The Commission found (Pet. Apdx. 633-634), and it has not been disputed, that American's favored and non-favored dealers competed with each other in the resale of American's gasolines. The Commission found that American's price discriminations were substantial, that such discriminations were directly reflected in the dealers' resale prices of American's gasolines, and that customers were diverted from the unfavored dealers to the favored dealers because of the price difference. The Commission concluded (Pet. Apdx. 635) that the price discriminations seriously impaired the competitive opportunities of those dealers who were required to pay higher prices, and, accordingly, were such discrimination as may be to substantially lessen competition or to injure, destroy or prevent competition with the favored dealers.

The Commission rejected (Pet. Apdx. 635-636) American's contention that the fact that American's discriminations in price existed only for a brief period mitigated against any harmful effects on competition arising therefrom. The Commission pointed out (Pet. Apdx. 636) that the statutory test was whether the discriminations gave rise to a reasonable probability of substantial adverse effect upon competition, not that actual injury to competition had occurred.

The Commission also rejected (Pet. Apdx. 635) American's argument that its non-favored dealers "would have been injured" by the lower prices of dealers selling other brands of gasoline irrespective of whether American reduced its price to the Smyrna dealers. The Commission pointed to the fact that American had discriminated in price and that such a discrimination may be adversely to affect competition between American's dealers in the resale of American's gasolines.

In setting aside the Commission's order the Court held that the effect upon competition requisite to establishing a Section 2(a) violation was the effect caused by a discrimination in price that "constituted a probable threat to the ability of the Marietta dealers to continue in competition" (slip opinion 6, emphasis supplied). In slightly different language the Court iterated this erroneous concept of the law at least five times (slip opinion 5, 6, 7). Noting that American's price discriminations were "temporary" (slip opinion 7, 9), and holding the "actual economic loss" sustained by American's unfavored dealers to be "slight" and "minimal" (slip opinion 6, 8), the Court, relying upon its opinion in AnheuserBusch, Inc. v. Federal Trade Commission, 289 F. 2d 835 (7th Cir. 1961), ruled that the Commission erred in concluding that there was a likelihood of any substantial impairment of the "vigor or health of the contest for business" between American's competing dealers. The Court also held (slip opinion 6, 8) that in any event the price war condition prevailing in the Smyrna area at the time American engaged in its challenged price discriminations was the cause of any injury sustained by American's unfavored dealers, and that American's price discriminations were "the result of such condition not the cause of it."

The Court, by ruling that the requisite effect of a price discrimination upon competition between purchasers is measured by the probability of permanent injury to the competitive abilities of the unfavored purchaser, i.c., impairment of the unfavored purchaser's "ability *** to continue in competition," has evinced, we believe, a complete misunderstanding of the purposes of Section 2(a). Its decision is in conflict with controlling decisions of the Supreme Court. Further, the Court's holding that American's price discriminations were not the cause of any adverse competitive effect is clearly erroneous.

1. The legal standard applied by the Commission in this case was that enunciated by the Supreme Court in Federal Trade Commission v. Morton Salt Co., 334 U.S. 37 (1948). There the Commission challenged, as having the prescribed statutory effect upon “second line" competition, Morton Salt's quantity discounts on its "Blue Label" brand of salt. In pertinent part, the Supreme Court's construction of Section 2(a) in light of the crucial facts which obtained in that case was as follows (334 U.S. at 46-47, 49, 50):

*** [T]he 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 Commissions, 324 U.S. 725, 742.* 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.

***It is urged that the evidence is inadequate to support the Commission's findings of injury to competition. 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.

That respondent's quantity discounts did result in price differentials between competing purchasers sufficient in amount to influence their resale prices 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."

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 discriminatory prices on any or all goods sold in interstate commerce, whether the particular goods constituted a major or minor portion of his stock. ***

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.

We submit that the test that was applied in the instant case by the Court of Appeals-i.e., the effect on competition is to be measured by "the ability of the [non-favored dealers] to continue in competition"-is in direct conflict with the statutory test set forth by the Supreme Court in Morton Salt. Under the Supreme Court's construction of Section 2(a), American's discrimination as a matter of law, had the prescribed effect upon customer competition, and the Morton Salt case is controlling and conclusive precedent for that conclusion.

The Court of Appeals distinguished Morton Salt on the ground that case involved "a built-in routine and permanent price advantage" rather than a temporary price reduction as is here involved (slip opinion 7, 8). But this distinction cannot negate the application of the Supreme Court's construction of Section 2(a) to the facts of this case. The Supreme Court related its conclusion in part to the fact that the "price differentials between competing purchasers [were] sufficient to influence their resale price of salt," and that this was important notwithstanding that it was only "one of many articles in a grocery store." The Commission's conclusion in that case that this had the requisite effect was deemed “obvions” by the Supreme Court. Where, as here, gasoline is the principal product sold by a service station operator, and the discriminations in price ranged from 3.5 cents to 11.5 cents per gallon of gasoline, a difference that was directly reflected in the retail price of a product upon which a dealer maintained a 5 cents per gallon gross

a Court's footnote: "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 RobinsonPatman Act, in relation to § 3 of the Clayton Act:

"It is to be observed that § 2(a) does not require a finding that the discriminations in price have in fact had an adverse effect on competition. The statute is designed to reach such discriminations in their incipiency.' before the harm to competition is effected. It is enough that they 'may' have the prescribed effect. Cf. Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346, 356-357. But as was held in the Standard Fashion case, supra, with respect to the like provisions of $3 of the Clayton Act. prohibiting tying clause agreements, the effect of which "may be to substantially lessen competition,' the use of the word 'may' was not to prohibit discriminations having the mere possibility' of these consequences, but to reach those which would probably have the defined effect on competition. 324 U.S. at 738; see also United States v. Lexington Mill Co., 232 U.S. 399, 411. **

margin of profit, and where such a differential when reflected in the retail price was sufficient to and did divert customers of the unfavored purchasers to the favored purchasers, the “reasonable probability of substantial injury to customer competition" is equally "obvious."

The fact that American's price discriminations were only "temporary" is irrelevant under the statute. What is important is that in the circumstances of this case the discriminations would have the statutory effect as long as they lasted. It is the probability of harm that controls.

2. The reliance of the Court of Appeals (slip opinion 5, 6) upon its decision in Anheuser-Busch, Inc. v. Federal Trade Commission, 289 F.2d 835 (7th Cir. 1961). is misplaced. That case and most of the authorities cited therein involved primary-line situations-i.e., the competition allegedly affected was between sellers. We concede that the "vigor or health of the contest for business" in primary-line cases should not be related solely to "shifts in business" between sellers. But where price discriminations will result in shifts in business between competing purchasers the requisite adverse effect of the discrimination upon competition is manifest. The Clayton Act protects small individual businessmen, including service station operators, from supplier discrimination having that effect. See Federal Trade Commission v. Sun Oil Co., 371 U.S. 505 (1963).

Congress made it clear that the Robinson-Patman amendment to the Clayton Act was designed to shift the emphasis from a showing of a substantial lessening of competition to that of injury to competition. See H.R. Rep. 2287, 74th Cong., 2d Sess. 3-8 (1936). To accomplish this Congress prescribed discriminations in price the effect of which "may be ... to injury, destroy or prevent competition" between purchasers.

Accordingly, the statement by the Court that "the statute's concern with the individual competitor is but incidental” does not reflect the intention of Congress. In the circumstances of this case a shift of customers from the unfavored American dealer to the favored American dealer, whether an immediate or probable result of the price discriminations, constitutes the requisite effect contemplated by the statute. It is through protection of the individual competitor that Congress sought to preserve competition.

The Commission is not unmindful of the criticism that has been leveled at Clayton Act enforcement cases based upon a literal interpretation of the Supreme Court's Morton Salt decision. But, contrary to the view of the Court of Appeals (slip opinion 9), the Commission did not measure the requisite statutory "substantiality" of adverse effect by the substantiality of the price discriminations. The Commission relied upon the resulting effect upon customer competition that would necessarily flow from such price discriminations in the context of the operation of a gasoline service station. There can be no doubt that American's price discriminations were basically unfair to the unfavored service station operators. The Commission's approach in the instant case is consistent with the views of the Supreme Court. Federal Trade Commission v. Sun Oil Co., 371 U.S. 505 (1963).

3. The holding of the Court of Appeals that there was no causal relation between the price discrimination to the favored customers and the probability of an adverse effect upon the competition of the unfavored customers with the favored customers is also erroneous. The Smyrna price war conditions did not precipitate the adverse effects upon America's customer competition to the exclusion of American's price discriminations. American reduced its prices concurrently with the other suppliers of major brands of gasoline; it joined in the parade of price reductions from the outset of the price war. Whatever the resulting effect upon customer competition, the responsibility therefor must, as a matter of law, be equally shared by all discriminating suppliers, including American. In this respect, the Court's observation that the Marietta dealers would have retained all their patrons even if American had not discriminatorily lowered its price to its favored dealers in Smyrna is not only speculative but wholly irrele vant. The Court of Appeals has ignored the fact that American had an alternative course of action open to it; it could have reduced its prices to its Marietta dealers as well as its Smyrna dealers. Hypothetically, American's Marietta dealers would then have retained all their patrons and would not have been adversely affected by the price war conditions. While we agree with the Court that the Supreme Court's Sun Oil decision is not directly concerned with the issue involved here, pertinent is the following observation (371 U.S. at 518-519):

***** [T]he nearby Sun dealers competing with McLean *** 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 *** [W]e are not free on the basis of our own economic pred

ilections to make the choice between harm to McLean, on the one hand, and to 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." The statement by the Court of Appeals that the price war, rather than the component price discriminations that create such a condition, was the cause of any immediate or probable adverse effect, would effectively insulate all participants from responsibility under Section 2(a). This holding directly avoids and makes inoperative the specific provisions of Section 2(b), which is designed to exempt from the statute certain price discriminations made in response to competitive pricing practices. The result of the Court's holding is untenable.

4. The phenomenon of gasoline price wars has been the subject of detailed and extended analysis. See Federal Trade Commission v. Sun Oil Co., 371 U.S. 505 (1963). Whatever may be the reasons therefor, or whatever may be the economic problems inherent in the distribution of gasoline, the fact remains that price wars are made possible by the suppliers' price discriminations between their purchasers. It is the ability to restrict the price war to a particular arena that makes it an effective competitive weapon. The damaging effect upon the business of the gasoline retailers, especially those on the perimeter of the arena. is well documented (ibid., and authorities cited therein). In 1956 the Select Committee on Small Business of the United States Senate, reporting on this subject, indicated that the price discrimination features of price war conduct should be subjected to scrutiny under the antitrust laws and recommended that the Commission proceed immediately to enforce the Robinson-Patman Act in this respect. S. Rept. No. 2810, 84th Cong., 2d Sess. (1956), pp. 28-29.

Pending at various procedural stages with the Commission are numerous matters involving the second-line price discrimination features of gasoline price wars. For example, in Texaco, Inc., Docket No. 6898, the matter has been argued and is before the Commission for final decision; in Shell Oil Co., Docket No. 8537, the case is presently before the Commission; and in Humble Oil & Refin ing Co., Docket No. 8544, counsel supporting the complaint have rested their case in chief. Four other matters involving second-line price discriminations by major oil companies in price wars are in various stages of investigation. The American Oil decision represents the first case in which a Commission determination that price war price discriminations have the effect on competition prescribed by Section 2(a) has been subjected to judicial review, and all the pending matters in this area are within the ambit of the Court's holdings in American Oil.

In addition, it is estimated that since January 1960, over 1,000 operators of major brand retail gasoline stations have communicated with the Commission either directly or through Congress, registering formal protests concerning price discriminations granted by their suppliers to competing gasoline retailers. There are approximately 200,000 service station operators who, although dealers for the major oil companies, are independent businessmen. As we have said before. the effect of the Court's decision in the instant case would in large part void any attempt by the Commission to protect these businessmen from their supplier's injurious discriminations in price. In this connection we note the language of the Supreme Court in Sun Oil (371 U.S. at 518-519):

*** It is the very operators of the other Sun stations which compete with McLean who are the direct objects of protection under the RobinsonPatman 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.”

We believe, for the reasons stated, that the decision of the Court of Appeals is erroneous as a matter of law, and that the case should be taken to the Supreme Court.

Copies of the briefs and other pertinent Court papers were forwarded on December 12, 1963, to Mr. Robert B. Murrall, Chief, Appellate Section, Antitrust Division.

Commissioner Elman dissented from the Commission's decision and accordingly does not concur in the substantive views herein expressed. He agrees however, that the issues involved are sufficiently important in the administration of the Robinson-Patman Act to warrant the Commission in requesting Supreme Court review.

By direction of the Commission,

PAUL RAND DIXON,

Chairman.

NUARC CO.

12. Nuarc Co. v. F.T.C. 316 F.2d 576 (7th Cir. 1963)

(a) Court Action: Order set aside.

(b) Commission Action:

1. One June 18, 1963 directed that certiorari not be sought. Vote: 5-0.

JUNE 18, 1963.

(2) The Nuare Company v. Federal Trade Commission, 7th Cir., No. 13926 (Docket 7848-Nuare Company, Inc.)

Mr. Anderson presented memorandum of June 17, 1963, in which he reported his consideration of memorandum of June 13, from the General Counsel, with reference to the opinion and judgment of April 19, 1963 of the United States Court of Appeals for the Seventh Circuit, setting aside the Commission's order in Docket 7848. The General Counsel expressed the opinion, for the reasons recited, that certiorari should not be sought, nor could it be obtained.

After consideration, on motion of Mr. Anderson, it was directed that certiorari not be sought in this matter.

As to the foregoing action, Mr. MacIntyre voted in the negative.

(427)