Porto Rican American Tobacco Co. v. American Tobacco Co.

• Decision Date: 07 January 1929
• Docket Number: No. 114.,114.
• Parties: PORTO RICAN AMERICAN TOBACCO CO. OF PORTO RICO v. AMERICAN TOBACCO CO.
• Court: U.S. Court of Appeals — Second Circuit

30 F.2d 234 (1929)

PORTO RICAN AMERICAN TOBACCO CO. OF PORTO RICO v. AMERICAN TOBACCO CO.

No. 114.

Circuit Court of Appeals, Second Circuit.

January 7, 1929.

Jonathan H. Holmes, of New York City (Martin Conboy, of New York City, of counsel), for appellant.

Burroughs & Brown, of New York City (H. Lewis Brown and Charles S. Day, Jr., both of New York City, of counsel), for appellee.

Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

MANTON, Circuit Judge.

The decree entered below enjoins the appellant from continuing to practice a discrimination in prices in the sale of appellant's brand of "Lucky Strike" cigarettes for resale, use, and consumption within the island of Porto Rico. It rests upon the violation by appellant of section 13 of title 15, U. S. Code (section 2 of the Clayton Act 15 USCA § 13), which provides:

"Discrimination in Price Between Purchasers. 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, which 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, where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly in any line of commerce: Provided, that nothing herein contained shall prevent discrimination in price between purchasers of commodities on account of differences in the grade, quality, or quantity of the commodity sold, or that makes only due allowance for difference in the cost of selling or transportation, or discrimination in price in the same or different communities made in good faith to meet competition; and provided further, that nothing herein contained shall prevent persons engaged in selling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade."

The appellee is a Porto Rico corporation manufacturing and selling cigarettes and cigars in Porto Rico. Its brands of cigarettes are known as "Casino," selling there at retail for 12 cents per package of 20, and "Collectiva," at 6 cents per package of 10. It sold wholesalers and jobbers, who in turn sold retailers, for ultimate sale to the consumer, and for a number of years up to July 18, 1927, sold at a net price of $4.75 per thousand, which represented a satisfactory profit. The appellant sold in the same market its brand of "Lucky Strikes," manufactured in the United States.

The Porto Rico Legislature, in May, 1927, enacted an amendment to the tax laws of the island, whereby the tax on cigarettes selling at regular wholesale prices of $2 and $3, per thousand, exclusive of such tax, was increased from $3 to $4 per thousand. There were higher brackets for cigarettes selling at a higher wholesale price. The effect of the law was to impose an additional tax of $1 per thousand over what had previously been imposed upon cigarettes selling from $2 to $3 per thousand. Appellee's cigarettes, selling at $4.75 per thousand, including a $3 tax, were not affected by the change of the law. Appellant's cigarettes had been selling for $2.25, and, if the price had remained, it would be increased from $3 to $4 per thousand. Appellant sold its "Lucky Strikes" cigarettes in the United States and Porto Rico at a price which required payment of $3 per thousand under the laws of the United States, as well as those of Porto Rico. After the effective date of the amendment, and for a period of two weeks, the appellant sold its cigarettes on the basis of the retail price of 18 cents per package of 20, being an advance of 3 cents over the old price of 15 cents per package, which concededly represented substantially nothing more than the increase made necessary by the additional tax paid under this amendment. It then changed its price on cigarettes sold in Porto Rico, so as to sell at retail for 12 cents per package of 20.

If the appellant discriminated in price between different purchasers — those of the United States and of Porto Rico — and the purpose of such discrimination was not in good faith to meet competition, but to effect, by such discrimination, a substantial lessening of competition, or to create a monopoly, the statute is violated, and the appellee, if injured thereby, is entitled to injunctive relief. Section 26 of title 15, USCA. Ruinous competition by lowering prices has been recognized as an illegal medium of eliminating weaker competitors. Standard Oil Co. v. United States, 221 U. S. 1, 31 S. Ct. 502, 55 L. Ed. 619, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D, 734; United States v. American Tobacco Co., 221 U. S. 106, 31 S. Ct. 632, 55 L. Ed. 663.

Commencing June 30, 1927, when the new tax law was effective, appellant sold its cigarettes to its sole customer in Porto Rico — Gilles & Woodward — for $4.65 per thousand c. i. f. San Juan, including the $3 tax to the government of Porto Rico. This amounts to approximately 10 cents per package, thus making the actual price $4.55, including the $3 tax to the government, or $1.55 ex tax. The price to customers in the United States is $5.64 per thousand. This price included $3 for the United States tax, based on the weight of the cigarettes. Thus the Porto Rico customer received his cigarettes at $1.10 per thousand less than was paid by the customer in the United States. But it is argued that the cost of selling in Porto Rico is from 40 to 70 per cent. less, which would average about 55 cents a thousand, than the cost of selling in the United States. However, making this deduction, there was a deficiency of 55 cents in favor of the Porto Rican customer. The same grade of cigarette was sold in each place, and no claim of discrimination is made because of a difference in quality. Indeed, it was established that the appellant had customers in the United States who bought in as large a quantity as its selling agent in Porto Rico and for a higher price.

At the time the amendment went into effect, the appellant's "Lucky Strikes," with the $3 tax, was selling to the jobber at $5.95, and to the retailer at $6.25. In considering any possible adjustment of prices, in view of the increased tax, it was this price which naturally would be taken into consideration, and not the price of $2.15 ex tax, which it received from its customer, and which it now sets forth as if it were the figure to be considered. The price of $2.95 ex tax to the jobber, that had to be taken into consideration, was the price which, under the amendment, meant a tax of $4, and prior thereto a tax of $3. Before the amendment to the Porto Rico tax law, the appellant was selling in Porto...