Boise Cascade Corp. v. F.T.C.

• Decision Date: 29 January 1988
• Docket Number: No. 86-1240,86-1240
• Citation: 837 F.2d 1127,267 U.S.App.D.C. 124
• Parties: , 56 USLW 2437, 1988-1 Trade Cases 67,870 BOISE CASCADE CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1127

837 F.2d 1127

267 U.S.App.D.C. 124, 56 USLW 2437,

1988-1 Trade Cases 67,870

BOISE CASCADE CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 86-1240.

United States Court of Appeals District of Columbia Circuit.

Argued March 2, 1987.

Decided Jan. 29, 1988.

As Amended Jan. 29, 1988.

Victor E. Grimm, with whom John T. Loughlin, R. Clifford Potter, Scott M. Mendel, Chicago, Ill., and Donald Mitchell, Washington, D.C., were on brief, for petitioner.

Arnold C. Celnicker, F.T.C., Atlanta, Ga., with whom Ernest J. Isenstadt, Asst. Gen. Counsel, Jerold D. Cummins, Deputy Asst. Gen. Counsel, Washington, D.C., and Chris M. Couillou, F.T.C., Atlanta, Ga., were on brief, for respondent.

R. Bruce Rich, New York City, was on the brief for amicus curiae, National Ass'n of Service Merchandising, urging reversal of the F.T.C. decision on functional discounts.

Before MIKVA, STARR and WILLIAMS, Circuit Judges.

Opinion for the Court filed by Circuit Judge STARR.

Concurring opinion filed by Circuit Judge WILLIAMS.

Dissenting opinion filed by Circuit Judge MIKVA.

STARR, Circuit Judge:

This case comes before us on petition for review of a decision of the Federal Trade Commission holding Boise Cascade Corporation in violation of section 2(f) of the Robinson-Patman Act, 15 U.S.C. Sec. 13(f) (1982). The Commission determined that Boise's receipt of price discriminations, in the form of discounts on office products it purchased for resale to consumers, tended to cause competitive injury to dealers in the office products industry with whom Boise competes. In so concluding, the Commission relied upon the "inference" of competitive injury, articulated by the Supreme Court in FTC v. Morton Salt, 334 U.S. 37, 68 S.Ct. 822, 92 L.Ed. 1196 (1948), that arises when a substantial price discrimination exists over time. For the reasons to be set forth, we grant the petition for review.

I

A

Before examining the facts in this case, we first pause briefly to describe the pertinent statutory framework. Section 2(f) of the Robinson-Patman Act makes it unlawful for any person "knowingly to induce or receive a discrimination in price which is prohibited [under the Robinson-Patman Act]." ¹ 15 U.S.C. Sec. 13(f). Since the Act directly proscribes only a seller's activities, the liability of a buyer under section 2(f) depends on whether the seller discriminated in the buyer's favor in violation of section 2(a) of the Act. See, e.g., Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69, 76-77, 99 S.Ct. 925, 931, 59 L.Ed.2d 153 (1979); Automatic Canteen Co. v. FTC, 346 U.S. 61, 70-71, 73 S.Ct. 1017, 1022-23, 97 L.Ed. 1454 (1953). Section 2(a) prohibits price discrimination between different purchasers "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." ² Id. Sec. 13(a).

To establish a prima facie case under section 2(f), the Commission must establish two things: first, that the buyer received a lower price than its competitors, and second, that the price discrimination caused, or reasonably might cause, competitive injury.

The statute also specifies two defenses to a seller's (and therefore to a buyer's derivative) liability. No violation exists where the discount reflects the lower cost to the seller of selling to the favored customer (the "cost-justification" defense), nor where the seller granted the discount in good faith to meet a competing seller's price (the "meeting competition" defense). ³ Id. Sec. 13(a)-(b); see also Automatic Canteen, 346 U.S. 61, 73 S.Ct. 1017 (interpreting "cost-justification" defense); FTC v. Sun Oil Co., 371 U.S. 505, 83 S.Ct. 358, 9 L.Ed.2d 466 (1963) (interpreting "meeting competition" defense). In addition to these statutory defenses, the Commission recognizes a defense, or more precisely, finds an absence of competitive injury, where the discounts are generally and practically available to competitors of the favored customer (the "practical availability" defense). See, e.g., FLM Collision Parts, Inc. v. Ford Motor Co., 543 F.2d 1019, 1025-26 (2d Cir.1976), cert. denied, 429 U.S. 1097, 97 S.Ct. 1116, 51 L.Ed.2d 545 (1977).

B

On April 23, 1980, the Commission issued a complaint, over vigorous dissent, charging that Boise, as a "dual distributor" (both wholesaler and retailer) of office products, had violated section 2(f) of the Robinson-Patman Act. The complaint alleged that Boise's receipt of wholesale discounts from manufacturers on products that it then resold in a retail capacity to consumers constituted price discrimination for purposes of section 2(a). (No charge as to wholesale discounts for products that Boise thereafter sold in a wholesale capacity was pursued). The complaint alleged that Boise received these discounts knowingly and that the effect of Boise's receipt of such favorable pricing (and the resulting differential in prices) "has been or may be substantially to lessen, injure, destroy, or prevent competition" with dealers that were ineligible for the wholesale discounts. See Complaint, Boise Cascade Corp., FTC No. 9133 (Apr. 23, 1980), Joint Appendix ("J.A.") at 3-4.

In issuing the complaint, the Commission directed the Administrative Law Judge to receive evidence and to make findings of fact sufficient for disposition of the case under the competing standards of two FTC cases, namely Mueller Co., 60 F.T.C. 120 (1962), aff'd, 323 F.2d 44 (7th Cir.1963), cert. denied, 377 U.S. 923, 84 S.Ct. 1219 (1964), and an earlier FTC case that Mueller had overruled, Doubleday & Co., 52 F.T.C. 169 (1955). Doubleday, in brief, had articulated an additional defense under section 2(f) when the amount of the price disparity was reasonably related to the buyer's cost (as distinguished from the seller's cost savings) of providing additional marketing services. As we shall presently see in fuller detail, Mueller rejected entirely Doubleda 's rationale, but both cases nonetheless seemed to live on within FTC chambers as competing strains of Robinson-Patman thought.

II

At the outset of our examination of the office products industry, it is appropriate to sound a note of caution as the applicable law meets the rich web of facts. The voluminous record of this case eloquently attests to the fact that the manufacture and sale of office products have given rise to a complex, dynamic industry with a variety of players performing discrete but interrelated roles. Resolving the controversy at hand requires applying to this complex business environment a set of legal ground rules which are in a state of considerable uncertainty. We are therefore well advised to follow the lead of courts which, confronted with cases arising under Robinson-Patman, have found it necessary to map out in some detail the competitive terrain upon which the players do battle. See, e.g., FLM Collision Parts, 543 F.2d 1019; see also Edward J. Sweeney & Sons, Inc. v. Texaco, 637 F.2d 105 (3d Cir.1980), cert. denied 451 U.S. 911, 101 S.Ct. 1981, 68 L.Ed.2d 300 (1981). We hasten to observe that this fact-intensive approach is dictated by the statute itself, which as we indicated at the outset calls for an inquiry into whether the effect of a price discrimination has been or "may be substantially to lessen ... injure, destroy or prevent competition." 15 U.S.C. Sec. 13(a).

A

The office products industry involves the manufacture, distribution, and sale of stationery, office supplies and office furniture. ⁴ ALJ Finding 6, J.A. at 46. A wide range of items falls within the broad compass of "office products," including, to name just a few, business forms, appointment books, portfolios, address books, file cabinets, desk stands, ring binder notebooks, work sheet pads, and paper punches. See generally id. 103-06, 157-59, 202-20, 252, 287-90, 330-40; J.A. at 66, 76, 83-85, 89-90, 95, 102-04.

The sale of office products has traditionally occurred at three levels: manufacture, wholesale, and retail.

Manufacturers. Manufacturers in this industry sell their goods to wholesalers, dealers, and, on occasion, directly to end-users. Id. 7, J.A. at 46. Although the record provides no precise numbers, compare id., J.A. at 46 with id. 65, J.A. at 59, office products are apparently produced by at least 1,000 manufacturers in the United States. Id. 7, J.A. at 46. These manufacturers produce and market a bewildering array of products. For instance, Shaeffer Eaton, a division of Textron Inc., one of the six manufacturers that the Commission selected in its effort to demonstrate that Boise had violated section 2(f), produces writing instruments, social stationery, record books, typewriter paper, and other sundry items. Transcript at 1059. These products are, of course, manufactured in a wide variety of colors and sizes, creating hundreds of separate Shaeffer Eaton items. This proliferation of products and product lines is apparently not at all unusual in the industry.

Wholesalers. Wholesalers are defined as firms or individuals that buy goods for resale to dealers. Id. 23, J.A. at 50. There are approximately 100 wholesalers in the industry. Most are small, privately-owned businesses. Id. 27, J.A. at 51; Transcript at 6587-88. Sales at the wholesale level are dominated by five nationwide companies (the largest of which is Boise). These "Big Five" firms account for about 60% of the total volume of wholesale sales. ALJ Findings 26, 28, J.A. at 50-51. Boise, as we shall presently see, fits within the category of "dual distributors," that is to say an integrated wholesaler that carries on retail as well as wholesale functions.

Dealers. Dealers, by definition, purchase office products from manufacturers or wholesalers (or both) for resale to consumers. Id. 43, J.A. at 54. Within the...