Anheuser-Busch, Inc. v. FTC

• Decision Date: 25 January 1961
• Docket Number: No. 12284.,12284.
• Citation: 289 F.2d 835
• Parties: ANHEUSER-BUSCH, INC., a Missouri corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

289 F.2d 835 (1961)

ANHEUSER-BUSCH, INC., a Missouri corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.¹

No. 12284.

United States Court of Appeals Seventh Circuit.

January 25, 1961.

Edgar Barton, New York City, Charles M. Price, Chicago, Ill., for petitioner.

Francis C. Mayer, Atty., Federal Trade Commission, Washington, D. C., for respondent.

Before DUFFY, SCHNACKENBERG and KNOCH, Circuit Judges.

SCHNACKENBERG, Circuit Judge.

In reversing our prior decision, 265 F.2d 677, the Supreme Court, 363 U.S. 536, at page 542, 80 S.Ct. 1267, 4 L.Ed. 2d 1385, limited the nature of its inquiry, because we had held only that the threshold statutory element of price discrimination had not been established. While the Court concluded that the evidence warranted the Commission's finding of price discrimination, it explained, at page 549, 80 S.Ct. at page 1274, that a price discrimination within the meaning of § 2(a)² is merely a price difference, and stated, at page 550, 80 S.Ct. at page 1275, that the statute itself spells out the conditions which make a price difference illegal or legal. The Court made it plain at page 542, at page 1270 of 80 S. Ct. that, having held that a price difference existed within the meaning of § 2(a), it was remanding the case to this court to consider whether the record supported a finding of the requisite competitive injury, whether AB's good faith defense was valid, and whether the Commission's order was unduly broad. It intimated no view upon these aspects of the controversy.

The Supreme Court, at page 553, 80 S.Ct. at page 1277, disclaimed any flat prohibition of price differentials, recognizing that price differences constitute but one element of a § 2(a) violation.

Before the hearing examiner, upon the Commission's conclusion of its case in support of its complaint, AB's counsel moved to dismiss the complaint for failure to prove "(a) that the alleged practices tended substantially to lessen competition * * * or to injure * * * competition * * * within the meaning and intent of said Section 2(a) * * *, and (b) that the Commission has failed to prove a prima facie case under the allegations of the complaint."

In denying the motion, the examiner said that the Commission had "a mighty slim case here as it now stands", and that he was going to hear from AB's side. He then heard AB's defense and the Commission's rebuttal. The examiner's initial decision, in which he made findings of fact and concluded that AB had violated § 2(a) as charged, was slightly modified and adopted by the Commission.

Having made a painstaking review of the record, including all of the evidence upon the issue of requisite competitive injury, we herein specifically refer to certain facts, because of their significance on this remandment.

Section 2(a) makes it unlawful to discriminate in price

"* * * 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 * * *." (Italics supplied.)

The gains and losses in the shares of the St. Louis packaged beer market commencing before and ending after AB's price reductions of January 4 and June 21, 1954, expressed in percentages of sales as divided among AB, Griesedieck Brothers (GB), Falstaff, Griesedieck Western (GW) and "All Others", are set forth in the following tabulation:

                              Dec. 31   June 30       March 1   July 31   Jan. 31
                                 1953    1954*    1955        1955     19563
                              --------------------------------------------------------
                  AB           12.5      16.55         39.3      21.03      17.5
                  GB           14.4      12.58          4.8       7.36       6.2
                  Falstaff     29.4      32.05         29.1      36.62      43.2
                  GW           38.9      33.           23.1      27.78      27.3
                  All Others    4.8       5.82          3.94      7.21       5.8
                

This tabulation shows that AB's overall market increase in the St. Louis market area from December 31, 1953 to February 1, 1956 was 5% of the said market, while Falstaff's was 13.8% thereof.

In 1953 AB stood in fourth place in the St. Louis market and in 1956 it was in third place, having displaced GB.⁴ While GW at all dates shown in the table led AB in the St. Louis market, with the exception of March 1, 1955, its relatively low rating of 23.1% at that date is explainable by unique circumstances.⁵

At the hearing before the examiner, counsel for the Commission made it clear that no claim was made that the statutory effect on competition resulted from the January 4, 1954 drop in price by AB.

Outside of St. Louis, Falstaff had eight different breweries and grew from sixth to fourth largest brewer in the United States from 1954 to 1955; its beer was sold in 26 states in the West, Midwest, South and Southeast. GB was sold in 13 states, and, indeed, as was true with each of the other beers, it was found that more than three-quarters of its sales were outside St. Louis. GW was sold in 20 states.

While AB sells its Budweiser beer throughout the United States and has ranked first or second in national sales, it has never accounted for more than about 7% of such sales and is not first in any major market in the United States. Rather, competitors such as Falstaff, GW and GB dominate most markets, just as they dominated St. Louis with 82.7% of sales.

Although the hearing examiner found that AB's position in the St. Louis market had increased from sixth to fourth from 1945 to 1953, the fact is that at all these times AB was in last place in St. Louis, the number of brewers having decreased from six to four by reason of mergers, none of which involved AB.

In the fall of 1953, after an increase in costs due to a new wage contract, AB increased the price of Budweiser 15¢ a case in all markets except those in Missouri and Wisconsin. In many areas this small increase was multiplied by wholesalers' and retailers' markups to $1.20 a case at the retail level.

Despite similar cost increases due to the same new wage contracts, a number of brewers, including Falstaff and AB's other St. Louis competitors, chose to absorb the increased costs, and did not raise prices in any market in which they did business. Their right to do so is not challenged. However, as a consequence, there was a spread between the price of Budweiser and the price of other beers in markets other than in Missouri and Wisconsin. In some cases this spread was created by this increase, but in most cases a preexisting spread was increased. As a result, in November and December 1953, AB began to suffer severe sales losses in the Midwest sales area, supplied by its St. Louis brewery — losses as high as 73% in Nebraska, 53% in Oklahoma, 58% in Texas, etc. In some states AB's sales were down as much as 83% below the previous year; and while industry sales were down only 8%, AB's sales were more than 35% below the previous year.

AB contends that it was obvious that something had to be done to correct the situation. The question was what should be done.

AB tried to roll back its price increase in one area, Ohio — but found, as it had anticipated, that the retailers and wholesalers were unwilling to give up their total additional markup of $1.20 per case merely because AB reduced its price 15¢ per case.

The first price reduction in St. Louis went into effect on January 4, 1954 and amounted to 25¢ per case. This still left the price of Budweiser 33¢ higher than the prices of its three principal competitors in St. Louis. All St. Louis brewers sold directly to retailers, and there were no wholesalers' markups to concern them. Furthermore, AB's home office was in St. Louis, and by a direct effort it was able to convince 85% of the retailers there to pass on the price reduction to consumers. Thus the problem of wholesalers' and retailers' markups was not present in St. Louis as it was elsewhere. Moreover, from a freight standpoint, AB was one of the few brewers who attempted to sell throughout the United States from one or two brewing sites. For example, in the area served by AB's single St. Louis brewery, Falstaff had seven breweries and intensely cultivated the area within about 300 miles of each of those seven, resulting in an estimated annual saving of $1,000,000. If AB reduced its price in an area where it had no plant, it would have to pay high freight costs from St. Louis and compete with the regional brewery getting its products from a local plant. Accordingly, all four named brewers there had at least one local plant so that none of them was faced with a freight disadvantage.

While the January 4, 1954 new price was in effect, AB also increased its advertising expenditures in St. Louis, which theretofore had been a fraction of its competitors' advertising. AB also changed its method of solicitation and delivery of orders to the system used by all of its St. Louis competitors and changed the organization of its sales force.

Despite all these changes, AB's national sales continued to decline. Then, on June 21, 1954, the second price reduction of Budweiser in St. Louis was made, the new price being the same as its three competitors had been, and were then, charging for their beers, or, as the complaint states, the price of beer "exactly matched the established price charged for beer" by the St. Louis competitors. In addition AB continued its efforts to solve its sales problem. Early in 1954, it considered proposals for reducing the capacity of its containers. On March 1, 1955, it marketed a new brand of beer to be priced competitively with its dominant competitors in the various markets, but this beer proved to be a failure. It then raised the price of Budweiser 45¢ per case and the St. Louis competitors raised their price by 15¢ a case, making Budweiser 30¢...