The opinion of the court was delivered by: WEINFELD
This case centers about what the plaintiff labels a 'price war' or a 'war of attrition' but which the defendant characterizes as vigorous competition in its struggle for economic survival in the baby food products market in the State of California.
The complaint charges the defendant with attempting to monopolize the California market by unreasonable reduction in the price of its glass contained baby food product and various violations of the Robinson-Patman Act.
The immediate matter before the Court is the plaintiff's motion for a preliminary injunction to compel the defendant to increase the prices charged by it in California by reinstating a price differential which existed between its products and those of the plaintiff prior to September 4, 1957. The motion is expressly confined to an alleged violation of Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act.
The parties have submitted voluminous affidavits containing charges and counter-charges as well as almost three thousand pages of depositions
The plaintiff Gerber Products Company (hereafter sometimes referred to as 'Gerber') and the defendant Beech-Nut Life Savers, Inc. (hereafter sometimes referred to as 'Beech-Nut') process, pack and sell in interstate commerce strained and junior baby foods.
They sell to wholesalers, chain stores, cooperatives and other large purchasers
The plaintiff is the largest manufacturer of baby foods in the United States having more than 47% of total national sales. Its sales are greater than the combined sales of its next two competitors, the defendant Beech-Nut which has about 21% and Heinz & Company which has about 16.5% of the national market. The three companies control close to 85% of the national market.
The defendant distributes other commodities in addition to baby foods whereas the plaintiff distributes only baby foods and related products. The volume of each in the baby food business is substantial. Plaintiff's total nationwide sales in 1957 were close to $ 110,000,000, whereas the defendant's total sales of all its products were in excess of $ 122,000,000.
Up to the late 1930's all producers of baby foods marketed their wares in tin containers. About that time Beech-Nut successfully marketed its product in glass containers. The innovation succeeded with the consuming public in the east, despite the higher price charged for the glass containers. In time, consumer demand east of the Mississippi compelled a shift from tin to glass and for the past decade or more glass has been, in this area, the only method of packaging and distributing baby foods. Gerber, Heinz & Company and Beech-Nut all sell their glass contained products east of the Mississippi at substantially the same prices.
Despite the change in packaging east of the Mississippi, Gerber, which at all times had a national market for its product, continued to distribute in tin containers west of the Mississippi, including California.
In this case we are concerned with the situation in the State of California, which is Gerber's largest single market. Gerber has sold its product there since the late 1920's.
In 1949 Beech-Nut entered the California market with its glass contained product. From the time of its entry there its product, up to recent months, was sold at a higher price than Gerber's, generally at the same price as in the area east of the Mississippi. Except for California, Beech-Nut at no time sold in any other state west of the Mississippi.
Heinz & Company, like the plaintiff, sold on a nationwide basis but exclusively in glass containers. Its price in California was similar to that charged by Beech-Nut thus observing the same price differential with respect to Gerber's tin packed food.
Plaintiff asserts that the reason for the price differential between tin and glass is that it costs more to package, warehouse and distribute in glass than in tin. The defendant concedes that it costs a little more in glass but disputes that the disparity is as great as is urged by plaintiff.
Gerber over a substantial period has commanded on the average about 75% of the California market as against Beech-Nut's average of about 5%. Heinz & Company is the closest competitor to Gerber having on the average about 16% of that market.
The plaintiff concedes that the basic reason it has the major portion of the California market was the lower price of its product compared to the prices charged by the defendant and Heinz.
After the defendant moved into the California market, it made some progress until 1956 when despite an active advertising campaign and population growth, its sales volume and market share began to decline from a peak of 6.6%. The decline continued so that by July, 1957 the distribution in the California market for strained and junior baby foods by the three principal competitors, stood approximately as follows:
Despite the higher prices at which the defendant sold its product, it operated at a deficit because of the small sales volume.
According to the defendant, the deterioration of its competitive position was such that large chain stores, wholesalers and cooperatives were threatening to discontinue its product and several had already done so, and defendant charges that as its sales dropped Gerber's representatives and salesmen engaged in various high pressure and unfair practices to hasten its demise and eliminate it entirely from the California market -- which plaintiff denies.
Beech-Nut management, after consultation with its sales representatives, advertising agency and marketing experts, concluded that it could recapture a share of its lost market and survive as a competitor in California only by reducing its prices to meet those charged by Gerber. A price reduction, defendant believed, would not only prevent ...