Federal Trade Commission v. Sun Oil Company

Decision Date14 January 1963
Docket NumberNo. 56,56
Citation371 U.S. 505,83 S.Ct. 358,9 L.Ed.2d 466
PartiesFEDERAL TRADE COMMISSION, Petitioner, v. SUN OIL COMPANY
CourtU.S. Supreme Court

Robert B. Hummel, Cleveland, Ohio, for petitioner.

Leonard J. Emmerglick, Washington, D.C., for respondent.

Mr. Justice GOLDBERG delivered the opinion of the Court.

This case grows out of a gasoline 'price war' in Jacksonville, Florida. The question presented is whether a refiner-supplier of gasoline charged with the granting of a price discrimination in violation of § 2(a) of the Clayton Act, 1 as amended by the Robinson-Patman Act, has available to it, under § 2(b) of the Act,2 the defense that the discriminatory lower price was given 'in good faith to meet an equally low price of a competitor,' when the gasoline refiner-supplier shows that it gave the discriminatory price to only one of a number of its independently owned retail station customers in a particular region in order to enable that station to meet price reductions of a competing service station owned and operated by a retail chain selling a different brand of gasoline.

The Federal Trade Commission held the § 2(b) defense to be unavailable under such circumstances. 55 F.T.C. 955. The Court of Appeals for the Fifth Circuit reversed, 294 F.2d 465, and this Court granted certiorari, 368 U.S. 984, 82 S.Ct. 602, 7 L.Ed.2d 522, to review this difficult and important question concerning the scope and application of the § 2(b) defense.

I.

The relevant facts are not seriously disputed.

Respondent, Sun Oil Company ('Sun'), is a New Jersey corporation and a major integrated refiner and distributor of petroleum products, including gasoline. At the time of the alleged violation here in issue, Sun marketed in 18 States a single grade of gasoline sold under the tradename 'Sunoco.' Sun does not ordinarily sell directly to the motorist, but usually distributes its gasoline and other related products to the consuming public through retail service station operators who lease their stations from it.3

In 1955, Gilbert McLean was the lessee and operator of a Sunoco gas station located on the corner of 19th and Pearl Streets in Jacksonville, Florida. He was one of Sun's 38 retail dealers in the Jacksonville area, which Sun divided into three sales territories; McLean operated in a sales territory composed of eight Sun stations, one of which was only about 11 blocks away from McLean. Like almost all retail sellers of branded gasoline, McLean bought and sold only the petroleum products of a single supplier, here Sun. Notwithstanding, he was, as found below, and conceded here, an independent contractor and bore the direct and immediate risk of profitability of the station.

Commencing operation of the station in February 1955, McLean bought gasoline from Sun at 24.1 cents per gallon and resold it at 28.9 cents per gallon to the motoring public; the other Sun dealers in Jacksonville purchased from Sun at the same price and obtained the same 4.8-cent-per-gallon margin of gross profit

In June 1955, about four months after McLean began business, the Super Test Oil Company, which operated about 65 retail service stations, opened a Super Test station diagonally across the street from McLean and began selling its 'regular' grade of gasoline at 26.9 cents per gallon. It appears that this was Super Test's first and only station in Jacksonville. The record does not disclose that Super Test was anything more than a retail dealer nor does it indicate the source from which Super Test obtained its gasoline.

The two-cent-per-gallon difference in price between McLean and Super Test represented the 'normal' price differential then prevailing in the area between 'major' and 'non-major' brands of gasoline. This 'normal' differential represents the price spread which can obtain between the two types of gasoline without major competitive repercussions. Thus, McLean was apparently not adversely affected to any susbtantial degree by this first-posted price of Super Test.

Thereafter, however, Super Test sporadically reduced its price at its Jacksonville station, usually on weekends. Some of the price cuts were advertised in the local newspaper and all were posted on curbside signs. For example, on August 27, 1955, the Super Test station reduced its price to 21.9 cents a gallon and on the following day to 20.9 cents per gallon. While these lower prices were normally short-lived, at least one was maintained for a week. On the occasion of each price reduction by the Super Test station, McLean's sales of Sunoco declined substantially.

When Super Test began lowering its price below the normal two-cent differential, McLean, who was maintaining his price of 28.9 cents per gallon, from time to time protested to Sun and sought relief in the form of a price concession from it. For about four months, Sun took no action, but in December 1955, after further periodic price reductions by Super Test and a complaint by McLean that he would be forced out of business absent help from Sun, Sun told McLean that it would come to his aid in the event of further price cuts. When, on December 27, 1955, Super Test dropped its price for 'regular' gasoline to 24.9 cents per gallon, McLean told Sun that he would have to post a price of 25.9 cents in order to meet the competition. On the same day, Sun gave McLean a prive allowance or discount of 1.7 cents per gallon. McLean accord- ingly dropped his retail price three cents per gallon, from 28.9 cents to 25.9 cents, thus reducing his gross margin from the prior 4.8 cents per gallon to 3.5 cents per gallon, the amount regarded by Sun as the minimum gross margin which should be earned by its retail dealers. In lowering his price to within one cent of Super Test's, McLean absorbed 1.3 cents and Sun 1.7 cents of the per gallon price reduction. No corresponding price reduction was given by Sun to any of its other dealers in the area.

Within a few days, Super Test further lowered its price to 23.9 cents per gallon. No further price cuts were made by either McLean or Super Test until mid-February 1956, when Super Test cut its price for 'regular' gasoline to 22.9 cents per gallon. At about the same time, a general price war developed in the Jacksonville area and several other suppliers made price reductions. Sun then dropped its price equally to all of its dealers in the area. Notwithstanding a remarkable increase in his gallon sales after the December 27, 1955, price allowance to him and the reduction in his own resale price, McLean went out of business on February 18, 1956, two days after the outbreak of the general price war.4 The exact reason for the failure of McLean's business does not appear; it is not clear that it was because of the price war.

During the period between the December 27, 1955, price reduction by McLean and the February 1956 date on which Sun extended its discount to all of its area dealers, a number of Sun dealers located at distances varying from less than a mile (about 11 blocks) to about three and one-half miles from McLean's station suffered substantial declines in sales of Sunoco gasoline. Some of these Sun dealers who testified below said that they saw former customers of theirs buying gas from McLean and two declared that their customers had told them that they switched to McLean because of his lower price. Some of these dealers complained to Sun about the favored treatment accorded McLean and, prior to the February general price reductions, unsuccessfully sought compensating discounts from Sun for themselves. Though three of these other Sun dealers ultimately went out of business, there is no indication that they did so as a result of the December price reduction to McLean.

In September 1956 the Federal Trade Commission filed a complaint against Sun charging it with illegal price discrimination in violation of § 2(a) of the Clayton Act, as amended, and with entry into a price-fixing agreement with McLean in violation of § 5 of the Federal Trade Commission Act.5 The Commission adopted the findings, conclusions and proposed order of the trial examiner and affirmed his initial determination that Sun had violated the provisions of both Acts, as charged. The Commission also found that there had been actual competitive injury to the nonfavored Sun dealers by virtue of Sun's discriminatory December 27 price allowance to McLean and rejected Sun's asserted defense under § 2(b) of the Clayton Act because Sun was not meeting its own competition, that is a price cut by another wholesale seller, and because the allowance to McLean 'was not made to meet a lower price made to (McLean) * * * by another supplier' but 'to meet the competition of the Super-Test station across the street.'

Considering Super Test to be an integrated supplier-retailer of gasoline, the Court of Appeals reversed, reasoning: first, that McLean was but a 'conduit' for the marketing of Sun's products and therefore Sun, as a practical matter, was really competing with Super Test for sales of its gasoline; and second, that the price competition of Super Test was as much a threat to the continued existence of McLean as a customer of Sun as a direct competing lower offer to McLean would have been and it was not realistic to expect such an offer to be made to McLean. The Court of Appeals concluded that Sun was entitled, under the circumstances, to 'assert the (§ 2(b)) defense of meeting competition in good faith.' 294 F.2d, at 481. The Court of Appeals did not overturn the Commission's finding that Sun's discriminatory price concession to McLean had resulted in competitive injury to the other Sun dealers in McLean's area.

The Commission potitioned for a writ of certiorari to review the Court of Appeals holding that the § 2(b), defense was available to Sun under the circumstances of this record; no review was sought of the Court of Appeals reversal of the Commission's findings that Sun had entered a price-fixing agreement...

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