Great Atlantic Pacific Tea Company, Inc v. Federal Trade Commission

• Decision Date: 22 February 1979
• Docket Number: No. 77-654,77-654
• Citation: 59 L.Ed.2d 153,99 S.Ct. 925,440 U.S. 69
• Parties: GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., Petitioner, v. FEDERAL TRADE COMMISSION
• Court: U.S. Supreme Court

59 L.Ed.2d 153

99 S.Ct. 925

440 U.S. 69

GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., Petitioner,

v FEDERAL TRADE COMMISSION.

No. 77-654.

Argued Dec. 4, 1978.

Decided Feb. 22, 1979.

Syllabus

Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, prohibits price discrimination by sellers, but under § 2(b) the seller may rebut a prima facie case of price discrimination by showing that his lower price was made in good faith to meet a competitor's equally low price. Section 2(f) makes it 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." Petitioner, in an effort to achieve cost savings, entered into an agreement with its longtime supplier, Borden Co., under which Borden would supply "private label" (as opposed to "brand label") milk to petitioner's stores in the Chicago area. Petitioner refused Borden's initial offer in implementation of the agreement and solicited offers from other companies, resulting in a lower offer from one of Borden's competitors. At this point petitioner's buyer informed Borden that its offer was "not even in the ball park" and that a $50,000 improvement in the offer "would not be a drop in the bucket." Borden then submitted a new offer that was substantially better than its competitor's and petitioner accepted it. Based on these facts, the Federal Trade Commission charged petitioner with violating § 5 of the Federal Trade Commission Act for allegedly misleading Borden during contract negotiations by failing to inform it that its second offer was better than its competitor's, and with violating § 2(f) by knowingly inducing or receiving price discrimination from Borden. The FTC dismissed the § 5 charge on the ground that the issue was what amount of disclosure is required of the buyer during contract negotiations and that to impose a duty of affirmative disclosure would be "contrary to normal business practice" and "contrary to the public interest," but held that petitioner had violated § 2(f), the FTC rejecting, inter alia, petitioner's defense that the Borden offer had been made to meet competition. The Court of Appeals affirmed. Held: A buyer who has done no more than accept the lower of two prices competitively offered does not violate § 2(f) provided the seller has a meeting-competition defense, and here where Borden had such a defense and thus could not be liable under § 2(b) petitioner, who did no more than accept Borden's offer, cannot be liable under § 2(f). Pp. 75-85.

(a) Since liability under § 2(f) is limited to price discrimination "prohibited by this section," and since only §§ 2(a) and (b) deal with seller liability for price discrimination, a buyer, under § 2(f)'s plain meaning, cannot be liable if a prima facie case cannot be established against a seller or if the seller has an affirmative defense. Automatic Canteen Co. of America v. FTC, 346 U.S. 61, 73 S.Ct. 1017, 97 L.Ed. 1454. In either situation, there is no price discrimination "prohibited by this section." And the legislative history of § 2(f) confirms the conclusion that buyer liability under § 2(f) is dependent on seller liability under § 2(a). Pp. 75-78.

(b) To rewrite § 2(f) to hold a buyer liable even though there is no price discrimination "prohibited by this section" would contravene the rule that this Court "cannot supply what Congress has studiously omitted," FTC v. Simplicity Pattern Co., 360 U.S. 55, 67, 79 S.Ct. 1005, 3 L.Ed.2d 1079. Pp. 78-79.

(c) Imposition of § 2(f) liability on petitioner would lead to price uniformity and rigidity contrary to the purposes of other antitrust legislation. P. 80.

(d) A duty of affirmative disclosure requiring a buyer to inform a seller that his bid has beaten competition would frustrate competitive bidding and, by reducing uncertainty, would lead to price matching and anticompetitive cooperation among sellers. P. 80.

(e) The effect of the finding that petitioner's same conduct violated § 2(f) as violated § 5 of the Federal Trade Commission Act is to impose the same duty of affirmative disclosure that the FTC condemned as anticompetitive, "contrary to the public interest," and "contrary to normal business practice," in dismissing the § 5 charge. Pp. 80-81.

(f) The test for determining when a seller has a valid meeting-competition defense is whether he can "show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact meet the equally low price of a competitor." FTC v. A. E. Staley Mfg. Co., 324 U.S. 746, 65 S.Ct. 971, 89 L.Ed. 1338. Under the circumstances of this case, Borden did act reasonably and in good faith when it made its second bid, since, in light of its established business relationship with petitioner, it could justifiably conclude that petitioner's statements about the first offer were reliable and that it was necessary to make another bid offering substantial concessions to avoid losing its account with petitioner. Pp. 82-84.

557 F.2d 971, reversed.

Denis McInerney, New York City, for petitioner.

Frank H. Easterbrook, Washington, D. C., for respondent.

Mr. Justice STEWART delivered the opinion of the Court.

The question presented in this case is whether the petitioner, the Great Atlantic & Pacific Tea Co. (A&P), violated § 2(f) of the Clayton Act, 38 Stat. 730, as amended by the Robinson-Patman Act, 49 Stat. 1526, 15 U.S.C. § 13(f),¹ by knowingly inducing or receiving illegal price discriminations from the Borden Co. (Borden).

The alleged violation was reflected in a 1965 agreement between A&P and Borden under which Borden undertook to supply "private label" milk to more than 200 A&P stores in a Chicago area that included portions of Illinois and Indiana. This agreement resulted from an effort by A&P to achieve cost savings by switching from the sale of "brand label" milk (milk sold under the brand name of the supplying dairy) to the sale of "private label" milk (milk sold under the A&P label).

To implement this plan, A&P asked Borden, its longtime supplier, to submit an offer to supply under private label certain of A&P's milk and other dairy product requirements. After prolonged negotiations, Borden offered to grant A&P a discount for switching to private-label milk provided A&P would accept limited delivery service. Borden claimed that this offer would save A&P $410,000 a year compared to what it had been paying for its dairy products. A&P, however, was not satisfied with this offer and solicited offers from other dairies. A competitor of Borden, Bowman Dairy, then submitted an offer which was lower than Borden's.²

At this point, A&P's Chicago buyer contacted Borden's chain store sales manager and stated: "I have a bid in my pocket. You [Borden] people are so far out of line it is not even funny. You are not even in the ball park." When the Borden representative asked for more details, he was told nothing except that a $50,000 improvement in Borden's bid "would not be a drop in the bucket."

Borden was thus faced with the problem of deciding whether to rebid. A&P at the time was one of Borden's largest customers in the Chicago area. Moreover, Borden had just invested more than $5 million in a new dairy facility in Illinois. The loss of the A&P account would result in underutilization of this new plant. Under these circumstances, Borden decided to submit a new bid which doubled the estimated annual savings to A&P, from $410,000 to $820,000. In presenting its offer, Borden emphasized to A&P that it needed to keep A&P's business and was making the new offer in order to meet Bowman's bid. A&P then accepted Borden's bid after concluding that it was substantially better than Bowman's.

I

Based on these facts, the Federal Trade Commission filed a three-count complaint against A&P. Count I charged that A&P had violated § 5 of the Federal Trade Commission Act by misleading Borden in the course of negotiations for the private-label contract, in that A&P had failed to inform Borden that its second offer was better than the Bowman bid.³ Count II involving the same conduct, charged that A&P had violated § 2(f) of the Clayton Act, as amended by the Robinson-Patman Act, by knowingly inducing or receiving price discriminations from Borden. Count III charged that Borden and A&P had violated § 5 of the Federal Trade Commission Act by combining to stabilize and maintain the retail and wholesale prices of milk and other dairy products.

An Administrative Law Judge found, after extended discovery and a hearing that lasted over 110 days, that A&P had acted unfairly and deceptively in accepting the second offer from Borden and had therefore violated § 5 of the Federal Trade Commission Act as charged in Count I. The Administrative Law Judge similarly found that this same conduct had violated § 2(f). Finally, he dismissed Count III on the ground that the Commission had not satisfied its burden of proof.

On review, the Commission reversed the Administrative Law Judge's finding as to Count I. Pointing out that the question at issue was what amount of disclosure is required of the buyer during contract negotiations, the Commission held that the imposition of a duty of affirmative disclosure would be "contrary to normal business practice and we think, contrary to the public interest." Despite this ruling, however, the Commission held as to Count II that the identical conduct on the part of A&P had violated § 2(f), finding that Borden had discriminated in price between A&P and its competitors, that the discrimination had been injurious to competition, and that A&P had known or should have known that it was the beneficiary of unlawful price discrimination.⁴ The Commission rejected A&P's defenses that the Borden bid had been made to meet competition and was cost justified.⁵ A&P filed a petition for review of the Commission's order in the Court of Appeals...