Petition by The Great Atlantic & Pacific Tea Company, Inc., for review of an order of the Federal Trade Commission, based on its determination that petitioner had violated § 2(f) of the Robinson-Patman Act (15 U.S.C. § 13(f)). Petition denied and enforcement granted.
Anderson and Meskill, Circuit Judges, and Markey, Chief Judge, U.s. Court of Customs and Patent Appeals.*fn*
This is a petition for review of an order of the Federal Trade Commission (FTC or the Commission) in the matter of The Great Atlantic & Pacific Tea Co., Inc., 87 F.T.C. 962 [1973-76 Transfer Binder] CCH Trade Reg. Rep. para. 21,150 (1976) (hereinafter cited as A & P). The Commission found that A & P violated § 2(f) of the Robinson-Patman Act, as amended, 15 U.S.C. § 13(f)*fn1 by knowingly inducing or receiving illegal price discriminations from The Borden Company (Borden) in the purchase of "private label" milk in the Chicago area from 1965 through 1972. We deny the petition.
Now in its seventh year of litigation, this case has developed a voluminous record and thorough arguments and briefs by both sides. The Commission has succinctly set out the underlying facts in its extensive opinion, A & P, 87 F.T.C. at , para. 21,150 at 21,039-40. The case arose from A & P's attempt in the mid-1960's to secure savings in its dairy products business by switching from selling "brand label" milk in its stores (e.g., milk sold under the brand name of the supplying dairy) to selling "private label" milk (e.g. milk sold under the A & P label). Pursuant to directions from A & P's headquarters in New York, A & P's "Chicago Unit,"*fn2 made up of over 200 A & P stores in northern Illinois, plus about 35 in neighboring portions of northwestern Indiana and a few stores in Iowa, began negotiations with Borden for the supply of A & P private label milk and other dairy products. In August of 1965, Borden submitted a bid, premised on A & P's acceptance of limited delivery service, which Borden claimed would have reduced A & P's annual dairy costs by $410,000. Not content with this offer, A & P sought and received a lower bid from a competing dairy, Bowman Dairy (Bowman).
Armed with a lower bid, A & P turned its attention back to Borden (contrary to its usual practice, which is to allow only one bid from a supplier, A & P, 87 F.T.C. at , para. 21,150 at 21,039). Elmer Schmidt, A & P's Chicago Unit buyer, telephoned Borden's Chicago chain store sales manager, Gordon Tarr, and told him that Borden's initial offer was not "in the ball park." Pressed for details as to what would be "in the ball park," Schmidt told Tarr that a $50,000 improvement "would not be a drop in the pocket." Borden then had to decide whether to re-bid. At the time, A & P was one of Borden's major customers in the Chicago area. In addition, Borden had just invested over five million dollars in a new dairy processing facility in Woodstock, Illinois; losing the A & P account would have confronted Borden with the inefficient use of the new plant. Ralph Minkler, President of Borden's Chicago Central District, testified before the Administrative Law Judge that he was told by his superiors to "save the [A & P] business." Accordingly, Borden offered to double A & P's expected annual savings under a private label program to $820,000. Minkler emphasized to A & P's Schmidt at the time this second bid was offered that it was being made only to meet the rival Bowman bid and that Borden knew "of no other way to justify this." Before accepting the second and final Borden bid, A & P's Schmidt requested a letter from Borden to the effect that the prices being offered A & P were proportionally available to others. Borden's "availability letter" stated only that it felt its prices were proper under applicable law and that it was prepared to defend them.
The second Borden bid was then reviewed by Herschel Smith, A & P's National Director of Purchases in New York. Smith testified that at the time, he regarded the second Borden bid as "substantially better" than the Bowman bid. As for Borden's "availability letter," Smith testified that he did not initially understand Borden's letter to mean that other Borden customers could enjoy proportionally lower prices such as those agreed upon with A & P, but that after consultation with a Mr. Archer (who had no recollection of such a discussion) he became convinced that Borden's letter was one of availability for all customers. After review by A & P's legal department, the second and final Borden bid was accepted by A & P. Borden began serving A & P in the Chicago area with private label dairy products in November of 1965.
The above constitute the factual nucleus of the three-count complaint filed against A & P in 1971. Count I charged A & P with misleading Borden in the course of negotiations for the private label contract, in that A & P allegedly failed to inform Borden that its second and final bid had not merely "met", but substantially "beaten," Bowman's competitive bid. Such conduct by A & P was said to constitute a violation of § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, along with the policy of the Robinson-Patman Act, 15 U.S.C. § 13. Count II, based on the same conduct by A & P, charged a violation of § 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(f)*fn3 (knowing inducement or reception by A & P of price discriminations from Borden which are in turn prohibited by § 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a)). Finally, Count III charged a combination of A & P and Borden to stabilize and maintain the retail and wholesale prices of milk and other dairy products, contrary to § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.
Following an extended discovery period and hearing, the latter extending over 110 days, the Administrative Law Judge found that as to Count I, A & P "ha[d] acted unfairly and deceptively" in accepting a price offer from Borden offered to meet competition from Bowman Dairy, "when in fact such [a] meeting-competition-defense*fn4 was not available and without informing Borden of this fact in violation of the policy of Section 2 of the amended Clayton Act [the Robinson-Patman Act] and in violation of Section 5 of the Federal Trade Commission Act." Likewise as to Count II, A & P was found to have violated § 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(f), in knowingly inducing or receiving price discriminations in the purchase of fluid milk and other dairy products. As to Count III, however, which had charged a combination to stabilize and maintain milk prices between A & P and Borden, the Administrative Law Judge held that the FTC had not satisfied its burden of proof. Accordingly, Count III was dismissed.
On review by the Commission, the Administrative Law Judge's holding as to Count I, grounded on A & P's alleged deceptive practices in bargaining with Borden, was reversed. The Commission characterized the charge as "directed to the question of what must legally be disclosed during contract negotiations." A & P, 87 F.T.C. at , para. 21,150 at 21,040. That is, knowing that Borden's final bid was substantially better than Bowman's bid and also knowing that Borden would defend the legality of its bid, if necessary, on the ground that it was merely attempting to meet, but not beat, a competitor's bid from Bowman Dairy, A & P refrained from affirmatively disclosing to Borden the terms of Bowman's bid and accepted the Borden offer. The Commission did not agree with the Administrative Law Judge that such behavior constituted an unfair trade practice under the Federal Trade Commission Act, 15 U.S.C. § 45, primarily because such a holding would be "contrary to normal business practice and we think, contrary to the public interest." A & P, 87 F.T.C. at , para. 21,150 at 21,040.
In spite of the above holding as to Count I, the Commission nonetheless affirmed the finding of A & P's liability under § 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(f), ruling that (1) the sales by Borden to A & P had met the statute's jurisdictional requirements that at least one purchase said to involve price discriminations "in commerce"; (2) that the evidence demonstrated the presence of price discriminations, which resulted in competitive injury, A & P, 87 F.T.C. at , para. 21,150 at 21,042-43; and (3) by virtue of its trade experience and common sense, A & P "knew or should have known that it was the beneficiary of a price discrimination having the requisite harmful competitive effects." Id. at , para. 21,150 at 21,043.
A & P had interposed two defenses to this charge of illegal price discrimination, the first of which was that it was protected from § 2(f) liability through 15 U.S.C. § 13(b),*fn5 which allows a seller charged with giving illegally discriminatory prices to rebut a prima facie case by showing that the lower price afforded a purchaser was "made in good faith to meet an equally low price of a competitor." The Supreme Court has ruled in Automatic Canteen v. FTC, 346 U.S. 61, 74, 97 L. Ed. 1454, 73 S. Ct. 1017 (1953), that a buyer charged under § 2(f) is not liable if the prices he induces are either within the "meeting competition" defense of the seller or not known by the buyer not to be within one of those defenses. A & P argued that the final Borden bid had been submitted by Borden in a good faith effort to meet an equally low price of a competitor (here, Bowman Dairy) and A & P was therefore unaware that Borden's bid could not be protected by the seller's "meeting competition" defense. That is, transferring Borden's potential "meeting competition" defense to A & P, the purchaser could not be held liable. Following Kroger Co. v. FTC, 438 F.2d 1372 (6th Cir.), cert. denied, 404 U.S. 871, 30 L. Ed. 2d 115, 92 S. Ct. 59 (1971), however, the Commission ruled that:
"When a buyer is charged with violating Section 2(f) [15 U.S.C. § 13(f)], the price he induces must come within the meeting competition defense not only from the seller's point of view but also from the buyer's." A & P, 87 F.T.C. at , para. 21,150 at 21,043.
The mere fact that had Borden been charged with giving illegal price discriminations under § 2(a) (which it was not), it could have defended on the ground that its final bid was merely a good faith effort to meet what it believed to be Bowman's competitive bid, was not sufficient in the Commission's view, to absolve A & P of any wrongdoing, because A & P was aware of the price terms of both Borden's and Bowman's bids and had concluded in 1965 that Borden had substantially beaten its competitor. Also pursuant to its application of Kroger, supra, the Commission further ruled against A & P's contentions that it could not be charged with knowingly inducing or receiving illegal price discriminations under § 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(f), unless Borden had been found to have given such illegal prices under § 2(a) of the same Act, 15 U.S.C. § 13(a). A & P, 87 F.T.C. at , para. 21,150 at 21,044.
A & P's second defense was grounded on § 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a),*fn6 which exonerates sellers who give discriminatory prices on goods of like grade and quality if the discriminations are justified by the seller's manufacture, sale or delivery cost savings in servicing one purchaser over another. Much like the "meeting competition" defense, the purchaser may defend here on the alternative grounds that the discriminatory prices induced or received were in fact "cost justified" or that the buyer was unaware of the unavailability of that defense to the seller. Automatic Canteen, supra, 346 U.S. at 74; Rowe, Price Discrimination under the Robinson-Patman Act, § 14.7 at 438 (1962) (hereinafter cited as Rowe). Likewise here, A & P was unsuccessful in establishing its "cost justification" defense. The cost study presented by A & P to show the actual cost justification of Borden's prices was found "'so defective and inadequate as to furnish no evidentiary basis' to justify the price differential that A & P received for private label products on the basis of Borden's cost savings. . . ." A & P, 87 F.T.C. at , para. 21,150 at 21,047-48. As for A & P's knowledge that Borden could not justify its prices, the Commission found that FTC counsel had more than met their "initial burden" of showing such knowledge. This conclusion was buttressed by the facts that Borden had submitted its final offer solely on the basis that it was meeting competition, which put A & P on notice of the probable absence of a Borden cost justification defense, Borden's failure to furnish A & P with a clear "letter of availability" (stating that A & P's competitors could enjoy the same prices on a proportional basis), Borden's submission of cost data during the negotiations showing that it would either lose money or make a minimal profit on "private label" sales to A & P, as well as A & P's trade experience. Further, the Commission noted that after Borden had begun servicing A & P with both private label and Borden-label dairy products, Borden had tried to increase prices on its products to cover rising container, labor and social security costs. While accepting price increases on Borden-label products, A & P had initially refused a commensurate increase on private label prices, and notwithstanding the fact that the products were of like grade and quality and that Borden's costs for private and brand label dairy products were virtually the same. A & P, 87 F.T.C. at , para. 21,150 at 21,046-47. In short, A & P's "meeting competition" and "cost justification" defenses failed and it was found to have violated § 2(f) of the Robinson-Patman Act.
As for the third charge against A & P, combining with Borden to stabilize dairy prices, the Administrative Law Judge's dismissal of the count was affirmed by the Commission, because the evidence presented simply did not support the charge that "A & P ever gave Borden the assurance that A & P would not create a price ...