American Motors Corporation v. FTC

• Citation: 384 F.2d 247
• Decision Date: 29 September 1967
• Docket Number: No. 16841.,16841.
• Parties: AMERICAN MOTORS CORPORATION, American Motors Sales Corporation, Petitioners, v. The FEDERAL TRADE COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

384 F.2d 247 (1967)

AMERICAN MOTORS CORPORATION, American Motors Sales Corporation, Petitioners, v. The FEDERAL TRADE COMMISSION, Respondent.

No. 16841.

United States Court of Appeals Sixth Circuit.

September 29, 1967.

Forrest A. Hainline, Jr., Detroit, Mich., for petitioners, Cross, Wrock, Miller, Vieson & Kelley, Glen R. Miller, J. Theodore Everingham, Detroit, Mich., on the brief.

Daniel H. Hanscom, Federal Trade Commission, Washington, D. C., for respondent, James McI. Henderson, Gen. Counsel, J. B. Truly, Asst. Gen. Counsel, Miles J. Brown, Atty., Federal Trade Commission, Washington, D. C., on the brief.

Before O'SULLIVAN and CELEBREZZE, Circuit Judges, and BATTISTI, District Judge.^*

O'SULLIVAN, Circuit Judge.

This appeal presents the petition of American Motors Corporation and American Motors Sales Corporation¹ to review a decision of the Federal Trade Commission which found them guilty of violating Sec. 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a).²

American Motors manufactures and sells to retailers various electric appliances — refrigerators, ranges, home freezers, automatic washers, clothes dryers and air conditioners — under the trade names of Kelvinator and Leonard. Its business is nationwide. During the time in suit, these retailers were divided by American Motors into two groups, identified in the record as "merchandise distributors" and "regular dealers." The so-called merchandise distributors were B. F. Goodrich Co., Akron, Ohio; Consumers Power Co., Jackson, Michigan; the Alabama Power Co., Birmingham, Alabama; and Sterchi Brothers Co., Nashville, Tennessee. The regular dealers consisted mainly of department and appliance stores, some 6,000 retail outlets in all. In its complaint filed January 13, 1959, the FTC accused American Motors of unjustifiably allowing the "merchandise distributors" to purchase its products at discounts of slightly more than 3% of the sales price charged the "regular dealers".³

American Motors admitted its differential pricing practices, but defended its conduct on two grounds: that such action did not effect a lessening of competition or tend "to injure, destroy or prevent competition," as those terms are used in the Act; and that its price differentials were permissible under Section 2(a) of the Act because they made only "due allowances for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities were to such purchasers sold or delivered." The Commission, however, found that absent cost justification, American Motors' practices were violative of the Act, and further held that American Motors failed to sustain its burden of proof of cost justification for its disparate pricing. In its opinion, the Commission reversed the Initial Decision of its hearing examiner who had ordered the Commission's complaint dismissed on the basis that, although a prima facie case had been made against American Motors, the company had proved its defense of cost justification.

On this appeal, American Motors argues, first, that the Commission failed to demonstrate that its pricing practices injured or threatened injury to competition; second, that the Commission erred in finding that American Motors had not sustained its cost justification defense; and third, that the enforcement order of the Commission exceeded its authority.

1) Prima facie injury to competition.

The Commission's case in chief was bottomed entirely upon a stipulation of facts in which it was agreed that over a substantial period of time, American Motors had regularly given its merchandising distributors a discount on the price charged for the same merchandise to its regular dealers. The stipulation further provided that:

"(10) In a substantial number of instances retail outlets owned, operated, or controlled by or affiliated with the previously mentioned merchandising distributors are in direct competition with one or more of the independent stores regular dealers referred to in paragraph (9) above in the resale at retail of electric appliances sold by respondent American Motors Sales Corporation."

and in its paragraph (13) set out the facts upon which the Commission relied for its finding that the pricing practices so affected competition as to be violative of the Act, as follows:

"(a) Twenty-four out of twenty-six of such witnesses would testify that the price differentials referred to in paragraph (12) of this stipulation in many instances exceeded the amount of net profit received by them on sales of such items during the years specified;

"(b) That the witnesses have lost sales of electric appliances of like kind to competitors where the amounts of the differentials in the lower retail prices charged by such competitors were equal to the differentials referred to in paragraph (12) of this stipulation."

In an appendix to the stipulation, examples of the price differentials were set out; the discounts given to "merchandise distributors" on the prices charged to "regular dealers" ranged up to approximately 3.4% on sales of refrigerators, electric ranges, home freezers, and air conditioners, and up to about 4.4% on sales of laundry equipment, including automatic washers and dryers. The largest differential was on the "Foodarama" refrigerator, for which the price was $417.75 to the merchandising distributor and $432.35 to the regular dealer, a difference of $14.60 per unit. The smallest dollar differential was $3.25 for a wringer washer model, which sold to the merchandising distributor for $71.75 per unit and to the regular dealer at $75.00.

The stipulation, in addition to setting out the agreed upon facts, authorized the Commission to "consider all matters stipulated, together with such reasonable inferences which may be drawn therefrom, in arriving at a decision in this proceeding."

From the foregoing, and relying first upon the above-quoted subparagraphs (a) and (b) of paragraph 13 of the stipulation, the Commission found that:

"Price differentials of the order of magnitude demonstated in this proceeding which can result in the loss of sales of products as between competitors buying at the differing prices and which differentials exceeded in many instances the net profits on the sales of the items involved in the years indicated for the regular dealers, are substantial."

and concluded:

"the lower prices charged the favored dealers had the capacity to injure competition and gave rise to the probability that they would do so."

We are indeed impressed that the Commission's evidence to support its claim of injury or threatened injury to competition was meager, but we believe that it was sufficient as a prima facie showing and put the burden upon American Motors to establish a cost justification for its pricing practices. Having in mind that American Motors' business was nationwide, and that during a six months' period from March 1, 1959, to August 31, 1959, the total volume of American Motors sales of the involved appliances was $38,707,000.00, of which the merchandising distributors accounted for $2,269,874.00, it cannot be said that it was error for the Commission to find that the price advantage enjoyed by the merchandising distributors might lessen or tend to injure, destroy or prevent competition between the favored group and the regular dealers.

American Motors, however, argues that the stipulated fact that some 24 out of some 6,000 regular dealers would testify that "in many instances" the price differentials "exceeded the amount of net profit received by them on sales of such items during the years specified" is meaningless because "net profit" is not identified as before or after taxes, and because year end or distress sales could produce the same situation regardless of the price differentials. It argues also that the statements by these same witnesses that they "lost sales of electric appliances of like kind where the amounts of the differentials in the lower retail prices charged by such competitors were equal to the differentials referred to in paragraph (12) of the stipulation," is likewise of no significance, absent an identification of "such competitors" as being the favored merchandising distributors, some disclosure of the number and frequency of the loss sales, and a connection between the loss sales and the price differentials.

These contentions, we believe, are unmeritorious. We need reply to them only to this extent: The Act does not require that discriminations in price have in fact an adverse effect on competition, only that they "may" have such effect. Corn Products Refining Co. v. Fed'l Trade Commission, 324 U.S. 726, 742, 65 S.Ct. 961, 969, 89 L.Ed. 1320, 1334 (1945). Even though the experience of 24 out of 6,000 regular dealers may not be typical of a more substantial number of them, it would not be invalid simply to conclude that the dealer who buys his appliances for $5.00 or $10.00 cheaper than his direct competitor is likely thereby to have a starting competitive advantage.

The language of the Supreme Court in Federal Trade Commission v. Morton Salt Co., 334 U.S. 37, 50, 68 S.Ct. 822, 830, 92 L.Ed. 1196, 1206 (1948) is, in our view, dispositive of this matter. The Court there said:

"It would greatly handicap effective enforcement of the Act to require testimony to show that which we believe to be self-evident, namely, that there is a `reasonable possibility\' that competition may be adversely affected by a practice under which manufacturers and producers sell their goods to some customers substantially cheaper than they sell like goods to the competitors of these customers. This showing in itself is sufficient to justify our conclusion that the Commission\'s findings of injury to competition were adequately supported by evidence."

Unless the discounts afforded by American Motors can unequivocally be said to have no impact on competition, or unless t...