Mueller Co. v. FTC

• Decision Date: 21 October 1963
• Docket Number: No. 13674.,13674.
• Citation: 323 F.2d 44
• Parties: MUELLER CO., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

323 F.2d 44 (1963)

MUELLER CO., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 13674.

United States Court of Appeals Seventh Circuit.

September 6, 1963.

As Modified on Denial of Rehearing October 21, 1963.

Rehearing Denied October 21, 1963.

A. G. Webber, III, Decatur, Ill., John T. Loughlin, Chicago, Ill., Thomas R. McMillen, William F. Upshaw, Chicago, Ill., Webber, Webber & Welsh, Decatur, Ill., Bell, Boyd, Lloyd, Haddad & Burns, Chicago, Ill., of counsel, for petitioner.

J. B. Truly, Asst. Gen. Counsel, Thomas F. Howder, Attorney, James McI. Henderson, General Counsel, Alvin L. Berman, Attorney, Federal Trade Commission, Washington, D. C., for respondent.

Before KNOCH, KILEY, and SWYGERT, Circuit Judges.

Rehearing Denied October 21, 1963, en banc.

KILEY, Circuit Judge.

This is a petition pursuant to 15 U.S.C. § 21 to review a cease and desist order of the Federal Trade Commission for violation of § 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a).¹

Petitioner manufactures and sells, in interstate commerce, valves, fittings, and other equipment parts and accessories used especially in public and privately owned water and gas distribution systems. It has plants in Illinois, California and Tennessee. In 1957, its gross sales exceeded $25,000,000, with 40% in gas products and 60% in waterworks products. It sells directly, or through jobbers, to end users of its products. Virtually all of its gas system products and about half of its waterworks products are sold directly to ultimate users. The remainder of the waterworks system products petitioner sells to two classes of jobbers throughout the United States, respectively called "limit" or "stocking" jobbers, and "regular" jobbers. Both classes of jobbers receive a 15% discount on all orders for direct or "drop shipments" to end users. But petitioner gives a 25% discount to stocking jobbers on petitioner's products which they warehouse.²

The Commission's complaint charges that the 10% discount differential was unlawful price discrimination. The Hearing Examiner ordered the complaint dismissed. The Commission on appeal vacated the Examiner's order and entered the order at bar. This proceeding followed.

The Commission found, among other things, that the discount to stocking jobbers competing with regular jobbers was discrimination in prices, the effect of which "may be substantially to injure, destroy or prevent competition;" that petitioner had failed to establish either that the discount to stocking jobbers was granted for the purpose of meeting in good faith low prices of competitors or that the greater discount to stocking jobbers was "cost justified." In its opinion the Commission also found that petitioner discriminated in the selection of stocking jobbers.

At the outset, we see no merit in petitioner's contention that the Commission "aribitrarily" overturned the findings of the Hearing Examiner and that the findings of the Hearing Examiner are supported by a "preponderance of the record evidence." The only question for us on the evidence is whether there is a substantial evidentiary basis for the findings of the Commission.

Petitioner contends the Commission produced no evidentiary basis for its finding that there was competitive injury. We point out that the Commission's finding is that the effect of the discrimination may be to injure.

There is evidence that the profit margin for a wholesaler in the business is "very, very low" and an additional 10% margin "extremely important;" that a retailer seeing one competitor's lower price on one item will think "you are out of line" on other items and this has a harmful effect on the regular jobbers; that a regular jobber changed to a different seller to get a discount equalling the competition of stocking jobbers; and that some of petitioner's jobbers wrote complaining of the discount to stocking jobbers. Moreover, there is apparent from the difference in discounts themselves a "reasonable possibility" that the regular jobbers would be adversely affected by petitioner's discounting practice.

We think there is a substantial evidentiary basis to support the finding that the effect of discrimination in discounts "may be substantially to injure competition." That is a sufficient finding. Federal Trade Comm. v. Morton Salt Co., 334 U.S. 37, 46, 50, 68 S.Ct. 822, 828, 830, 92 L.Ed. 1196 (1948),³ E. Edelmann & Company v. Federal Trade Comm., 239 F.2d 152, 154 (7th Cir. 1957), cert. denied, 355 U.S. 941, 78 S.Ct. 426, 2 L.Ed.2d 422 (1958).

We turn now to the finding that petitioner failed to establish the § 2(d)⁴ "defense" interposed to the § 2(a) complaint. The Hearing Examiner found in effect that the "stocking jobber" status was available to regular jobbers. Before the Commission, in support of that finding, petitioner argued that regular jobbers were free to enter the stocking jobber status and that therefore the practice conformed to § 2(d) of the Act. The Commission found to the contrary and petitioner challenges the finding in this court.

There were no objective standards to guide regular jobbers in qualifying as acceptable and there is substantial evidence to support the Commission's finding as well as evidence that petitioner's decisions on this point were influenced by whether it had already adequate distribution "in that particular area" and by its concern to protect "old established jobbers." Theoretically, these discounts were available to all, but functionally they were not. Federal Trade Comm. v. Morton Salt Co., 334 U.S. 37, 42, 68 S.Ct. 822, 92 L.Ed. 1196 (1948).

Because we think the Commission's finding is based on substantial evidence, it follows that it was warranted in concluding that § 2(a) was violated by price discrimination in that the "functional discount" was not available to all other jobbers or customers of petitioner as required by § 2(d). Petitioner's position before the Commission and here was that to prove unlawful discrimination under § 2(a) the General Counsel was required to prove unavailability of the higher discount to the regular jobbers, and before the Examiner petitioner introduced evidence of availability in an attempt to establish a § 2(d) defense.

Petitioner alleged, in these proceedings, and had the burden of proving, the defense set forth in § 2(a) of the Act: "* * * nothing herein contained shall prevent differentials in price which make only due allowance for differences in the cost of manufacture, sale, or delivery * * *." The Commission found that petitioner failed to establish that defense of "cost justification." We think there is substantial evidence in the record as a whole to support that finding.

The discount is allegedly given to cover the cost of maintaining an inventory of petitioner's products. But the record contains "a large number" of invoices showing that stocking jobbers received the added discount on goods which they purchased after having received orders from their own customers. On those "tagged" orders, there is no showing that the stocking jobbers did any more than regular jobbers, who received a discount of only 15%. Petitioner's brief in this court argues that the cost on those orders "may actually be greater because of the special handling involved." The mere possibility of greater cost is not sufficient.

The evidentiary basis of the Commission's findings and conclusions is limited to sales of petitioner's waterworks products. For this reason petitioner contends the Commission's order⁵ is too broad in including its gas products. If the Commission's conclusion that petitioner violated § 2(a) in distributing its waterworks products is right, it is not unreasonable for the Commission to frame its order to prohibit petitioner's use of the illegal practice "in conjunction with the sale of any and all products." Niresk Industries, Inc. v. Federal Trade Comm., 278 F.2d 337 (7th Cir., 1960), cert. denied, 364 U.S. 883, 81 S.Ct. 173, 5 L.Ed.2d 104 (1960). We think the evidence as to the unlawful discount justified the order to cease and desist from using the discount device on any of its products. Federal Trade Comm. v. Morton Salt Co., 334 U.S. 50, 52, 68 S.Ct. 822, 92 L.Ed. 1196 (1948), E. Edelmann & Company v. Federal Trade Comm., 239 F.2d 152, 156 (7th Cir., 1957).

Petitioner argues that the Commission's order will disrupt its distribution system and prevent it and others from providing price discounts to stocking jobbers in payment for valuable warehousing functions. The Commission's order is based on findings: that the amount of discount was not cost justified; that stocking jobbers have received stocking discounts where no warehousing function was provided; and that stocking jobber status was not available to all on objective standards. The Commission's order, although written in broad terms, is based on and is limited by those findings of fact. The Commission order cannot do away with statutory defenses provided by the Robinson-Patman Act. The Commission, in its brief, referring to the practice of compensating jobbers who perform a warehousing function, states: "* * * this is a perfectly proper procedure, provided it be done in a fair and legal manner." We approve the order on that basis.

For the reasons given, we hold the findings of the Commission are supported by substantial evidence in the record; that the Commission did not err in its conclusion of law that petitioner's conduct violated § 2(a) of the Clayton Act as amended; and that the order is valid. We have considered the other points argued, but need not discuss them.

The petition is denied. The order is affirmed.

SWYGERT, Circuit Judge (dissenting).

The hearing examiner found that the additional ten per cent discount granted stocking (limit) jobbers compensates them for maintaining an inventory of Mueller items which are needed by users most frequently, often to meet emergencies; and that this differential in price...