Federal Trade Commission v. Morton Salt Company/Opinion of the Court

by Hugo Black

United States Supreme Court

334 U.S. 37

Federal Trade Commission  v.  Morton Salt Company

 Argued: March 10, 1948. --- Decided: May 3, 1948

The Federal Trade Commission, after a hearing, found that the respondent, which manufacturers and sells table salt in interstate commerce, had discriminated in price between different purchasers of like grades and qualities, and concluded that such discriminations were in violation of § 2 of the Clayton Act, 38 Stat. 730, as amended by the Robinson-Patman Act, 49 Stat. 1526, 15 U.S.C. § 13, 15 U.S.C.A. § 13. ^[1] It accordingly issued a cease and desist order. 39 F.T.C. 35. ^[2] Upon petition of the respondent the Circuit Court of Appeals, with one judge dissenting, set aside the Commission's findings and order, directed the Commission to dismiss its complaint against respondent, and denied a cross petition of the Commission for enforcement of its order. 7 Cir., 162 F.2d 949. The Court's judgment rested on its construction of the Act, its holding that crucial findings of the Commission were either not supported by evidence or were contrary to the evidence, and its conclusion that the Commission's order was too broad. Since questions of importance in the construction and administration of the Act were presented, we granted certiorari. 332 U.S. 850, 68 S.Ct. 355. Disposition of these questions requires only a brief narration of the facts.

Respondent manufacturers several different brands of table salt ^[3] and sells them directly to (1) wholesalers or jobbers, who in turn resell to the retail trade, and (2) large retailers, including chain store retailers. Respondent sells its finest brand of table salt, known as Blue Label, on what it terms a standard quantity discount system available to all customers. Under this system the purchasers pay a delivered price and the cost to both wholesale and retail purchasers of this brand differs according to the quantities bought. These prices are as follows, after making allowance for rebates and discounts:

Only five coma nies have ever bought sufficient quantities of respondent's salt to obtain the $1.35 per case price. These companies could buy in such quantities because they operate large chains of retail stores in various parts of the country. ^[4] As a result of this low price these five companies have been able to sell Blue Label salt at retail cheaper than wholesale purchasers from respondent could reasonably sell the same brand of salt to independently operated retail stores, many of whom competed with the local outlets of the five chain stores.

Respondent's table salts, other than Blue Label, are also sold under a quantity discount system differing slightly from that used in selling Blue Label. Sales of these other brands in less-than-carload lots are made at list price plus freight from plant to destination. Carload purchasers are granted approximately a 5 per cent discount; approximately a 10 per cent discount is granted to purchasers who buy as much as $50,000 worth of all brands of salt in any consecutive twelve-month period. Respondent's quantity discounts on Blue Label and on other table salts were enjoyed by certain wholesalers and retailers who competed with other wholesalers and retailers to whom these discounts were refused.

In addition to these standard quantity discounts, special allowances were granted certain favored customers who competed with other customers to whom they were denied. ^[5]

First. Respondent's basic contention, which it argues this case hinges upon, is that its 'standard quantity discounts, available to all on equal terms, as contrasted for example, to hidden or special rebates, allowances, prices or discounts, are not discriminatory, within the meaning of the Robinson-Patman Act.' Theoretically, these discounts are equally available to all, but functionally they are not. For as the record indicates (if reference to it on this point were necessary) no single independent retail grocery store, and probably no single wholesaler, bought as many as 50,000 cases or as much as $50,000 worth of table salt in one year. Furthermore, the record shows that, while certain purchasers were enjoying one or more of respondent's standard quantity discounts, some of their competitors made purchases in such small quantities that they could not qualify for any of respondent's discounts, even those based on carload shipments. The legislative history of the Robinson-Patman Act makes it abundantly clear that Congress considered it to be an evil that a large buyer could secure a competitive advantage over a small buyer solely because of the large buyer's quantity purchasing ability. The Robinson-Patman Act was passed to deprive a large buyer of such advantages except to the extent that a lower price could be justified by reason of a seller's diminished costs due to quantity manufacture, delivery or sale, or by reason of h e seller's good faith effort to meet a competitor's equally low price.

Section 2 of the original Clayton Act had included a proviso that nothing contained in it should prevent 'discrimination in price * * * 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 * * *.' That section has been construed as permitting quantity discounts, such as those here, without regard to the amount of the seller's actual savings in cost attributable to quantity sales or quantity deliveries. Goodyear Tire & Rubber Co. v. Federal Trade Comm., 6 Cir., 101 F.2d 620. The House Committee Report on the Robinson-Patman Act considered that the Clayton Act's proviso allowing quantity discounts so weakened § 2 'as to render it inadequate, if not almost a nullity.' ^[6] The Committee considered the present Robinson-Patman amendment to § 2 'of great importance.' Its purpose was to limit 'the use of quantity price differentials to the sphere of actual cost differences. Otherwise,' the report continued, 'such differentials would become instruments of favor and privilege and weapons of competitive oppression.' ^[7] The Senate Committee reporting the bill emphasized the same purpose, ^[8] as did the Congressman in charge of the Conference Report when explaining it to the House just before final passage. ^[9] And it was in furtherance of this avowed purpose-to protect competition from all price differentials except those based in full on cost savings-that § 2(a) of the amendment provided 'That nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered.'

The foregoing references, without regard to others which could be mentioned, establish that respondent's standard quantity discounts are discriminatory within the meaning of the Act, and are prohibited by it whenever they have the defined effect on competition. See Federal Trade Comm. v. Staley Co., 324 U.S. 746, 751, 65 S.Ct. 971, 973, 89 L.Ed. 1338.

Second. The Government interprets the opinion of the Circuit Court of Appeals as having held that in order to establish 'discrimination in price' under the Act the burden rested on the Commission to prove that respondent's quantity discount differentials were not justified by its cost savings. ^[10] Respondent does not so understand the Court of Appeals decision, and furthermore admits that no such burden rests on the Commission. We agree that it does not. First, the general rule of statutory construction that the burden of proving justification or exemption under a special exception to the prohibitions of a statute generally rests on one who claims its benefits, ^[11] requires that respondent undertake this proof under the proviso of § 2(a). Secondly, § 2(b) of the Act specifically imposes the burden of showing justification upon one who is shown to have discriminated in prices. And the Senate committee report on the bill explained that the provisos of § 2(a) throw 'upon any who claims the benefit of those exceptions the burden of showing that their case falls within them.' ^[12] We think that the language of the Act, and the legislative history just cited, show that Congress meant by using the words 'discrimination in price' in § 2 that in a case involving competitive injury between a seller's customers the Commission need only prove that a seller had charged one purchaser a higher price for like goods than he had charged one or more of the purchaser's competitors. ^[13] This construction is consistent with the first sentence of § 2(a) in which it is made unlawful 'to discriminate in price between different purchasers of commodt ies of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce * * * and where the effect of such discrimination may be * * * to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them * * *.'

Third. It is argued that the findings fail to show that respondent's discriminatory discounts had in fact caused injury to competition. There are specific findings that such injuries had resulted from respondent's discounts although the statute does not require the Commission to find that injury has actually resulted. The statute requires no more than that the effect of the prohibited price discriminations 'may be substantially to lessen competition * * * or to injure, destroy, or prevent competition.' After a careful consideration of this provision of the Robinson-Patman Act, we have said that 'the statute does not require that the discriminations must in fact have harmed competition, but only that there is a reasonable possibility that they 'may' have such an effect.' Corn Products Co. v. Federal Trade Comm., 324 U.S. 726, 742, 65 S.Ct. 961, 969, 89 L.Ed. 1320. ^[14] Here the Commission found what would appear to be obvious, that the competitive opportunities of certain merchants were injured when they had to pay respondent substantially more for their goods than their competitors had to pay. The findings are adequate.

Fourth. It is urged that the evidence is inadequate to support the Commission's findings of injury to competition. ^[15] As we have pointed out, however, the Commission is authorized by the Act to bar discriminatory prices upon the 'reasonable possibility' that different prices for like goods to competing purchasers may have the defined effect on competition. ^[16] That respondent's quantity discounts did result in price differentials between competing u rchasers sufficient in amount to influence their resale price of salt was shown by evidence. This showing in itself is adequate to support the Commission's appropriate findings that the effect of such price discriminations 'may be substantially to lessen competition * * * and to injure, destroy and prevent competition.'

The adequacy of the evidence to support the Commission's findings of reasonably possible injury to competition from respondent's price differentials between competing carload and less-than-carload purchasers is singled out for special attacks here. It is suggested that in considering the adequacy of the evidence to show injury to competition respondent's carload discounts and its other quantity discounts should not be treated alike. The argument is that there is an obvious saving to a seller who delivers goods in carload lots. Assuming this to be true, that fact would not tend to disprove injury to the merchant compelled to pay the less-than-carload price. For a ten-cent carload price differential against a merchant would injure him competitively just as much as a ten-cent differential under any other name. However relevant the separate carload argument might be to the question of justifying a differential by cost savings, it has no relevancy in determining whether the differential works an injury to a competitor. Since Congress has not seen fit to give carload discounts any favored classification we cannot do so. Such discounts, like all others, can be justified by a seller who proves that the full amount of the discount is based on his actual savings in cost. The trouble with this phase of respondent's case is that it has thus far failed to make such proof.

It is also argued that respondent's less-than-carload sales are very small in comparison with the total volume of its business ^[17] and for that reason we should reject the Commission's finding that the effect of the carload discrimination may substantially lessen competition and may injure competition between purchasers who are granted and those who are denied this discriminatory discount. To support this argument, reference is made to the fact that salt is a small item in most wholesale and retail businesses and in consumers' budgets. For several reasons we cannot accept this contention.

There are many articles in a grocery store that, considered separately, are comparatively small parts of a merchant's stock. Congress intended to protect a merchant from competitive injury attributable to discrimn atory prices on any or all goods sold in interstate commerce, whether the particular goods constituted a major or minor portion of his stock. Since a grocery store consists of many comparatively small articles, there is no possible way effectively to protect a grocer from discriminatory prices except by applying the prohibitions of the Act to each individual article in the store.

Furthermore, in enacting the Robinson-Patman Act Congress was especially concerned with protecting small businesses which were unable to buy in quantities, such as the merchants here who purchased in less-than-carload lots. To this end it undertook to strengthen this very phase of the old Clayton Act. The committee reports on the Robinson-Patman Act emphasized a belief that § 2 of the Clayton Act had 'been too restrictive in requiring a showing of general injury to competitive conditions * * *.' The new provision, here controlling, was intended to justify a finding of injury to competition by a showing of 'injury to the competitor victimized by the discrimination.' ^[18] Since there was evidence sufficient to show that the less-than-carload purchasers might have been handicapped in competing with the more favored carload purchasers by the differential in price established by respondent, the Commission was justified in finding that competition might have thereby been substantially lessened or have been injured within the meaning of the Act.

Apprehension is expressed in this Court that enforcement of the Commission's order against respondent's continued violations of the Robinson-Patman Act might lead respondent to raise table salt prices to its carload purchasers. Such a conceivable, though, we think, highly improbable contingency, could afford us no reason for upsetting the Commission's findings and declining to direct compliance with a statute passed by Congress.

The Commission here went much further in receiving evidence than the statute requires. It heard testimony from many witnesses in various parts of the country to show that they had suffered actual financial losses on account of respondent's discriminatory prices. Experts were offered to prove the tendency of injury from such prices. The evidence covers about two thousand pages, largely devoted to this single issue-injury to competition. It would greatly handicap effective enforcement of the Act to require testimony to show that which we believe to be self-evident, namely, that there is a 'reasonable possibility' that competition may be adversely affected by a practice under which manufacturers and producers sell their goods to some customers substantially cheaper than they sell like goods to the competitors of these customers. This showing in itself is sufficient to justify our conclusion that the Commission's findings of injury to competition were adequately supported by evidence.

Fifth. The Circuit Court of Appeals held, and respondent here contends, that the order was too sweeping, that it required the respondent to 'conduct its business generally at its peril,' and that the Commission had exceeded its jurisdc tion in entering such an order. ^[19] Reliance for this contention chiefly rests on National Labor Relations Board v. Express Publishing Co., 312 U.S. 426, 61 S.Ct. 693, 85 L.Ed. 930. That case held that the Labor Board could not broadly enjoin violations of all the provisions of the statute merely because a single violation of one of the Act's many provisions had been found. Id., at pages 435, 436 of 312 U.S., at pages 699, 700 of 61 S.Ct. But it also pointed out that the Labor Board, 'Having found the acts which constitute the unfair labor practice * * * is free to restrain the practice and other like or related unlawful acts.' It there pointed out that this Court had applied a similar rule to a Federal Trade Commission order in Federal Trade Comm. v. Beech Nut Co., 257 U.S. 441, 455, 42 S.Ct. 150, 155, 66 L.Ed. 307, 19 A.L.R. 882. In the latter case the Court not only approved restraint of the unlawful price-fixing practices found, but 'any other equivalent co-operative means of accomplishing the maintenance of prices fixed by the company.' See also May Dep't. Stores Co. v. Labor Board, 326 U.S. 376, 392, 393, 66 S.Ct. 203, 213, 90 L.Ed. 145. We think the Commission's order here, save for the provisos in (a) and (b) later considered, is specifically aimed at the pricing practices found unlawful, and therefore does not run counter to the holding in the Express Publishing Co. case. Certainly the order in its relation to the circumstances of this case is only designed 'to prevent violations, the threat of which in the future is indicated because of their similarity or relation to those unlawful acts which the Board (Commission) has found to have been committed by the * * * (respondent) in the past.' National Labor Relations Board v. Express Publishing Co., supra, 312 U.S. at pages 436, 437, 61 S.Ct. at page 700.

The specific restraints of paragraphs (a) and (b) of the order are identical, except that one applies to prices respondent charges wholesalers and the other to prices charged retailers. It is seen that the first part of these paragraphs, preceding the provisos, would absolutely bar respondent from selling its table salt, regardless of quantities, to some wholesalers and retailers at prices different from that which it charged competing wholesalers and retailers for the same grade of salt. The Commission had found that respondents had been continuously engaged in such discriminations through the use of discounts, rebates and allowances. It had further found that respondent had failed to show justification for these differences by reason of a corresponding difference in its costs. Thus the restraints imposed by the Commission upon respondent are concerned with the precise unlawful practices in which it was found to have engaged for a number of years. True, the Commission did not merely prohibit future discounts, rebates, and allowances in the exact mathematical percentages previously utilz ed by respondent. Had the order done no more than that, respondent could have continued substantially the same unlawful practices despite the order, by simply altering the discount percentages and the quantities of salt to which the percentages applied. Paragraphs (a) and (b) up to the language of the provisos are approved.

The provisos in (a) and (b) present a more difficult problem. They read: 'Provided, however, that this shall not prevent price differences of less than five cents per case which do not tend to lessen, injure or destroy competition among such wholesalers (retailers).' The first clause of the provisos, but for the second qualifying clause, would unequivocally permit respondent to maintain price differentials of less than five cents as between competing wholesalers and as between competing retailers. ^[20] This clause would appear to benefit respondent, and no challenge to it, standing alone, is here raised. But respondent seriously objects to the second clause of the proviso which qualifies the permissive less-than-five-cent differentials provided in the first clause. That qualification permits such differentials only if they do 'not tend to lessen, injure, or destroy competition.' Respondent points out that where a differential tends in no way to injure competition, the Act permits it. 'The Commission,' so respondent urges, 'must either find and rule that a given differential injures competition, and then prohibit it, or it must leave that differential entirely alone.' Whether, and under what circumstances, if any, the Commission might prohibit differentials which do not of themselves tend to injure competition, we need not decide, for the Commission has not in either (a) or (b) taken action which forbids such noninjurious differentials. But other objections raised to the qualifying clauses require consideration.

One of the reasons for entrusting enforcement of this Act primarily to the Commission, a body of experts, was to authorize it to hear evidence as to given differential practices and to make findings concerning possible injury to competition. Such findings are to them the basis for cease and desist orders definitely restraining the particular discriminatory practices which may tend to injure competition without justification. The effective administration of the Act, insofar as the Act entrusts administration to the Commission, would be greatly impaired, if, without compelling reasons not here present, the Commission's cease and desist orders did no more than shift to the courts in subsequent contempt proceedings for their violation the very fact questions of injury to competition, etc., which the Act requires the Commission to determine as the basis for its order. The enforcement responsibility of the courts, once a Commission order has become final either by lapse of time or by court approval, 15 U.S.C. §§ 21, 45, 15 U.S.C.A. §§ 21, 45, is to adjudicate questions concerning the order's violation, not questions of fact which support that valid order.

Whether on this record the Commission was compelled to exempt certain differentials of less than five cents we do not decide. But once the Commission exempted the differentials in question from its order, we are constrained to hold that as to those differentials, it could not then shift to the courts a responsibility in enforcement proceedings of trying issues of possible injury to competitio, issues which Congress has primarily entrusted to the Commission.

This leaves for consideration the objection to paragraph (c) of the order which reads: 'By selling such products to any retailer at prices lower than prices charged wholesalers whose customers compete with such retailer.' The only criticism here urged to (c) is that it bars respondent from selling to a retailer at a price lower than that charged a wholesaler whose customers compete with the retailer. Section 2(a) of the Act specifically authorizes the Commission to bar discriminatory prices which tend to lessen or injure competition with 'any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them.' This provision plainly supports paragraph (c) of the order.

We sustain the Commission's order with the exception of the provisos in paragraphs (a) and (b) previously set out. Since the qualifying clauses constitute an important limitation to the provisos, we think the Commission should have an opportunity to reconsider the entire provisos in light of our rejection of the qualifying clauses, and to refashion these provisos as may be deemed necessary. This the Commission may do upon the present evidence and findings or it may hear other evidence and make other findings on this phase of the case, should it conclude to do so. See Federal Trade Commission v. Royal Milling Co. et al., 288 U.S. 212, 218, 53 S.Ct. 335, 337, 77 L.Ed. 706.

The judgment of the Circuit Court of Appeals is reversed and the proceedings are remanded to that court to be disposed of in conformity with this opinion.

Reversed.

Mr. Justice JACKSON, with whom Mr. Justice FRANKFURTER joins, dissenting in part.

Notes

1. Section 2(a) provides in part '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 of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such 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, and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them * * *.'
2. The original findings and order were modified by the Commission on its own motion. The controversy here deals only with the findings and order as modified.
3. Respondent also produces and sells other kinds of salt, but the trade practices here involved only relate to table salt.
4. These chain stores are American Stores Company, National Tea Company, Kroger Grocery Co., Safeway Stores, Inc., and Great Atlantic & Pacific Tea Company.
5. One such customer, a wholesaler, received a special discount of 7 1/2 cents per case on purchases of carload lots of Blue Label Salt. Respondent sold to this wholesaler at $1.42 1/2 per case, although competing wholesalers were required to pay $1.50 per case on carload lots. The Circuit Court of Appeals held that findings of the Commission on these special allowances were supported by substantial evidence, that they were not maintained to meet lower prices of respondent's competitors, and that the allowances were discriminatory. It nevertheless set the findings aside on the ground that the Commission's finding of injury to competition from the discriminations engaged in by respondent was too general and had little evidence to support it. We think the finding and supporting evidence of injury to competition on account of these special allowances are similar to the finding and evidence with reference to the quantity discount system and need not be separately treated.
6. H.Rep.No.2287, 74th Cong., 2d Sess. 7.
7. Id. at 9.
8. Sen.Rep.No.1502, 74th Cong., 2d Sess. 4-6.
9. 80 Cong.Rec. 9417.
10. See 42 Ill.L.Rev. 556-561; 15 U. of Chi.L.Rev. 384-391; 60 Harv.L.Rev. 1167-1169.
11. Javierre v. Central Altagracia, 217 U.S. 502, 507, 508, 30 S.Ct. 598, 599, 54 L.Ed. 859 and cases cited.
12. Sen.Rep.No.1502, 74th Cong., 2d Sess. 3. See also 80 Cong.Rec. 3599, 8241, 9418.
13. See Moss v. Federal Trade Comm., 2 Cir., 148 F.2d 378, 379, holding that proof of a price differential in itself constituted 'discrimination in price,' where the competitive injury in question was between sellers. See also Federal Trade Comm. v. Cement Institute et al., 333 U.S. 683, 68 S.Ct. 793.
14. This language is to be read also in the light of the following statement in the same case, discussing the meaning of § 2(a), as contained in the Robinson-Patman Act, in relation to § 3 of the Clayton Act, 15 U.S.C.A. § 14:
15. After discussing all of respondent's discriminations, the Commission stated: 'The Commission finds that the effect of the discriminations in price, including discounts, rebates, and allowances, generally and specifically described herein may be substantially to lessen competition in the line of commerce in which the purchaser receiving the benefit of said discriminatory price is engaged and to injure, destroy, and prevent competition between those purchasers receiving the benefit of said discriminatory prices, discounts, rebates, and allowances and those to whom they are denied.'
16. The statute outlaws any discrimination the effect of which 'may be substantially to lessen competition * * * or to injure * * * competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: * * *.'
17. Respondent introduced testimony and exhibits intended to show that only one-tenth of one per cent of its sales were made at less-than-carload prices. It appears that this figure relates only to a single one-year period and was obtained by lumping together statistics on respondent's sales of table salt along with those on sales of its other products, such as salt tablets, coarse rock salt, and salt soda. Since this proceeding is concerned only with discounts on table salts, these figures are of dubious value. Furthermore, they are limited to sales in respondent's Chicago area, whereas respondent carried on a nation-wide business.
18. In explaining this clause of the proposed Robinson-Patman Act, the Senate Judiciary Committee said:
19. The prohibiting paragraphs of the order were:
20. The only finding of the Commission specifically relating to five-cent differentials was: 'Salt is a staple commodity with a medium turnover and is generally sold by wholesalers to their retail customers on a lower margin of profit than that received on other commodities. Consequently, the price at which the wholesaler offers his table salt is usually controlling, and a difference of five cents per case may result in the loss of a sale to a customer, not only of the salt involved but of other commodities as well, the order for which might be placed with the salt purchase.'