Lloyd A. Fry Roofing Company v. FTC

• Decision Date: 03 February 1967
• Docket Number: No. 15389.,15389.
• Citation: 371 F.2d 277
• Parties: LLOYD A. FRY ROOFING COMPANY, a corporation, and Lloyd A. Fry, Sr. and Lloyd A. Fry, Jr., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

371 F.2d 277 (1966)

LLOYD A. FRY ROOFING COMPANY, a corporation, and Lloyd A. Fry, Sr. and Lloyd A. Fry, Jr., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 15389.

United States Court of Appeals Seventh Circuit.

December 28, 1966.

Rehearing Denied February 3, 1967.

COPYRIGHT MATERIAL OMITTED

Burton Y. Weitzenfeld, Chicago, Ill., James R. Fruchterman, Chicago, Ill., Kahn, Adsit, Arnstein, Gluck, Weitzenfeld & Minow, Chicago, Ill., of counsel, for petitioners.

J. B. Truly, Asst. Gen. Counsel, E. K. Elkins, Atty., Federal Trade Commission, Washington, D. C., James McI. Henderson, General Counsel, Attorney for Federal Trade Commission, for respondent.

Before SCHNACKENBERG, SWYGERT and CUMMINGS, Circuit Judges.

CUMMINGS, Circuit Judge.

This case arises on a petition to review a determination of the Federal Trade Commission that Lloyd A. Fry Roofing Company and two of its officers violated Section 2(a) of the Clayton Act (15 USC § 13(a)) by engaging in territorial price discriminations.¹ The Commission's opinion is reported in 3 Trade Regulation Reporter ¶ 17,303 (1965). The pertinent parts of its findings are summarized here.

Lloyd A. Fry Roofing Company ("Fry") is a Delaware corporation with its principal office and place of business in Summit, Illinois. Fry is the nation's largest producer of asphalt roofing products. There are nine other major manufacturers of asphalt roofing products and a large group of smaller manufacturers, the independents.

In 1956-1960, Fry operated 19 asphalt plants throughout the United States. In 1958, it sold 14.2% of the nation's asphalt saturated felt, the product involved in the proceedings before the Commission. Asphalt saturated felt is used in the roofing industry as a moisture barrier under shingles. It is also used on "built-up" roofs which consist of several layers of such felt bonded together with hot asphalt.

Roughly, Fry's customers are classified into wholesalers and retail dealers. One of Fry's principal customers is Sears Roebuck & Co., a retailer purchasing at wholesale prices totaling $5,000,000 per annum during 1956 through 1960.

Before February 1956, Fry sold at prices five to seven percent below the other majors' published prices. However, in this industry, published prices are not always the actual prices but are varied to meet competitive needs.

In February 1956, Fry revised its price schedule. It increased its prices everywhere in the United States east of the Rockies. The new price list was based on freight equalization factors. In Knoxville, Tennessee, the critical market area here,² the new list price was $2.55 per roll for 60-pound rolls of 15 and 30-pound asphalt saturated felt.³ The other majors followed this price change, and also made Knoxville a factory point for pricing.

In the Knoxville, Tennessee, market area, two of Fry's competitors were Volasco Products Company and The Ohio Paper Company. Volasco was organized in 1955 to manufacture and sell asphalt roofing products. Its plant was in Knoxville, Tennessee, and its principal competitors included Fry and the other nine majors and The Ohio Paper Company, another independent. The Commission found that because of Volasco's natural freight advantage, it could profitably sell to dealers within the Knoxville market area in less than carload shipments at prices substantially lower than Fry's delivered prices for similar quantities there.

The Ohio Paper Company is located in Miamisburg, Ohio, and sold asphalt saturated felt in eastern Tennessee from 1955 to 1958 at 5% below the published prices of the majors. However, it stopped doing business in Tennessee in 1958 because prices were so low that it would be selling at a loss. It blamed Fry's low prices for its withdrawal from Tennessee.

From February to November 1956, Volasco was selling felt to dealers in less than carload lots in the Knoxville area at prices ranging from $2.01 to $2.25 per roll. In August 1956, Fry's list price in Knoxville was $2.62 per roll. However, on November 1, 1956, Fry lowered its list price to $2.36 per roll less a 5% secret rebate. The Commission found that Fry's prices to Knoxville customers were subsequently at or below Volasco's costs. During the relevant period, Fry's prices on asphalt saturated felt were higher in other felt factory areas than in the Knoxville area. In fact, until February 1, 1960, Fry maintained a price difference between Knoxville and other felt factory markets east of the Rockies.

Before November 1956, Volasco's sales of asphalt saturated felt had been increasing. Thereafter its sales diminished. Finally, because of low prices, Volasco sold felt only to its established customers instead of seeking new business.

The Commission found that Fry's February 1956 zoning price system was adopted to combat price competition, and that this price increase was adopted the following day by all majors. However, the independents continued to sell below the majors' published prices. Consequently, in April 1956, Fry's president agreed to "take corrective action" if the market did not become stabilized within 30 days. In the Knoxville market area, Volasco and Ohio Paper continued to sell at lower prices, and Fry took its "corrective" list price reduction there in November 1956. The Commission also found that Volasco's presence in Knoxville prompted Fry and the other majors to adopt their discriminatory price reductions and to make Knoxville a delivered-price basing point. The majors continued to maintain higher prices in areas where they were not competing with Volasco or other small independents.

The Commission found that Fry had initiated the price reduction of March 3, 1958, reducing prices to their lowest level in the Knoxville area. The Commission concluded that in making the Knoxville area discriminations, Fry had acted with predatory intent, with the purpose of disciplining small independent concerns selling below the prices established by Fry and followed by the other majors. The Commission rejected Fry's contentions that Volasco's losses were due to causes other than the territorial price discriminations.

The Commission concluded that there was a reasonable possibility that independents would be eliminated or seriously debilitated by Fry's discriminatory practices, and that their removal as viable competitors would adversely affect price competition generally in the Knoxville area and substantially injure competition with Fry. Finally, it rejected Fry's claim that its discriminatory lower prices in the Knoxville area were made in good faith to meet competition, as permitted by Section 2(b) of the Robinson-Patman Act (15 USC § 13(b)). Fry has not reiterated that defense here.

Territorial Price Discriminations.

The relevant portion of Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, provides (15 USC § 13(a)):

"It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, and 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 * * *."

One of the purposes of this provision is to protect manufacturers from discriminatory practices of their competitors. Its viability in primary line competition cases was reiterated in Federal Trade Commission v. Anheuser-Busch, Inc., 363 U.S. 536, 544-545, 80 S.Ct. 1267, 4 L.Ed. 2d 1385. As Commissioner Elman's concurring opinion observes in the present case, territorial price differences are not invalid per se, for the statute requires that there be a reasonable probability of injury to competition. Injury to a competitor is not the test; the test is injury to competition.

In most primary line cases under this statute, a violation cannot be established without a close study of the market, including data as to the discriminator's share of the market. However, in cases of predatory intent, "injury to even a single competitor should bring the Act into play". Attorney General's National Committee to Study the Antitrust Laws (1955) p. 165; Rowe, Price Discrimination under the Robinson-Patman Act (1962) pp. 145, 149. An intent to harm competitors distinguishes anti competitive price cutting from competitive activity not meant to be prohibited per se by the Robinson-Patman Act. An illicit intent serves to show the substantiality and probability of the competitive effects that may result from the price reductions. If, as here, the price reductions are substantial and prolonged, it is proper to invoke the statute to curb the discriminatory pricing. Sunderland, "Territorial Price Differentials Under the Robinson-Patman Act", 41 Chicago Bar Record 121, 128 (1959); Edwards, Maintaining Competition (1949) p. 170, note 75.

Since the Commission's finding of Fry's predatory intent is supported by the record, we conclude that it was unnecessary for the Commission to engage in an elaborate market study. As this Court stated in Anheuser-Busch, Inc. v. Federal Trade Commission, 289 F.2d 835, 843 (7th Cir. 1961):

"If * * * the projection to ascertain the future effect of the price reductions made by the territorial price discriminator is based upon predatoriness or buccaneering, it can reasonably be forecast that an adverse effect on competition may occur. In that event, the discriminations in their incipiency are such that they ma

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