Texaco, Inc. v. HasbrouckAnnotate this Case
496 U.S. 543 (1990)
U.S. Supreme Court
Texaco, Inc. v. Hasbrouck, 496 U.S. 543 (1990)
Texaco, Inc. v. Hasbrouck
Argued Dec. 5, 1989
Decided June 14, 1990
496 U.S. 543
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
Between 1972 and 1981, petitioner Texaco sold gasoline at its retail tank wagon prices to respondent independent Texaco' retailers but granted substantial discounts to distributors Gull and Dompier. Gull resold the gas under its own name; the fact that it was being supplied by Texaco was unknown to respondents. Dompier paid a higher price than Gull, and supplied its gas under the Texaco brand name to retail stations. With the encouragement of Texaco, Dompier entered the retail market directly. Both distributors picked up gas at the Texaco plant and delivered it directly to their retail outlets, and neither maintained any significant storage facilities. Unlike Gull, Dompier received an additional discount from Texaco for the deliveries. Texaco executives were well aware of Dompier's dramatic growth, and attributed it to the magnitude of the discounts. During the relevant period, the stations supplied by the distributors increased their sales volume dramatically, while respondents' sales suffered a corresponding decline. In 1976, respondents filed suit against Texaco under the Robinson-Patman Amendments to the Clayton Act (Act), alleging that the distributor discounts violated § 2(a) of the Act, which, among other things, forbids any person to "discriminate in price" between different purchasers of commodities where the effect of such discrimination is substantially to
"injure . . . competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them."
The jury awarded respondents actual damages. The District Court denied Texaco's motion for judgment notwithstanding the verdict. Texaco had claimed that, as a matter of law, its "functional discounts" -- i. e., discounts that are given to a purchaser based on its role in the supplier's distributive system and reflect, at least in a generalized sense, the services performed by the purchaser for the supplier -- did not adversely affect competition within the meaning of the Act. The District Court rejected Texaco's argument, reasoning that the "presumed legality of functional discounts" had been rebutted by evidence that the amount of Gull's and Dompier's discounts was not reasonably related to the cost of any function they performed. The Court of Appeals affirmed.
1. Respondents have satisfied their burden of proving that Texaco violated the Act. Pp. 496 U. S. 554-571.
(a) Texaco's argument that it did not "discriminate in price" within the meaning of § 2(a) by charging different prices is rejected in light of this Court's holding in FTC v. Anheuser-Busch, Inc.,363 U. S. 536, 363 U. S. 549, that "a price discrimination within the meaning of [§ 2(a)] is merely a price difference." Texaco's argument, which would create a blanket exemption for all functional discounts, has some support in the legislative history of the Act, but is foreclosed by the text of the Act itself, which plainly reveals a concern with competitive consequences at different levels of distribution and carefully defines two specific affirmative defenses that are unavailable. Pp. 496 U. S. 556-559.
(b) Also rejected is Texaco's argument that, at least to the extent that Gull and Dompier acted as wholesalers, the price differentials did not "injure . . . competition" within the meaning of the Act. It is true that a legitimate functional discount that constitutes a reasonable reimbursement for the purchasers' actual marketing functions does not violate the Act. Thus, such a discount raises no inference of injury to competition under FTC v. Morton Salt Co.,334 U. S. 37, 334 U. S. 46-47. However, the Act does not tolerate a functional discount that is completely untethered either to the supplier's savings or the wholesaler's costs. This conclusion is consistent with Federal Trade Commission (FTC) practice, with Perkins v. Standard Oil Co. of California,395 U. S. 642, and with the analysis of antitrust commentators. The record here adequately supports the finding that Texaco violated the Act. There was an extraordinary absence of evidence to connect Gull's and Dompier's discounts to any savings enjoyed by Texaco. Both Gull and Dompier received the full discount on all purchases, even though most of their volume was resold directly to consumers, and the extra margin on those sales obviously enabled them to price aggressively in both their retail and wholesale marketing. The Morton Salt presumption of adverse effect becomes all the more appropriate to the extent they competed with respondents in the retail market. Furthermore, the evidence indicates that Texaco was encouraging Dompier to integrate downward, and was fully informed about the dramatic impact of the Dompier discount on the retail market at the same time that Texaco was inhibiting upward integration by respondents. Pp. 496 U. S. 559-571.
2. There is no merit to Texaco's contention that the damages award must be judged excessive as a matter of law. Texaco's theory improperly blurs the distinction between the liability and damages issues. There is no doubt that respondents' proof of a continuing violation as to the discounts to both distributors throughout the 9-year damages period
was sufficient. Proof of the specific amount of their damages necessarily was less precise, but the expert testimony provided a sufficient basis for an acceptable estimate of the amount of damages. Cf., e.g., J. Truett Payne Co. v. Chrysler Motors Corp.,451 U. S. 557, 451 U. S. 565-566. Pp. 496 U. S. 571-573.
842 F.2d 1034 (CA9 1987), affirmed.
STEVENS, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, MARSHALL, BLACKMUN, and O'CONNOR, JJ., joined. WHITE, J., filed an opinion concurring in the result, post, p. 496 U. S. 573. SCALIA, J., filed an opinion concurring in the judgment, in which KENNEDY, J. joined, post, p. 496 U. S. 576.
Justice STEVENS delivered the opinion of the Court.
Petitioner (Texaco) sold gasoline directly to respondents and several other retailers in Spokane, Washington, at its retail
tank wagon prices (RTW) while it granted substantial discounts to two distributors. During the period between 1972 and 1981, the stations supplied by the two distributors increased their sales volume dramatically, while respondents' sales suffered a corresponding decline. Respondents filed an action against Texaco under the Robinson-Patman Amendment to the Clayton Act (Act), 38 Stat. 730, as amended, 49 Stat. 1526, 15 U.S.C. § 13, alleging that the distributor discounts violated § 2(a) of the Act, 15 U.S.C. § 13(a). Respondents recovered treble damages, and the Court of Appeals for the Ninth Circuit affirmed the judgment. We granted certiorari, 490 U.S. 1105 (1989), to consider Texaco's contention that legitimate functional discounts do not violate the Act because a seller is not responsible for its customers' independent resale pricing decisions. While we agree with the basic thrust of Texaco's argument, we conclude that in this case it is foreclosed by the facts of record.
Given the jury's general verdict in favor of respondents, disputed questions of fact have been resolved in their favor. There seems, moreover, to be no serious doubt about the character of the market, Texaco's pricing practices, or the relative importance of Texaco's direct sales to retailers
("through-put" business) and its sales to distributors. The principal disputes at trial related to questions of causation and damages.
Respondents are 12 independent Texaco retailers. They displayed the Texaco trademark, accepted Texaco credit cards, and bought their gasoline products directly from Texaco. Texaco delivered the gasoline to respondents' stations.
The retail gasoline market in Spokane was highly competitive throughout the damages period, which ran from 1972 to 1981. Stations marketing the nationally advertised Texaco gasoline competed with other major brands as well as with stations featuring independent brands. Moreover, although discounted prices at a nearby Texaco station would have the most obvious impact on a respondent's trade, the cross-city traffic patterns and relatively small size of Spokane produced a city-wide competitive market. See, e.g., App. 244, 283-291. Texaco's through-put sales in the Spokane market declined from a monthly volume of 569,269 gallons in 1970 to 389,557 gallons in 1975. Id. at 487-488. Texaco's independent retailers' share of the market for Texaco gas declined from 76% to 49%. [Footnote 1] Ibid. Seven of the respondents' stations were out of business by the end of 1978. Id. at 22-23, R. 501.
The respondents tried unsuccessfully to increase their ability to compete with lower-priced stations. Some tried converting from full service to self-service stations. See, e.g., App. 55-56. Two of the respondents sought to buy their own tank trucks and haul their gasoline from Texaco's supply point, but Texaco vetoed that proposal. Id. at 38-41, 59.
While the independent retailers struggled, two Spokane gasoline distributors supplied by Texaco prospered. Gull Oil Company (Gull) had its headquarters in Seattle and distributed petroleum products in four western States under its own name. Id. at 94-95. In Spokane, it purchased its gas from Texaco at prices that ranged from six to four cents below Texaco's RTW price. Id. at 31-32. Gull resold that product under its own name; the fact that it was being supplied by Texaco was not known by either the public or the respondents. See, e.g., id. at 256. In Spokane, Gull supplied about 15 stations; some were "consignment stations" and some were "commission stations." In both situations, Gull retained title to the gasoline until it was pumped into a motorist's tank. In the consignment stations, the station operator set the retail prices, but in the commission stations Gull set the prices and paid the operator a commission. Its policy was to price its gasoline at a penny less than the prevailing price for major brands. Gull employed two truck drivers in Spokane who picked up product at Texaco's bulk plant and delivered it to the Gull stations. It also employed one supervisor in Spokane. Apart from its trucks and investment in retail facilities, Gull apparently owned no assets in that market. App. 96-109, 504-512. At least with respect to the commission stations, Gull is fairly characterized as a retailer of gasoline throughout the relevant period.
The Dompier Oil Company (Dompier) started business in 1954 selling Quaker State Motor Oil. In 1960, it became a full line distributor of Texaco products, and by the mid-1970's, its sales of gasoline represented over three-quarters of its business. App. 114-115. Dompier purchased Texaco gasoline at prices of 3.95c to 3.65c below the RTW price. Dompier thus paid a higher price than Gull, but Dompier, unlike Gull, resold its gas under the Texaco brand names. Id. at 24, 29-30. It supplied about eight to ten Spokane retail stations. In the period prior to October, 1974, two of those stations were owned by the president of Dompier, but the others were independently
operated. See, e.g., id. at 119-121, 147-148. In the early 1970's, Texaco representatives encouraged Dompier to enter the retail business directly, and in 1974 and 1975 it acquired four stations. [Footnote 2] Id. at 114-135, 483-503. Dompier's president estimated at trial that the share of its total gasoline sales made at retail during the middle 1970's was "probably 84 to 90 percent." Id. at 115.
Like Gull, Dompier picked up Texaco's product at the Texaco bulk plant and delivered directly to retail outlets. Unlike Gull, Dompier owned a bulk storage facility, but it was seldom used because its capacity was less than that of many retail stations. Again unlike Gull, Dompier received from Texaco the equivalent of the common carrier rate for delivering the gasoline product to the retail outlets. Thus, in addition to its discount from the RTW price, Dompier made a profit on its hauling function. [Footnote 3] App. 123-131, 186-192, 411-413.
The stations supplied by Dompier regularly sold at retail at lower prices than respondents'. Even before Dompier directly entered the retail business in 1974, its customers were
selling to consumers at prices barely above the RTW price. Id. at 329-338; Record 315, 1250-1251. Dompier's sales volume increased continuously and substantially throughout the relevant period. Between 1970 and 1975 its monthly sales volume increased from 155,152 gallons to 462,956 gallons; this represented an increase from 20.7% to almost 50% of Texaco's sales in Spokane. App. 487-488.
There was ample evidence that Texaco executives were well aware of Dompier's dramatic growth, and believed that it was attributable to "the magnitude of the distributor discount and the hauling allowance." [Footnote 4] See also e.g., App. 213-223, 407-413. In response to complaints from individual respondents about Dompier's aggressive pricing, however, Texaco representatives professed that they "couldn't understand it." Record 401-404.
Respondents filed suit against Texaco in July, 1976. After a four-week trial, the jury awarded damages measured by the difference between the RTW price and the price paid by Dompier. As we subsequently decided in J. Truett Payne Co. v. Chrysler Motors Corp.,451 U. S. 557 (1981), this measure of damages was improper. Accordingly, although it rejected Texaco's defenses on the issue of liability, [Footnote 5] the Court of Appeals for the Ninth Circuit remanded the case for
a new trial. Hasbrouck v. Texaco, Inc., 663 F.2d 930 (1981), cert. denied, 459 U.S. 828 (1982).
At the second trial, Texaco contended that the special prices to Gull and Dompier were justified by cost savings, [Footnote 6] were the product of a good faith attempt to meet competition, [Footnote 7] and were lawful "functional discounts." The District Court withheld the cost justification defense from the jury because it was not supported by the evidence, and the jury rejected the other defenses. It awarded respondents actual damages of $449,900. [Footnote 8] The jury apparently credited the testimony of respondents' expert witness who had estimated what the respondents' profits would have been if they had paid the same prices as the four stations owned by Dompier. See 634 F.Supp. 34, 43; 842 F.2d, at 1043-1044.
In Texaco's motion for judgment notwithstanding the verdict, it claimed as a matter of law that its functional discounts did not adversely affect competition within the meaning of the Act because any injury to respondents was attributable to decisions made independently by Dompier. The District Court denied the motion. In an opinion supplementing its oral ruling denying Texaco's motion for a directed verdict, the Court assumed, arguendo, that Dompier was entitled to a
functional discount, even on the gas that was sold at retail, [Footnote 9] but nevertheless concluded that the "presumed legality of functional discounts" had been rebutted by evidence that the amount of the discounts to Gull and Dompier was not reasonably related to the cost of any function that they performed. [Footnote 10] 634 F.Supp. at 37-38, and n. 4.
The Court of Appeals affirmed. It reasoned:
"As the Supreme Court long ago made clear, and recently reaffirmed, there may be a Robinson-Patman violation even if the favored and disfavored buyers do not compete, so long as the customers of the favored buyer compete with the disfavored buyer or its customers. Morton Salt, 334 U.S. at 334 U. S. 43-44; Perkins v. Standard Oil Co.,395 U. S. 642, 395 U. S. 646-47 (1969); Falls City Indus., Inc. v. Vanco Beverages, Inc.,460 U. S. 428, 460 U. S. 434-35 (1983). Despite the fact that Dompier and Gull, at least in their capacities as wholesalers, did not compete directly with Hasbrouck, a section 2(a) violation may occur if (1) the discount they received was not cost-based and (2) all or a portion of it was passed on by them to customers of theirs who competed with Hasbrouck. Morton Salt, 334 U.S. at 343 U. S. 43-44; Perkins v. Standard Oil, 395 U.S. at 395 U. S. 648-49; see 3 E. Kintner & J. Bauer, supra, § 22.14."
"Hasbrouck presented ample evidence to demonstrate that. . . . the services performed by Gull and Dompier were insubstantial, and did not justify the functional discount."
842 F.2d at 1039.
The Court of Appeals concluded its analysis by observing:
"To hold that price discrimination between a wholesaler and a retailer could never violate the Robinson-Patman Act would leave immune from antitrust scrutiny a discriminatory pricing procedure that can effectively serve to harm competition. We think such a result would be contrary to the objectives of the Robinson-Patman Act."
Id. at 1040 (emphasis in original).
It is appropriate to begin our consideration of the legal status of functional discounts [Footnote 11] by examining the language of the Act. 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. . . ."
15 U.S.C. § 13(a).
The Act contains no express reference to functional discounts. [Footnote 12] It does contain two affirmative defenses that provide protection for two categories of discounts -- those that
are justified by savings in the seller's cost of manufacture, delivery or sale, [Footnote 13] and those that represent a good faith response to the equally low prices of a competitor. Standard Oil Co. v. FTC,340 U. S. 231 (1951). As the case comes to us, neither of those defenses is available to Texaco.
In order to establish a violation of the Act, respondents had the burden of proving four facts: (1) that Texaco's sales to Gull and Dompier were made in interstate commerce; (2) that the gasoline sold to them was of the same grade and quality as that sold to respondents; (3) that Texaco discriminated in price as between Gull and Dompier on the one hand and respondents on the other; and (4) that the discrimination had a prohibited effect on competition. 15 U.S.C. § 13(a). Moreover, for each respondent to recover damages, he had the burden of proving the extent of his actual injuries. J. Truett Payne, 451 U.S. at 562.
The first two elements of respondents' case are not disputed in this Court, [Footnote 14] and we do not understand Texaco to be challenging the sufficiency of respondents' proof of damages. Texaco does argue, however, that although it charged different prices, it did not "discriminate in price" within the meaning of the Act, and that, at least to the extent that Gull and Dompier acted as wholesalers, the price differentials did not injure competition. We consider the two arguments separately.
Texaco's first argument would create a blanket exemption for all functional discounts. Indeed, carried to its logical conclusion, it would exempt all price differentials except those given to competing purchasers. The primary basis for
Texaco's argument is the following comment by Congressman Utterback, an active sponsor of the Act:
"In its meaning as simple English, a discrimination is more than a mere difference. Underlying the meaning of the word is the idea that some relationship exists between the parties to the discrimination which entitles them to equal treatment, whereby the difference granted to one casts some burden or disadvantage upon the other. If the two are competing in the resale of the goods concerned, that relationship exists. Where, also, the price to one is so low as to involve a sacrifice of some part of the seller's necessary costs and profit as applied to that business, it leaves that deficit inevitably to be made up in higher prices to his other customers; and there, too, a relationship may exist upon which to base the charge of discrimination. But where no such relationship exists, where the goods are sold in different markets and the conditions affecting those markets set different price levels for them, the sale to different customers at those different prices would not constitute a discrimination within the meaning of this bill."
80 Cong.Rec. 9416 (1936).
We have previously considered this excerpt from the legislative history, and have refused to draw from it the conclusion which Texaco proposes. FTC v. Anheuser-Busch, Inc.,363 U. S. 536, 363 U. S. 547-551 (1960). Although the excerpt does support Texaco's argument, we remain persuaded that the argument is foreclosed by the text of the Act itself. In the context of a statute that plainly reveals a concern with competitive consequences at different levels of distribution, and carefully defines specific affirmative defenses, it would be anomalous to assume that the Congress intended the term "discriminate" to have such a limited meaning. In Anheuser-Busch, we rejected an argument identical to Texaco's in the context of a claim that a seller's price differential had injured
its own competitors -- a so called "primary line" claim. [Footnote 15] The reasons we gave for our decision in Anheuser-Busch apply here as well. After quoting Congressman Utterback's statement in full, we wrote:
"The trouble with respondent's arguments is not that they are necessarily irrelevant in a § 2(a) proceeding, but that they are misdirected when the issue under consideration is solely whether there has been a price discrimination. We are convinced that, whatever may be said with respect to the rest of §§ 2(a) and 2(b) -- and we say nothing here -- there are no overtones of business buccaneering in the § 2(a) phrase 'discriminate in price.' Rather, a price discrimination within the meaning of that provision is merely a price difference."
363 U.S. at 363 U. S. 549. After noting that this view was consistent with our precedents, we added:
"the statute itself spells out the conditions which make a price difference illegal or legal, and we would derange this integrated statutory scheme were we to read other conditions into the law by means of the nondirective phrase, 'discriminate in price.' Not only would such action be contrary to what we conceive to be the meaning of the statute, but, perhaps because of this, it would be thoroughly undesirable. As one commentator has succinctly put it, "
"Inevitably every legal controversy over any price difference would shift from the detailed governing provisions -- 'injury,' cost justification, 'meeting competition,' etc. -- over into the 'discrimination' concept of ad hoc resolution divorced from specifically pertinent statutory text."
"Rowe, Price Differentials
and Product Differentiation: The Issues Under the Robinson Patman Act, 66 Yale L.J. 1, 38."
363 U.S. at 363 U. S. 550-551.
Since we have already decided that a price discrimination within the meaning of § 2(a) "is merely a price difference," we must reject Texaco's first argument.
In FTC v. Morton Salt Co.,334 U. S. 37, 334 U. S. 46-47 (1948), we held that an injury to competition may be inferred from evidence that some purchasers had to pay their supplier "substantially more for their goods than their competitors had to pay." See also Falls City Industries, Inc. v. Vanco Beverage, Inc.,460 U. S. 428, 460 U. S. 435-436 (1983). Texaco, supported by the United States and the Federal Trade Commission as amici curiae (the Government), argues that this presumption should not apply to differences between prices charged to wholesalers and those charged to retailers. Moreover, they argue that it would be inconsistent with fundamental antitrust policies to construe the Act as requiring a seller to control his customers' resale prices. The seller should not be held liable for the independent pricing decisions of his customers. As the Government correctly notes, Brief for United States et al. as Amici Curiae 21-22 (filed Aug. 3, 1989), this argument endorses the position advocated 35 years ago in the Report of the Attorney General's National Committee to Study the Antitrust Laws (1955).
After observing that suppliers ought not to be held liable for the independent pricing decisions of their buyers, [Footnote 16] and
that, without functional discounts, distributors might go uncompensated for services they performed, [Footnote 17] the Committee wrote:
"The Committee recommends, therefore, that suppliers granting functional discounts either to single-function or to integrated buyers should not be held responsible for any consequences of their customers' pricing tactics. Price cutting at the resale level is not in fact, and should not be held in law, 'the effect of' a differential that merely accords due recognition and reimbursement for actual marketing functions. The price cutting of a customer who receives this type of differential results from his own independent decision to lower price and operate at a lower profit margin per unit. The legality or illegality of this price cutting must be judged by the usual legal tests. In any event, consequent injury or lack of injury should not be the supplier's legal concern."
"On the other hand, the law should tolerate no subterfuge. For instance, where a wholesaler-retailer buys only part of his goods as a wholesaler, he must not claim a functional discount on all. Only to the extent that a buyer actually performs certain functions, assuming all the risk, investment, and costs involved, should he legally
qualify for a functional discount. Hence a distributor should be eligible for a discount corresponding to any part of the function he actually performs on that part of the goods for which he performs it."
Id. at 208.
We generally agree with this description of the legal status of functional discounts. A supplier need not satisfy the rigorous requirements of the cost justification defense in order to prove that a particular functional discount is reasonable and accordingly did not cause any substantial lessening of competition between a wholesaler's customers and the supplier's direct customers. [Footnote 18] The record in this case, however, adequately supports the finding that Texaco violated the Act.
The hypothetical predicate for the Committee's entire discussion of functional discounts is a price differential "that merely accords due recognition and reimbursement for actual marketing functions." Such a discount is not illegal. In this case, however, both the District Court and the Court of Appeals concluded that, even without viewing the evidence in the light most favorable to the respondents, there was no substantial evidence indicating that the discounts to Gull and Dompier constituted a reasonable reimbursement for the value to Texaco of their actual marketing functions. 842 F.2d at 1039; 634 F.Supp. at 37, 38. Indeed, Dompier was separately compensated for its hauling function, and neither Gull nor Dompier maintained any significant storage facilities.
Despite this extraordinary absence of evidence to connect the discount to any savings enjoyed by Texaco, Texaco contends that the decision of the Court of Appeals cannot be affirmed without departing "from established precedent, from practicality, and from Congressional intent." Brief for Petitioner 14. [Footnote 19] This argument assumes that holding suppliers liable for a gratuitous functional discount is somehow a novel practice. That assumption is flawed.
As we have already observed, the "due recognition and reimbursement" concept endorsed in the Attorney General's
Committee's study would not countenance a functional discount completely untethered to either the supplier's savings or the wholesaler's costs. The longstanding principle that functional discounts provide no safe harbor from the Act is likewise evident from the practice of the Federal Trade Commission, which has, while permitting legitimate functional discounts, proceeded against those discounts which appeared to be subterfuges to avoid the Act's restrictions. See, e.g., In re Sherwin Williams Co., 36 F.T.C. 25, 70-71 (1943) (finding a violation of the Act by paint manufacturers who granted "functional or special discounts to some of their dealer-distributors on the purchases of such dealer-distributors which are resold by such dealer-distributors directly to the consumer through their retail departments or branch stores wholly owned by them"); In re the Ruberoid Co., 46 F.T.C. 379, 386,
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