National Dairy Products Corp. v. FTC

• Decision Date: 20 June 1968
• Docket Number: No. 15896.,15896.
• Citation: 395 F.2d 517
• Parties: NATIONAL DAIRY PRODUCTS CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

395 F.2d 517 (1968)

NATIONAL DAIRY PRODUCTS CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 15896.

United States Court of Appeals Seventh Circuit.

May 14, 1968.

Rehearing Denied June 20, 1968.

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John T. Chadwell, Richard W. McLaren, Paul H. LaRue, Chicago, Ill., William E. Nuessle, John M. Richman, New York City, for petitioner; Chadwell, Keck, Kayser, Ruggles & McLaren, Chicago, Ill., of counsel.

Alvin L. Berman, Atty., F.T.C., James McI. Henderson, Gen. Counsel, J. B. Truly, Asst. Gen. Counsel, Washington, D. C., for respondent.

Before HASTINGS, Chief Judge, MAJOR, Senior Circuit Judge, and CUMMINGS, Circuit Judge.

CUMMINGS, Circuit Judge.

This case arises on the petition of National Dairy Products Corporation ("National") to set aside an order of the Federal Trade Commission applicable to its Sealtest Foods Division.

National is a Delaware corporation with its principal office and place of business in New York City. It is engaged in the business of purchasing, manufacturing, processing, distributing and selling dairy and other products throughout the United States. It is the nation's largest dairy product distributor. Its Sealtest Division has general supervision over National's food, milk and ice cream divisions and subsidiaries. The Sealtest divisions sell a diversified line of food products, including milk and ice cream. In 1956, National's net sales were approximately $1,352,878,000, increasing to $1,790,834,000 in 1961.

At the close of 1957, the Federal Trade Commission issued a complaint charging that National had violated Sections 2(a) and (d) of the Clayton Act, as amended by the Robinson-Patman Act (15 U.S.C. §§ 13(a) and 13(d)), in the course of sales of milk and other dairy products through its Sealtest Foods Division. In July 1963, a hearing examiner held that National had violated both statutory provisions and accordingly recommended a cease and desist order after rejecting National's defenses of cost justification and good-faith meeting of competition.

National appealed to the Commission from the Section 2(a) portion of the examiner's order. The Commission granted the appeal in part in a 2-1 decision culminating in the following order:

"IT IS ORDERED that respondent National Dairy Products Corporation, a corporation, and its officers, employees, agents and representatives, directly or through any corporate or other device in or in connection with the offering for sale, sale or distribution of any of the items in the product line of its Sealtest Foods Division, including but not limited to fluid milk, dairy products, ice cream and other food products, in commerce, as `commerce\' is defined in the Clayton Act, do forthwith cease and desist from:

"1. Discriminating, directly or indirectly, in the price of such products of like grade and quality by selling to any purchaser at net prices higher than the net prices charged any other purchaser who competes with the purchaser paying the higher price."¹

In addition to arguing that the Commission's findings and conclusions are unsupported by substantial evidence, National asserts that the Commission majority misinterpreted the clauses in Sections 2(a) and (b) of the Clayton Act dealing with cost justification, good-faith meeting of competition and competitive effects. Commissioner Elman's dissent, on which National relies, deals only with the standards to be applied to the defense of meeting competition under Section 2(b) of the Act. The Commission's order was based on National's discriminatory pricing in the following areas: (1) Jackson-Lansing-Battle Creek, Michigan; (2) Toledo, Ohio — Monroe, Michigan; (3) Memphis, and (4) New Orleans. As to the first area, the Commission held that the evidence was insufficient to find that National's sales were in interstate commerce, so that only the other three area are presently involved. In this opinion, each area and the legal issues pertaining thereto will be covered separately.

Toledo-Monroe Area

Here in 1958 National granted 13 customers a fluid milk discount of 12%, 8 customers 10%, and one customer 7%. These 22 discounts were in excess of those received by National's other retail store customers. One hundred fifty-eight of them received no discounts and 112 received discounts ranging from 2% to 6%.

Although rejecting the examiner's finding of primary line injury, the Commission sustained his finding of potential secondary line injury to retail grocers selling Sealtest milk. The competitive effects clause of the statute of course does not require showing that injury has actually occurred, but merely that the effect of the discrimination "may be substantially to lessen competition" (15 U.S.C. § 13(a)). As here, any substantial, sustained differential between competing resellers is prima facie injurious. "Mini-injury" is the test. Rowe, "Section 2(a) of the Robinson-Patman Act New Dimensions in the Competitive Injury Concept," 37 ABA Antitrust Law Journal 14, 16 (1968).

Only six independent grocery stores received more than a 6% discount from National, whereas most of its chain and group store customers were receiving a 12% discount. These high discounts enabled them to sell Sealtest milk at a price lower than the price paid to National for such milk by all but six of its independent store customers. The evidence clearly shows that National's discounts resulted "in price differentials between competing purchasers sufficient in amount to influence their resale prices" of milk. Under Federal Trade Commission v. Morton Salt Company, 334 U.S. 37, 47, 68 S.Ct. 822, 92 L.Ed. 1196, this showing is adequate to support the Commission's finding that the effect of National's price discriminations might be substantially to injure competition among retail stores in the Toledo-Monroe area.

In E. Edelmann & Company v. Federal Trade Commission, 239 F.2d 152, 154 (7th Cir. 1956), certiorari denied, 355 U.S. 941, 78 S.Ct. 426, 2 L.Ed.2d 422, we held the competitive effects clause of Section 2(a) of the Clayton Act satisfied in the following circumstances:

"We therefore turn to the record which shows substantial discriminations in price; that the purchasers of petitioner\'s products sold in a market where competition was keen; that these purchasers operated on small profit margins; that many of the purchasers found it expedient to enter into group buying arrangements for the purpose of aggregating their purchases and thereby obtaining higher discounts than they would otherwise receive as ordinary jobbers in contrast to the warehouse distributor."

Since all these factors were present here, the Commission's finding of probable competitive injury must stand. This is true even if there had been direct testimony by non-favored customers that the price discriminations had not injured their businesses. Foremost Dairies, Inc. v. Federal Trade Commission, 348 F.2d 674, 680 (5th Cir. 1965), certiorari denied, 382 U.S. 959, 86 S.Ct. 435, 15 L.Ed. 2d 362. As there pointed out, injury may be inferred even if the favored customer did not undersell his rivals, for a substantial price advantage can enlarge the favored buyer's profit margin or enable him to offer attractive services to his customers.

As in United Biscuit Company of America v. Federal Trade Commission, 350 F.2d 615, 621 (7th Cir. 1965), certiorari denied, 383 U.S. 926, 86 S.Ct. 930, 15 L.Ed.2d 845, the Commission did not apply a per se test in finding that the competitive effect of National's pricing practices would be substantial. Instead, it relied on the following factors and testimony of independent store owners (Trade Reg.Rep. (65-67 Transfer Binder) ¶ 17,656, pp. 22,917-22,918) (1966)):

"They received either no discount or a discount of 2 or 3 percent on their purchases of Sealtest milk. Their retail prices to the public generally were from 41 cents to 43 cents a half gallon. The generally prevailing retail price of Sealtest milk at the chain stores was 37 cents. At regular intervals, either on weekends or each month, the chains offered Sealtest milk at three half gallons for one dollar.

"The independent store owners named chain stores selling Sealtest milk as their competitors. All of them stated that they had lost business as a result of the chain stores\' prices, one of them characterizing the effect of such pricing as `devastating\' on his sales volume. Other owners testified that their customers were not willing to pay the price their stores charged for milk and would drive a substantial distance to take advantage of low milk prices. One Toledo grocer, in answer to a question as to whether his store was in competition with other stores selling Sealtest milk stated: `We can\'t be in competition with them at the price we pay for it. We do try to run a special occassionally at a loss to ourselves to try to be competitive.\' A Kroger store, receiving a 12 per cent discount, is located four blocks from his store."

This evidence satisfies the Morton Salt and United Biscuit tests. Furthermore, unless minuscule, the portion of the market that might be affected by the charging of these discriminatory prices is immaterial. Whitaker Cable Corp. v. Federal Trade Commission, 239 F.2d 253, 255-256 (7th Cir. 1956), certiorari denied, 353 U.S. 938, 77 S.Ct. 813, 1 L.Ed.2d 761. Nor is competitive injury negated by the pricing policies of National's competitors. Federal Trade Commission v. A. E. Staley Manufacturing Co., 324 U.S. 746, 751, 753-754, 65 S.Ct. 971, 89 L.Ed. 1338; Whitaker Cable Corp. v. Federal Trade Commission, ibid, at pp. 254-256; Foremost Dairies, Inc. v. Federal Trade Commission, 348 F.2d 674, 679 (5th Cir. 1965), certiorari denied, 382 U.S. 959, 86 S.Ct. 435, 15 L.Ed.2d 362. We also cannot accept National's argument that the disfavored independents should have joined voluntary or cooperative groups and thus obtained higher discounts. The Robinson-Patman Act does not...