. and W. F. Schrafft & Sons Corp.
See H. R. Rep. No. 2951, 74th Cong., 2d Sess. 5-6, explaining the language in § 2 (a) quoted supra, note 2, “or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination,” as follows: The purpose of the addition of the word “knowingly” “is to exempt from the meaning of the surrounding clause those who incidentally receive discriminatory prices in the routine course of business without special solicitation, negotiation, or other arrangement for them on the part of the buyer or seller, and who are therefore not justly chargeable with knowledge that they are receiving the benefit of such discrimination.” The context in which this explanation was given, as well as the precise language, so differs from § 2 (f) that this interpretation does not present a contradiction between it and our reading of § 2 (f).
See pp. 80-81, post.
We of course do not, in so reading § 2 (f), purport to pass on the question whether a “discrimination in price” includes the prohibitions in such other sections of the Act as §§ 2 (d) and 2 (e).
Congressman Utterback, in presenting the conference report to the House, spoke quite clearly in terms indicating that the provisions of § 2 (f) contemplated only the buyer who knew that the price was not justified by costs. Section 2 (f) “makes it easier [for the manufacturer] to resist the demand for sacrificial price cuts coming from mass-buyer customers, since it enables him to charge them with knowledge of the illegality of the discount, and equal liability for it, by informing them that it is in excess of any differential which his difference in cost would justify as compared with his other customers.” 80 Cong. Rec. 9419.
Cf. Adelman, Effective Competition and the Antitrust Laws, 61 Harv. L. Rev. 1289, 1331; Edwards, Maintaining Competition, 161.
Federal Trade Commission v. Morton Salt Co., 334 U. S. 37, 44-45. Cf. S. Rep. No. 1502, 74th Cong., 2d Sess. 3. Section 2 (b) in its entirety reads as follows: “(b) 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, and unless justification shall be affirmatively shown, the Commission is authorized to issue an order terminating the discrimination: Provided, however, That nothing herein contained shall prevent a seller rebutting the prima-facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor.” Throughout this opinion, a reference to § 2 (b) is to the procedural language preceding the proviso; the language of the proviso, which we construed in Standard Oil Co. v. Federal Trade Comm’n, 340 U. S. 231, is referred to only when we speak of the “proviso of § 2 (b).”
In this connection, see supra, note 4, and post, note 24.
For example, the language of the proviso of § 2 (b) concerning price differentials made to meet competition refers only to “a seller”; further, the authority given the Commission under § 2 (b) when justification is not shown is “to issue an order terminating the discrimination,” an order that could not usefully be directed to buyers. But cf. 80 Cong. Rec. 9418.
Congressman Patman, describing the § 2 (b) rule as to the burden of proof, said: “It means exactly the rule of law today. It is a restatement of existing law. So far as I am concerned you can strike it out. It makes no difference. It is the law of this land exactly as it is written there.” 80 Cong. Rec. 8231.
It does not aid understanding to suggest that § 2 (f) has the same significance, as to a knowing buyer, as other sections of the Act have as to a knowing seller. A buyer knowing he is receiving a lower price cannot be said to be in the same position as a seller granting a lower price. The language of the statute bars such a construction. Even if the buyer has the “same” burden as the seller, the fact that a seller has the burden to show his costs does not automatically, by virtue of § 2 (f), become a buyer’s burden to show the seller’s cost. Nor has Federal Trade Commission v. Staley Mfg. Co., 324 U. S. 746, 759-760, any helpful relation to the problem of this case, if for no other reason than that that case did not call for a detailed consideration of the procedural portions of § 2 (b).
80 Cong. Rec. 3599. Samuel H. Moss, Inc. v. Federal Trade Commission, 148 F. 2d 378, 379; 80 Cong. Rec. 8241.
Our view that § 2 (b) permits consideration of conventional rules of fairness and convenience of course requires application of those rules to the particular evidence in question. Evidence, for example, that the seller’s price was made to meet a competing seller’s offer to a buyer charged under § 2 (f) might be available to a buyer more readily even than to a seller.
We need not in this case consider the weight that can be attached to affirmative statements by the seller to the buyer that a price was or was not cost-justified, since there were no such statements in this case. See supra, p. 67. We need not now consider whether in an appropriate case the Commission may find it necessary to subject such statements to careful scrutiny. Thus, for instance, the Commission may consider that a seller stating that a price would be unlawful might in some situations be puffing rather than stating anything which a buyer can rely on or should be charged with. On the other hand, the Commission may in some circumstances
Dissenting Opinion
dissenting.
This decision is a graphic illustration of the way in which a statute can be read with enervating effect.
Section 2 (b) of the Clayton Act, 38 Stat. 730, as amended by the Robinson-Patman Act, 49 Stat. 1526, 15 U. S. C. § 13 (b), provides that where proof is made 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, and unless justification shall be affirmatively shown, the Commission is authorized to issue an order terminating the discrimination . . . .” (Italics added.)
Section 2 (f) makes it unlawful “for any person” engaged in commerce “knowingly to induce or receive a discrimination in price which is prohibited by this section.” (Italics added.)
The words “the person charged” as used in § 2 (b) and the words “any person” used in § 2 (f) plainly include buyers as well as sellers.
In the present case, the Court determines that even though a “buyer knew that the price was lower,” such knowledge is insufficient to “shift the burden of introducing evidence to the buyer.” But § 2 (b) requires the person shown to have practiced a discrimination to establish a justification. Section 2 (f) was intended to make clear that the same bans and burdens are on a knowing buyer obtaining discriminatory prices as we held in Federal Trade Commission v. Staley Mfg. Co., 324 U. S. 746, 759-760, approved in Standard Oil Co. v. Federal Trade Commission, 340 U. S. 231, are on a knowing seller who grants them.
The record shows persistent and continuous efforts of this large buyer in wheedling and coercing suppliers into granting it discriminatory prices. The Commission summarized petitioner’s activities in far more sedate terms than their bizarre nature justified:
“Respondent used various methods to induce its suppliers to grant discriminatory prices. One of these was to inform prospective suppliers of the prices and terms of sale which would be acceptable to the respondent without consideration or inquiry as to whether such supplier could justify such a price on a cost basis or whether it was being offered to other*84 customers of the supplier. At other times the respondent refused to buy unless the price to it was reduced below prices at which the particular supplier sold the same merchandise to others. In other instances respondent sought to explain to the prospective supplier that certain alleged savings would accrue to the supplier in selling to respondent or that certain elements of the supplier’s cost could be eliminated, which would, in respondent’s opinion, justify a lower price. In carrying out this form of inducement, respondent would advise a supplier or prospective supplier of the price which it considered ‘standard price’. In letters written to the Curtiss Candy Company on November 15,1939, and to W. F. Schrafft & Sons Corporation on February 15, 1937, respondent summarized alleged savings to these companies as follows:
Curtiss Schrafft
“ Alleged Savings Co. Corp.
(1) Freight savings of. 6% 5% to 7%
(2) Sales cost savings of. 7% 7%
(3) 24-count cartons savings of. 5% 5%
(4) Return and allowances savings of... 1% 1% to 2%
(5) Free deals and samples savings of... 8% 2% to X%
(6) Shipping containers savings of. 1% to 2%
Total deductions. 27% 21% to 25%
“Respondent advised these companies that such alleged savings could be made because of the method by which respondent made purchases and because certain services could be eliminated in selling to it.”
There is no doubt that the large buyers wield clubs that give them powerful advantages over the small merchants. Often large merchants gain advantages over other sellers of the same merchandise by obtaining price concessions by pressure on their suppliers. The evil was
The Court disregards this history. The Court’s construction not only requires the Commission to show that the price discriminations were not justified; it also makes the Commission prove what lay in the buyer’s mind. I would let the acts of the buyer speak for themselves. Where, as here, the buyer undertakes to bludgeon sellers into prices that give him a competitive advantage, there is no unfairness in making him show that the privileges he demanded had cost justifications. This buyer over and again held itself out as a cost expert.
A reading of the record leaves no doubt that petitioner knew in numerous instances that it was squeezing a price from the seller which was less than the seller’s costs.
Reference
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- Automatic Canteen Company of America v. Federal Trade Commission
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