Respondent, a refiner-supplier of its own branded gasoline, was
charged with price discrimination in violation of § 2(a) of the
Clayton Act, as amended by the Robinson-Patman Act, when it granted
a reduction in price to one of its independently owned retail
station customers, but not to others of its similarly owned station
customers who were located nearby and who were shown to have been
competitively harmed by the discriminatory reduction. The allowance
to the favored station was given in order to enable it to meet the
price reductions of a competing service station owned and operated
by a retail chain selling a different brand of gasoline.
Held: Respondent is not entitled under § 2(b) of the
Act to the defense that its discriminatory lower price was given
"in good faith to meet the equally low price of a competitor,"
since the competing station is not a "competitor" of respondent
within the meaning of § 2(b), which contemplates that a seller may
meet the lower price of its own, and not its customer's,
competitor. Pp.
371 U. S.
506-529.
294 F.2d 465 reversed.
Page 371 U. S. 506
MR. JUSTICE GOLDBERG delivered the opinion of the Court.
This case grows out of a gasoline "price war" in Jacksonville,
Florida. The question presented is whether a refiner-supplier of
gasoline charged with the granting of a price discrimination in
violation of § 2(a) of the Clayton Act, [
Footnote 1] as amended by the Robinson-Patman Act, has
available to it, under § 2(b) of the Act, [
Footnote 2] the defense that the discriminatory lower
price was given "in good faith to meet an equally low price of a
competitor," when the gasoline refiner-supplier shows that it gave
the discriminatory price to only one of a number of its
independently owned retail station customers in a particular region
in order to enable that station to meet price reductions of a
competing service station owned and operated by a retail chain
selling a different brand of gasoline.
The Federal Trade Commission held the § 2(b) defense to be
unavailable under such circumstances. 55 F.T.C. 955. The Court of
Appeals for the Fifth Circuit reversed, 294 F.2d 465, and this
Court granted certiorari, 368 U.S. 984, to review this difficult
and important question concerning the scope and application of the
§ 2(b) defense.
I
The relevant facts are not seriously disputed.
Respondent, Sun Oil Company ("Sun"), is a New Jersey corporation
and a major integrated refiner and distributor of petroleum
products, including gasoline. At the time of the alleged violation
here in issue, Sun marketed in 18 States a single grade of gasoline
sold under the tradename "Sunoco." Sun does not ordinarily sell
directly to the motorist, but usually distributes its gasoline and
other related products to the consuming public
Page 371 U. S. 507
through retail service station operators who lease their
stations from it. [
Footnote
3]
In 1955, Gilbert McLean was the lessee and operator of a Sunoco
gas station located on the corner of 19th and Pearl Streets in
Jacksonville, Florida. He was one of Sun's 38 retail dealers in the
Jacksonville area, which Sun divided into three sales territories;
McLean operated in a sales territory composed of eight Sun
stations, one of which was only about 11 blocks away from McLean.
Like almost all retail sellers of branded gasoline, McLean bought
and sold only the petroleum products of a single supplier, here,
Sun. Notwithstanding, he was, as found below, and conceded here, an
independent contractor, and bore the direct and immediate risk of
profitability of the station.
Commencing operation of the station in February, 1955, McLean
bought gasoline from Sun at 24.1 cents per gallon and resold it at
28.9 cents per gallon to the motoring public; the other Sun dealers
in Jacksonville purchased from Sun at the same price and obtained
the same 4.8 cent per gallon margin of gross profit
In June, 1955, about four months after McLean began business,
the Super Test Oil Company, which operated about 65 retail service
stations, opened a Super Test station diagonally across the street
from McLean and began selling its "regular" grade of gasoline at
26.9 cents per gallon. It appears that this was Super Test's first
and only station in Jacksonville. The record does not disclose that
Super Test was anything more than a retail dealer;
Page 371 U. S. 508
nor does it indicate the source from which Super Test obtained
its gasoline.
The two cent per gallon difference in price between McLean and
Super Test represented the "normal" price differential then
prevailing in the area between "major" and "non-major" brands of
gasoline. This "normal" differential represents the price spread
which can obtain between the two types of gasoline without major
competitive repercussions. Thus, McLean was apparently not
adversely affected to any substantial degree by this first-posted
price of Super Test.
Thereafter, however, Super Test sporadically reduced its price
at its Jacksonville station, usually on weekends. Some of the price
cuts were advertised in the local newspaper, and all were posted on
curbside signs. For example, on August 27, 1955, the Super Test
station reduced its price to 21.9 cents a gallon, and, on the
following day, to 20.9 cents per gallon. While these lower prices
were normally short-lived, at least one was maintained for a week.
On the occasion of each price reduction by the Super Test station,
McLean's sales of Sunoco declined substantially.
When Super Test began lowering its price below the normal
two-cent differential, McLean, who was maintaining his price of
28.9 cents per gallon, from time to time protested to Sun and
sought relief in the form of a price concession from it. For about
four months, Sun took no action, but, in December, 1955, after
further periodic price reductions by Super Test and a complaint by
McLean that he would be forced out of business absent help from
Sun, Sun told McLean that it would come to his aid in the event of
further price cuts. When, on December 27, 1955, Super Test dropped
its price for "regular" gasoline to 24.9 cents per gallon, McLean
told Sun that he would have to post a price of 25.9 cents in order
to meet the competition. On the same day, Sun gave McLean a price
allowance or discount of 1.7 cents per gallon. McLean
accordingly
Page 371 U. S. 509
dropped his retail price three cents per gallon, from 28.9 cents
to 25.9 cents, thus reducing his gross margin from the prior 4.8
cents per gallon to 3.5 cents per gallon, the amount regarded by
Sun as the minimum gross margin which should be earned by its
retail dealers. In lowering his price to within one cent of Super
Test's, McLean absorbed 1.3 cents and Sun 1.7 cents of the per
gallon price reduction. No corresponding price reduction was given
by Sun to any of its other dealers in the area.
Within a few days, Super Test further lowered its price to 23.9
cents per gallon. No further price cuts were made by either McLean
or Super Test until mid-February, 1956, when Super Test cut its
price for "regular" gasoline to 22.9 cents per gallon. At about the
same time, a general price war developed in the Jacksonville area,
and several other suppliers made price reductions. Sun then dropped
its price equally to all of its dealers in the area.
Notwithstanding a remarkable increase in his gallon sales after the
December 27, 1955, price allowance to him and the reduction in his
own resale price, McLean went out of business on February 18, 1956,
two days after the outbreak of the general price war. [
Footnote 4] The exact reason for the
failure of McLean's business does not appear; it is not clear that
it was because of the price war.
Page 371 U. S. 510
During the period between the December 27, 1955, price reduction
by McLean and the February, 1956, date on which Sun extended its
discount to all of its area dealers, a number of Sun dealers
located at distances varying from less than a mile (about 11
blocks) to about three and one-half miles from McLean's station
suffered substantial declines in sales of Sunoco gasoline. Some of
these Sun dealers who testified below said that they saw former
customers of theirs buying gas from McLean, and two declared that
their customers had told them that they switched to McLean because
of his lower price. Some of these dealers complained to Sun about
the favored treatment accorded McLean, and, prior to the February
general price reductions, unsuccessfully sought compensating
discounts from Sun for themselves. Though three of these other Sun
dealers ultimately went out of business, there is no indication
that they did so as a result of the December price reduction to
McLean.
In September, 1956, the Federal Trade Commission filed a
complaint against Sun charging it with illegal price discrimination
in violation of § 2(a) of the Clayton Act, as amended, and with
entry into a price-fixing agreement with McLean in violation of § 5
of the Federal Trade Commission Act. [
Footnote 5] The Commission adopted the findings,
conclusions and proposed order of the trial examiner, and affirmed
his initial determination that Sun had violated the provisions of
both Acts, as charged. The Commission also found that there had
been actual competitive injury to the nonfavored Sun dealers by
virtue of Sun's discriminatory December 27 price allowance to
McLean, and rejected Sun's asserted defense under § 2(b) of the
Clayton Act because Sun was not meeting its own competition, that
is a price cut by another wholesale seller, and because the
allowance to McLean "was not made to meet a lower
Page 371 U. S. 511
price made to [McLean] . . . by another supplier," but "to meet
the competition of the Super-Test station across the street."
Considering Super Test to be an integrated supplier-retailer of
gasoline, the Court of Appeals reversed, reasoning first, that
McLean was but a "conduit" for the marketing of Sun's products, and
therefore Sun, as a practical matter, was really competing with
Super Test for sales of its gasoline, and second, that the price
competition of Super Test was as much a threat to the continued
existence of McLean as a customer of Sun as a direct competing
lower offer to McLean would have been, and it was not realistic to
expect such an offer to be made to McLean. The Court of Appeals
concluded that Sun was entitled, under the circumstances, to
"assert the [§ 2(b)] defense of meeting competition in good faith."
294 F.2d at 481. The Court of Appeals did not overturn the
Commission's finding that Sun's discriminatory price concession to
McLean had resulted in competitive injury to the other Sun dealers
in McLean's area.
The Commission petitioned for a writ of certiorari to review the
Court of Appeals holding that the § 2(b), defense was available to
Sun under the circumstances of this record; no review was sought of
the Court of Appeals' reversal of the Commission's findings that
Sun had entered a price-fixing agreement illegal under § 5 of the
Federal Trade Commission Act, and that Sun's purpose in granting
the lower price to McLean was to undercut, not meet, the price of
Super Test.
The only issue thus before the Court is whether Sun is here
entitled to avail itself of the § 2(b) defense that its December 27
"lower price" to McLean was extended "in good faith to meet an
equally low price of a competitor." If the defense is unavailable,
there is no issue as to violation of § 2(a) of the Clayton Act;
respondent Sun does not dispute that the requisite elements of a
price
Page 371 U. S. 512
discrimination otherwise illegal under § 2(a) have been
shown.
As indicated, the Court of Appeals assumed, as have a number of
commentators on the case, [
Footnote
6] that Super Test was an integrated supplier-retailer of
gasoline. The record does not support this conclusion, however, and
therefore, as the case comes to us, availability of the § 2(b)
defense to Sun is determined on the assumption that Super Test was
engaged solely in retail operations; similarly, since there is in
the record no evidence as to Super Test's source of supply or the
price at which it bought gasoline, we assume that Super Test was
not the beneficiary of any enabling price cut from its own
supplier. [
Footnote 7]
The precise question presented has not heretofore been resolved
by this Court. The only reported judicial decision (other than that
of the Court of Appeals in this case) considering the issue is a
District Court opinion supporting the view of the Commission.
Enterprise Industries, Inc. v. Texas Co., 136 F.
Supp. 420,
reversed on other grounds, 240 F.2d 457,
cert. denied, 353 U.S. 965. The Commission itself has, in
the past, taken a view contrary to the one urged here, but, since
1956, has been maintaining its present position.
II
The context in which the conflicting contentions of both the
Commission and respondent Sun must first be considered is that
framed by the language of the statute itself. Section 2(a) of the
Clayton Act, as amended by the Robinson-Patman
Page 371 U. S. 513
Act, makes it unlawful for
"any person . . . to discriminate in price between different
purchasers of commodities of like grade and quality . . . 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. [
Footnote 8]"
Of course, applicability of the statute depends upon the
requisite involvement in interstate commerce. As has been noted,
there is no challenge here to the finding that Sun's actions were
within the prohibitions of § 2(a); the discrimination was found to
have the statutorily requisite anticompetitive effects.
Section 2(b) of the Act contains a proviso permitting a seller
to rebut a
prima facie case of discrimination in violation
of § 2(a) by
"showing that his lower price or the furnishing of services or
facilities to any purchaser or purchasers was made in good faith to
meet an equally low price of a competitor, or the services or
facilities furnished by a competitor. [
Footnote 9]"
This proviso is usually referred to
Page 371 U. S. 514
as the "good faith meeting competition" defense. The seller has
the burden of bringing himself within the exculpating provision of
§ 2(b), which has been interpreted to afford an absolute defense to
a charge of violating § 2(a), notwithstanding the existence of the
statutorily prohibited anticompetitive effect,
Standard Oil Co.
v. Federal Trade Comm'n, 340 U. S. 231.
Reading the words to have "their normal and customary meaning,"
Schwegmann Bros. v. Calvert Distillers Corp., 341 U.
S. 384,
341 U. S. 388,
the § 2(b) phrase "equally low price of a competitor" would seem to
refer to the price of a competitor of the seller who grants, and
not of the buyer who receives, the discriminatory price cut. (In
this case, this would mean a competitor of Sun, the
refiner-supplier, and not a competitor of McLean, the retail
dealer.) Were something more intended by Congress, we would have
expected a more explicit recitation as, for example, is the case in
§ 2(a), in which the intent to give broader scope was expressly
effected by the prohibition of price discriminations which,
inter alia, adversely affected competition not only with
the seller (in this case, Sun) who grants the favored price, but
with the knowing recipient thereof (in this case, McLean) and "with
customers of either of them." Thus, since Congress expressly
demonstrated in the immediately preceding provision of the Act that
it knew how to expand the applicable concept of competition beyond
the sole level of the seller granting the discriminatory
Page 371 U. S. 515
price, it is reasonable to conclude that like clarity of
expression would be present in § 2(b) if the defense available
thereunder were similarly intended to be broadly read to encompass,
as is urged, the meeting of lower prices set not only by the
offending seller's competitor, but also by the purchaser's
competitor. There is no reason appearing on the face of the statute
to assume that Congress intended to invoke by omission in § 2(b)
the same broad meaning of competition or competitor which it
explicitly provided by inclusion in § 2(a); the reasonable
inference is quite the contrary.
The fact that § 2(b) permits a seller to meet the competitor's
"equally low" price is similarly suggestive of an interpretation
which limits application of the proviso to situations in which the
seller's reduction in price is made in response to a price cut by
its own competitor, rather than by a competitor of its customer.
Linguistically and practically, it makes but little sense to talk,
for example, of a wholesaler's meeting of the "equally low" price
of one of his purchaser's retail competitors. The reduced retail
price of the purchaser's competitor will almost invariably be
higher than the supplier's wholesale price; even in those instances
in which this is not so, it cannot seriously be suggested that,
under § 2(b), the wholesaler is entitled to reduce discriminatorily
his wholesale price to the lower retail level. Such a result is not
only economically unrealistic, but strains normal language use.
Moreover, it is difficult to see what appropriately cognizable
competitive interest Congress might be thought to have been serving
in enacting a statute productive of such an anomalous result.
Recognizing the incongruity of such an interpretation, and
having no need to go quite so far, respondent argues merely that,
as a wholesaler, it is protected under § 2(b) when it lowers its
own price sufficiently to allow its retail dealer, in turn, to
reduce his retail price to meet a competitive
Page 371 U. S. 516
retail offer. But this too extends the statute beyond its
immediately apparent meaning; the language of the section contains
no implication that it comprehends a two-stage price reduction
effected by two separate economic units at different levels of
distribution as the measure of setting the "equally low" price.
[
Footnote 10]
Enough has been said to demonstrate that a reading in context of
the § 2(b) proviso to give its words their normal and usual meaning
strongly suggests, though it does not inexorably compel, an
interpretation of the defense contrary to that urged by respondent.
Moreover, the narrower interpretation of the statute is consonant
with overall rationality and broader statutory consistency and
purpose, and effects a result compatible with legislative history
and economic reality. We now turn to consideration of such other
factors.
III
Prior to passage of the 1936 Robinson-Patman Act, § 2 of the
Clayton Act prohibited price discriminations, and allowed as one
defense a demonstration that the price concession was "made in good
faith to meet competition." 38 Stat. 730. Because of Congress'
growing concern that this exemption was overly broad, and did not
sufficiently inhibit business concentration thought to be fostered
in substantial part by unwarranted price favoritism shown by
suppliers to large buyers, particularly large retail chains then
threatening smaller local merchants, the Robinson-Patman Act was
passed to strengthen the Clayton Act prohibitions on price
discrimination.
See, e.g., H.R.Rep.No.2287, 74th Cong., 2d
Sess. 3-6; Rowe, Price Discrimination Under the Robinson-Patman Act
(1962), pp. 3-24. Not only was § 2(a) amended to eliminate
certain
Page 371 U. S. 517
asserted weaknesses, but the § 2(b) proviso legitimatizing
discriminations made to "meet competition" was limited to protect
only discriminations made "to meet an equally low price of a
competitor."
The House Committee, in its report on the bill, said of the
newly worded § 2(b) proviso:
"This proviso represents a contraction of an exemption now
contained in section 2 of the Clayton Act which permits
discriminations without limit where made in good faith to meet
competition. It should be noted that, while the seller is permitted
to meet local competition, it does not permit him to cut local
prices until
his competitor has first offered lower
prices, and then he can go no further than to meet those prices. If
he goes further, he must do so likewise with all his other
customers, or make himself liable to all of the penalties of the
act, including treble damages. In other words, the proviso permits
the seller to meet the price actually previously offered by a local
competitor. It permits him to go no further."
H.R.Rep.No. 2287, 74th Cong., 2d Sess. 16. (Emphasis supplied.)
While such language in the congressional materials suggests the
reading limiting § 2(b) to the meeting of the seller's own
competition, it is, of course, not conclusive, since not directed
to the specific problem here presented. Neither the briefs nor the
arguments of the parties nor of the
amici have pointed to
any more explicit congressional guide to resolution of the precise
question before us. No more can be said than that there appears to
be nothing in the legislative history to directly contradict what
we deem to be the ordinary meaning of the statutory language, or to
indicate that a different reading was specifically intended; what
few guides there are support the interpretation we here adopt.
Page 371 U. S. 518
IV
We thus turn to the fundamental purposes of the Robinson-Patman
Act and the antitrust laws in general for guidance more impressive
than that found in the recited legislative history.
Relying on the general purpose of the Act to protect the small
independent businessman, respondent Sun argues that the statutory
policy supports its price-cutting action, even though
discriminatory, because that action was designed to protect and
preserve a small independent businessman, McLean. It is asserted
that the limited resources available to McLean bar his survival in
a gasoline price war of any duration. McLean's small margin of
profit, his relative inability to lower his retail price because a
direct function of the price he pays his supplier, here Sun, and
other factors make his continued independent existence in a
present-day price war wholly dependent upon receipt of aid -- in
the form of a price reduction -- from his supplier. Whatever their
accuracy, these assertions ignore the other station operators --
the nearby Sun dealers competing with McLean -- who were also
vitally interested in the particular competitive struggle to which
Sun was moved to respond by making price concessions only to
McLean. These dealers were hurt, it was found below, by Sun's
discriminatory price to McLean, and this finding is not challenged
here by Sun. Their sales declined appreciably after the December
27, 1955, cut in price by Sun to McLean, and, while perhaps not all
of the attrition in sales was attributable to the fact that McLean
was thereby enabled to drop his price, certain of the dealers were
able to identify customers who, apparently retaining a preference
for Sun products, shifted their patronage from the competing Sun
stations to McLean.
Page 371 U. S. 519
It is asserted in response that the harm to competitors of
McLean must be suffered as a consequence of the very competition
which is the pervasive essence of our overall antitrust policies.
As has been said in another context:
"In any competitive economy, we cannot avoid injury to some of
the competitors. The law does not, and, under the free enterprise
system, it cannot, guarantee businessmen against loss. That
businessmen lose money or even go bankrupt does not necessarily
mean that competition has been injured."
H.R.Rep.No.1422, 81st Cong., 1st Sess. 5-6. But the mere
recognition that harm sometimes may be a by-product of competition
is the beginning, not the end, of analysis. Whatever the result
here, someone may be hurt -- to allow Sun to pursue its
discriminatory pricing policy will, as has been indicated, harm
other Sun dealers who compete with McLean; to prevent Sun from
making discriminatory price allowances, it is asserted, will injure
the McLeans of the competitive world. The alternative competitive
injury to McLean, however, is not inevitable; Sun may have
available to it courses of action which would afford protection to
both McLean and the other Sun stations.
See pp.
371 U. S.
526-527,
infra. Even if this were not so, we
are not free on the basis of our own economic predilections to make
the choice between harm to McLean, on the one hand, and to the
other Sun operators, on the other, or to balance the comparative
degree of individual injury in each instance; that choice is
foreclosed by the determination in the statute itself in favor of
equality of treatment. It is the very operators of the other Sun
stations which compete with McLean who are the direct objects of
protection under the Robinson-Patman Act. The basic purpose of the
Act was to insure that such purchasers from a single supplier, Sun,
would not be injured by that supplier's discriminatory practices.
To be sure, the
Page 371 U. S. 520
§ 2(b) exception is operative notwithstanding the incidence of
damage to nonfavored purchasers,
Standard Oil Co. v. Federal
Trade Comm'n, supra, but, given the basic statutory purpose to
prevent precisely such damage, the defense does not become
applicable simply because the favored purchaser would be hurt
absent the discriminatory price cut to him. If a threat of harm to
the favored customer was itself enough, under § 2(b), to immunize a
discrimination, the § 2(b) exception could largely nullify the
prohibitions of § 2(a).
Similarly, the mere fact that McLean was a small retailer does
not make the good faith defense applicable. While, as noted, the
immediate and generating cause of the Robinson-Patman amendments
may have been a congressional reaction to what were believed to be
predatory uses of mass purchasing power by chain stores, neither
the scope nor the intent of the statute was limited to that precise
situation or set of circumstances. Congress sought generally to
obviate price discrimination practices threatening independent
merchants and businessmen, presumably from whatever source. The
House Committee declared its "guiding ideal" in proposing the
amendments to be "the preservation of equality of opportunity as
far as possible to all who are usefully employed in the service of
distribution and production. . . ." H.R.Rep.No.2287, 74th Cong., 2d
Sess. 6. In short, Congress intended to assure, to the extent
reasonably practicable, that businessmen at the same functional
level would start on equal competitive footing so far as price is
concerned.
An example will be helpful. Assume that a single store in a
large retail grocery chain reduces, without the benefit of any
corresponding reduction in price from its supplier, the price of a
single and widely advertised staple food product. Is it to be
supposed that the Congress which passed the Act would view this
reduction as justifying,
Page 371 U. S. 521
under § 2(b), another supplier's cut in his wholesale price of
the same product to a large competing retail chain outlet without
that supplier's offering the same price concession to other smaller
retail outlets which compete with both chain stores? Even assuming
that the second chain did not predatorily seek the price concession
from its own supplier, there can be but one answer to this question
under the statute, since allowance of such a discrimination would
nullify the very equality which is sought to be protected by the
Act. To allow the § 2(b) defense to be so asserted would be
directly contrary to the intent of Congress.
Stripped of the initial appeal arising from the fact that Sun
was attempting to preserve not a retail chain, but rather its own
small dealer, McLean, the instant facts present, we think, no
crucial variation from the example given.
The argument that, if the problem actually posed by "small"
McLean competing with "big" Super Test were put to Congress, it
would approve the course followed by Sun, is not persuasive. Even
if such congressional approval might be assumed -- a perhaps
unwarranted conclusion [
Footnote
11] -- it is clear that Congress did not write or pass a
statute which allowed or provided for distinction
Page 371 U. S. 522
between the posited grocery product case and the one now before
us. To make the incidence of the § 2(b) defense turn on the
relative competitive strength of the particular favored customer
vis-a-vis his price-cutting competitor is not only
inapposite, but without statutory warrant. The Act is of general
applicability, and prohibits discriminations generally, subject
only to defenses not based upon size. Competitive ability or
business size may properly be a measure of antitrust application in
other contexts, but there is no basis for reading such a standard
into § 2(b) of this statute.
Limiting invocation of the § 2(b) defense to those situations in
which the discriminatory price cut is made in response to a lower
price of the seller's own competitor comports, we think, not only
with the objectives of the Robinson-Patman Act, but with the
general antitrust policy of preserving the benefits of
competition.
To allow a supplier to intervene and grant discriminatory price
concessions designed to enable its customer to meet the lower price
of a retail competitor who is unaided by his supplier would
discourage, rather than promote, competition. So long as the
price-cutter does not receive a price "break" from his own
supplier, his lawful reductions in price are presumably a function
of his own superior merit and efficiency. To permit a competitor's
supplier to bring his often superior economic power to bear
narrowly and discriminatorily to deprive the otherwise resourceful
retailer of the very fruits of his efficiency, and convert the
normal competitive struggle between retailers into an unequal
contest between one retailer and the combination of another
retailer and his supplier, is hardly an element of reasonable and
fair competition. We see no justification for such a result in §
2(b). Restriction of the defense to those situations in which a
supplier responds to the price concessions of its own competitor
--
Page 371 U. S. 523
another supplier -- maintains general competitive equities.
Fairness demands neither more nor less. We discern in § 2 neither a
purpose to insulate retailers from lawful and normal competitive
pressures generated by other retailers nor an intent to authorize
suppliers, in response to such pressures created solely at the
retail level, to protect, discriminatorily, sales to one customer
at the expense of other customers.
It is argued, however, that to deny Sun the right to reduce its
prices, as it did here, is to impair price flexibility and promote
price rigidity, the very antithesis of competition. We think that
the contrary is the case. While allowance of the discriminatory
price cut here may produce localized and temporary flexibility, it
inevitably encourages maintenance of the long-range and generalized
price rigidity which the discrimination in fact protects. So long
as the wholesaler can meet challenges to his pricing structure by
wholly local and individualized responses, it has no incentive to
alter its overall pricing policy. Moreover, as indicated, the large
supplier's ability to "spot price" will discourage the enterprising
and resourceful retailer from seeking to initiate price reductions
on his own. Such reasoning may be particularly applicable in the
oligopolistic environment of the oil industry. [
Footnote 12]
We see no reason to permit Sun discriminatorily to pit its
greater strength at the supplier level against Super Test, which,
so far as appears from the record, is able to sell its gasoline at
a lower price simply because it is a more efficient merchandiser,
particularly when Super Test's challenge as an "independent" may be
the only meaningful source of price competition offered the "major"
oil companies, of which Sun is one.
Page 371 U. S. 524
V
Respondent Sun makes several other arguments in support of its
position. First, it asserts that the interpretation of § 2(b) urged
here by the Commission completely ignores the competitive realities
of the gasoline vending business. In essence, Sun argues that,
practically viewed, Super Test was not merely a competitor of
McLean, but also a competitor of Sun. Oil companies, whether major
or minor, integrated or nonintegrated, it is asserted, compete not
at the wholesale or jobber level, but almost exclusively at the
retail level. [
Footnote 13]
All competition, Sun says, is directed to sales of the final
product -- gasoline -- to the motoring consumer, and anything that
threatens to reduce the sales of a branded gasoline at the
retailer's pump is a threat to the supplier whose business is a
direct function of its stations' marketing success or failure. It
is contended that the individual station is but a "conduit" for the
supplier, and that Sun is thus in competition with Super Test,
considered even only as a retailer. [
Footnote 14]
In a very real sense, however, every retailer is but a "conduit"
for the goods which it sells, and every supplier could, in the same
sense, be considered a competitor of retailers selling competing
goods. We are sure Congress had no such broad conception of
competition in mind when it established the § 2(b) defense and,
certainly, it
Page 371 U. S. 525
intended no special exception for the petroleum industry. It is
difficult to perceive convincing reasons rationally confining the
thrust of respondent's argument to an area narrow enough to
preclude effective emasculation of the prohibitions on
discrimination contained in § 2(a). Only differences of degree
distinguish the situation of the gasoline station operator from
that of many other retail outlets, and, in numerous instances, the
distinction, if any, is slight. The "conduit" theory contains no
inherent limitations, and its acceptance would so expand the § 2(b)
defense as to effect a return to the broader "meeting competition"
provision of the Clayton Act, which the Robinson-Patman Act
amendments superseded.
Sun also argues that the effect of a decision holding the § 2(b)
defense unavailable to it in these circumstances will be to prolong
and aggravate the destructive price wars which periodically reoccur
in the marketing of gasoline. Whether relevant or not, this
contention is best put wholly to one side. Such price warfare
appears to be caused by a number of basic factors, not the least of
which are industry overcapacity and the propensity of some major
refiners to engage in so-called "dual marketing" under which, in
order to increase their overall sales and utilize idle facilities,
they not only sell branded gasoline to their own dealers, but also
sell unbranded gasoline to independent retailers or jobbers, often
at a lower price.
See S.Rep.No.2810, 84th Cong., 2d Sess.
16-19. Whatever we do here can neither eliminate nor mitigate the
major economic forces which are productive of these price wars.
Moreover, it is wholly unclear whether allowance of the price
discrimination prolongs or shortens the war's duration. (It might
be noted that the war was not narrowly contained by Sun's actions
here.) There are logical arguments on both sides of the question,
and none is wholly persuasive. Extensive discussion of the various
reasoning would serve no useful purpose. As one study
Page 371 U. S. 526
concludes after canvassing the contentions: "one simply cannot
be certain." De Chazeau and Kahn, Integration and Competition in
the Petroleum Industry (1959), 481;
and see generally id.,
pp. 477-483; S.Rep.No.2810, 84th Cong., 2d Sess. 19-23.
Respondent urges that the interpretation of § 2(b) which we have
adopted unfairly forces its small retailer, McLean, to bear alone
what to him is the economically insufferable burden of the entire
retail price reduction. This, however, erroneously poses the choice
as merely twofold -- aid to the retailer by an unlawfully
discriminatory price reduction, or no aid at all -- and
misconceives the availability of other alternatives.
Preliminarily, it must be recognized that we are not dealing
here with the situation in which one supplier reduces its prices
and another supplier thereupon reduces its prices to prevent its
customer from shifting his business to the competing supplier; this
is the more normal circumstance, and the § 2(b) defense is usually
available.
Even in the limited situation with which we here deal -- in
which the competing retailer cuts his price without his supplier's
aid -- Sun, as a wholesaler, may reduce its price uniformly and
nondiscriminatorily to competing purchasers from it so as to
preclude the probable incidence of the substantial anticompetitive
effects upon which violation of § 2(a) is here grounded. Sun
recognizes, as it must, that it has this choice, but argues that,
in order to eliminate the possibility of having even a broad price
cut deemed illegal under § 2(a), it would of necessity have to
extend the benefits of the concessions to all of its dealers in an
unwarrantedly wide geographic area, perhaps nationwide. This, it
asserts, is required because, whatever line it seeks to draw, there
will inevitably be some dealer who, because of geographic
proximity, will be deemed to have been illegally discriminated
against. The mere existence of a competitive continuum, however,
does not
Page 371 U. S. 527
require that market limits be indefinitely extended, with absurd
results in the form of unwarranted nationwide or otherwise overly
broad measures of competitive impact. In appraising the effects of
any price cut or the corresponding response to it, both the Federal
Trade Commission and the courts must make realistic appraisals of
relevant competitive facts. Invocation of mechanical word formulas
cannot be made to substitute for adequate probative analysis.
[
Footnote 15] In cases in
which the economic facts so indicate, carefully drawn area
submarkets may be the proper measure of competitive impact among
purchasers. [
Footnote
16]
Alternatively, since Sunoco stations, though largely
independently owned, operate under leasing, merchandising,
advertising, and other policies set by Sun, other opportunities are
available to Sun to strengthen its dealers in competing with other
stations.
Rejecting these and other actions [
Footnote 17] as reasonable business alternatives,
[
Footnote 18] Sun asserts
that the only course realistically
Page 371 U. S. 528
open to it is to change the nature of its distribution system by
effecting some sort of further forward vertical integration, all at
the expense and to the detriment of the very independent merchants
-- the individual station operators -- whom the Robinson-Patman Act
was intended to preserve and protect. It may be that active pursuit
of such a course by Sun, involving the elimination of independent
retail dealers, would be a greater evil than allowance of
discriminations such as are here involved; such a broad
determination of economic policy, however, is not for us to make
here. We are not interpreting a broadly phrased constitutional
provision, but rather a narrowly worded statutory enactment with
specific prohibitions and specific exceptions.
Compare Standard
Oil v. United States, 337 U. S. 293,
337 U. S.
311-312.
In any event, we see no evidence that such forward integration
is inevitable or required as the only feasible alternative. It has
not yet occurred, and suppliers such as Sun have discerned sound
and apparently persuasive reasons for heretofore rejecting direct
ownership and
Page 371 U. S. 529
operation of their stations; it is wholly reasonable to believe
that such incentives persist.
Having consciously chosen not to effect direct distribution
through wholly owned and operated stations, Sun cannot now claim
for itself the benefits of such a system and seek to inject itself
as a supplier into what on this record appears as a struggle wholly
between retailers, when such interference favors one of Sun's
customers at the expense of others.
Thus, consistent with overall antitrust policy and the language
and very purposes of the Robinson-Patman amendments, we conclude
that § 2(b) of the Act contemplates that the lower price which may
be met by one who would discriminate must be the lower price of his
own competitor; since there is in this record no evidence of any
such price's having been set, or offered to anyone, by any
competitor of Sun, within the meaning of § 2(b), [
Footnote 19] Sun's claim to the benefit of
the good faith meeting of competition defense must fail.
Accordingly, the judgment of the Court of Appeals is
Reversed.
[
Footnote 1]
38 Stat. 730, as amended, 49 Stat. 1526, 15 U.S.C. § 13(a).
[
Footnote 2]
49 Stat. 1526, 15 U.S.C. § 13(b).
[
Footnote 3]
In 1956, Sun had a total of approximately 6,980 domestic
dealers. In 1954, the year preceding the alleged violation, Sun was
the thirteenth largest of the integrated oil companies. H.R.Rep.
No. 1423, 84th Cong., 1st Sess. 23. Among United States industrial
corporations of all types, it ranked forty-fourth in assets,
thirty-sixth in net profits, and thirty-eighth in sales. S.Rep. No.
2810, 84th Cong., 2d Sess. 7.
[
Footnote 4]
During the period from July through November, 1955, McLean's
monthly sales in gallons varied from a high of about 7,400 (July)
to a low of approximately 5,900 (November). McLean cut his price on
December 27, 1955; his December sales were 8,300 gallons. His sales
in January, 1956, jumped to over 32,000 gallons, and continued at
about the same rate into February until he discontinued
business.
In July, 1955, the month following its opening, Super Test sold
just over 5,000 gallons of "regular" gasoline at its Jacksonville
station; its monthly sales of "regular" thereafter varied from
about 10,700 gallons (September) to slightly under 19,000
(December). In January and February, 1956, Super Test's sales of
regular exceeded 61,000 and 67,000 gallons, respectively.
[
Footnote 5]
38 Stat. 719, as amended by 52 Stat. 111, 15 U.S.C. § 45.
[
Footnote 6]
See, e.g., Note, 62 Col.L.Rev. 171 (1962); Note, 1962
Duke L.J. 300; Note, 75 Harv.L.Rev. 429 (1961).
[
Footnote 7]
Were it otherwise,
i.e., if it appeared either that
Super Test were an integrated supplier-retailer or that it had
received a price cut from its own supplier -- presumably a
competitor of Sun -- we would be presented with a different case,
as to which we herein neither express nor intimate any opinion.
[
Footnote 8]
Section 2(a) provides in more extensive part:
"That 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. . . ."
[
Footnote 9]
Section 2(b) provides in full text:
"Upon proof being made at any hearing on a complaint under this
section that there has been discrimination in price or services or
facilities furnished, the burden of rebutting the prima facie case
thus made by showing justification shall be upon the person charged
with a violation of this section, and unless justification shall be
affirmatively shown, the Commission is authorized to issue an order
terminating the discrimination:
Provided, however, That
nothing herein contained shall prevent a seller rebutting the prima
facie case thus made by showing that his lower price or the
furnishing of services or facilities to any purchaser or purchasers
was made in good faith to meet an equally low price of a
competitor, or the services or facilities furnished by a
competitor."
[
Footnote 10]
A reading of § 2(b) such as Sun contends for would also make it
difficult, if not impossible, to read sensibly the section's
reference to the "services or facilities" of a competitor.
[
Footnote 11]
While subsequent legislative materials are neither appropriate
nor relevant guides to interpretation of prior enactments, it is
interesting to note that a Senate Select Committee on Small
Business, reporting in 1956 on a New Jersey gasoline price war,
concluded that the Federal Trade Commission should enforce the Act
against "all instances of price discrimination," that such action
might have stopped the price war in "its incipiency," and that the
§ 2(b) defense should not be available to protect a supplier who
discriminatorily lowered his price
"not for the purpose of meeting the equally low price of a
competitor, but, rather, to enable some of his dealers to meet the
prices charged by competitive gasoline retailers."
S.Rep.No.2810, 84th Cong., 2d Sess. 28-29.
[
Footnote 12]
See generally H.R.Rep.No.1423, 84th Cong., 1st Sess.;
see Note, 29 U. of Chi.L.Rev. 355, 365-366 (1962).
[
Footnote 13]
It appears that there may be some competition, at least among
the "major" oil companies, to win the more efficient jobbers and
retailers to distribution of their brands of gasoline; a similar
competition may exist for preferred locations.
[
Footnote 14]
The "lower offer" which, under this analysis, Sun was meeting by
its price cut to McLean was the retail price posted by Super Test.
Obviously, to the extent that any such theory the supplier
attempted to set, or was responsible for setting, the retail price,
there would be inherent antitrust problems arising from possible
existence of illegal price-fixing agreements.
[
Footnote 15]
Cf. American Oil Co., F.T.C.Dkt.No.8183, CCH Trade
Reg.Rep. 15,961 (June 27, 1962) (dissenting opinion of Commissioner
Elman).
[
Footnote 16]
Nothing we say in this case -- involving injury only to
so-called "secondary-line" competition, that is, competition among
buyers -- is inconsistent with
Federal Trade Comm'n v.
Anheuser-Busch, Inc., 363 U. S. 536, in
which, in the context of asserted injury to "primary line"
competition, that is, competition with the seller, it was held that
a "discrimination" under § 2(a) of the Act comprehends a
"difference in price" among even noncompeting purchasers the
legality or illegality of which depends upon whether or not there
is likely to be substantial injury to competition among
sellers.
[
Footnote 17]
Since Sun made no attempt here to utilize a so-called
"feathered" discount to its dealers, under which the amount of the
price allowance diminishes as it reaches stations further away from
the center of the price war, we need not expressly pass upon such
practice. However, it may be noted that a properly designed and
limited price reduction system fashioned in such a manner might,
under appropriate circumstances, be found to have obviated
substantial competitive harm to the other Sun dealers, and thereby
negated a violation of § 2(a) such as is here charged. Of course,
improperly designed or too sharply drawn, "feathering" gradations
may produce precisely the same effect as no gradation at all, and
consequently fall within the same ban as an outright illegal
discrimination.
[
Footnote 18]
Insofar as Sun is free to pursue certain alternative courses of
action, it may convert what was a competitive struggle simply at
the retail level into one involving a supplier. But, by definition,
Sun will not have acted in such a manner as to produce substantial
anticompetitive effects at the secondary level,
i.e.,
among Sun's customers. Moreover, not only will there be no price
cut by Sun at the expense of nonfavored dealers, but the broader
nature of the response required will serve as an inhibition on
utilization of price reductions to pursue essentially
anticompetitive objectives, and will preclude undue restraint upon
the enterprising retailer who is willing, and presumably able, to
lower his price without the aid of his supplier.
[
Footnote 19]
In this posture of the case, we find it unnecessary to pass upon
the Commission's apparently alternative theory that a lower
competitive offer to McLean himself was a prerequisite to Sun's
invocation of the § 2(b) defense.
Separate memorandum of MR. JUSTICE HARLAN, in which MR. JUSTICE
STEWART joins.
I agree with the conclusion reached by the Court that, on the
present record, Sun has failed to make out a defense under § 2(b)
of the Clayton Act, as amended by the Robinson-Patman Act.
However, instead of reversing the judgment below, I would remand
the case to the Commission so as to afford opportunity for the
introduction of further evidence.
Page 371 U. S. 530
The Court recognizes,
ante, p. 512,
note 7 that a different case would be
presented
"if it appeared either that Super Test were an integrated
supplier-retailer or that it had received a price cut from its own
supplier -- presumably a competitor of Sun."
It is true that the burden of proof in establishing a § 2(b)
defense rests on Sun, and that it must therefore bear the
responsibility for any gaps in the record. But it is equally true
that we are here dealing with an extremely difficult question
arising under a singularly opaque and elusive statute.
If, as the Court acknowledges, it may be important to know
whether Super Test was integrated, or whether it received a price
cut from its supplier, I see no reason to foreclose development of
the relevant facts in this proceeding. This case is one of
far-reaching importance in the administration of the
Robinson-Patman Act, and yet, by our final disposition of it, we
leave unanswered as many questions as we have resolved. If a more
complete record would permit resolution of these additional
questions, we do both litigants an injustice by refusing to allow
such a record to be made. For the Commission, which has had trouble
making up its own mind in this area,
* has as much
interest as the respondent in definitive answers to these
perplexing problems.
* At one time, as indicated by various letters written by the
then Director of the Bureau of Investigation in 1954, the
Commission took the position that the § 2(b) defense was available
under the facts before us today.
See Hearings on
Distribution Problems before Subcommittee No. 5 of the House Select
Committee on Small Business, 84th Cong., 1st Sess. 459-463, 852-853
(1955).