Standard compiled and developed statistical data designed to show the cost of selling to each of its customers in each of the chosen expense categories. It then totaled the costs attributable to all customers whose purchases placed them in the same pre-established volume bracket, and by dividing the total costs for each volume group by the total rebatable sales to that group, computed a percentage figure representing the average cost of selling the customers in each volume bracket. Standard contended that the differences between these average costs of selling each group justified the differentials in price it afforded its customers in each group (Pet. Apdx. 18a-19a).

The Commission found that "in most brackets the vast majority of customers had computed costs which should have found them placed in another bracket" (Pet. Apdx. 19a). The Commission stated that "a close examination of [the] underlying figures showed that the average were not representative portrayals of the selling costs of customers in any bracket" (Pet. Apdx. 25a). The Commission held: "We find that [such deviations from the average costs for a volume group] demonstrate the impropriety of [Standard's] volume rebate system and provide just cause for us to reject the entire cost study" (Pet. Apdx. 21a). Although apparently accepting the Commission's statistical analysis of Standard's cost study, the court stated (Slip Op. 816–81):

"The Commission has not suggested that any administrable alternative means of classifying customers is available to Standard. Nor has it indicated the conditions under which it might accept volume rebate schedules for the Standard and Hygrade lines. Thus it may well be, as Standard argues, that the Commission has left it no practicable means of cost justification." The court directed (Slip Op. 819):

"* * * before rejecting Standard's cost justification studies the Commission should have brought its experience and expertise to bear on the problem of defining practicable standards of customer classification for cost justification purposes which reconcile the objectives of the cost jsutification proviso and of the Robinson-Patman Act as a whole."

To the contrary of the court's opinion, the Commission did indicate the conditions under which it would accept cost justification of Standard's volume rebate schedules on the basis of average cost figures, viz., where it was demonstrated "that a significant majority of those customers relegated to a particular volume group most likely had costs supporting their inclusion in that group" (Pet. Apdx. 19a; see also Pet. Apdx. 25a). This is consistent with the statutory provision that the differences in price may be justified by differences in cost, and with the standards and conditions explained by the Supreme Court in United States v. Borden Co., 370 U.S. 460, 468 469, as to the use of group averaging.

3

We submit that the court erred in assuming that Standard's price discriminations could somehow be cost justified on the basis of the average costs of selling groups of customers. The burden of providing that its price discriminations were cost justified upon Standard; it wholly failed to meet this burden. Violation of the Commission's order was clearly demonstrated and the discriminations were not cost justified. The Commission, therefore, was entitled to an order of enforcement.

The court also erred in limiting the standards applicable to group averaging set forth by the Supreme Court in Borden, supra, to the particular facts of the Borden case. A reading of that case shows that the standards enunciated by the Supreme Court are of general application, and it is on the basis of such standards that the use of customer classification and averaging is permitted. Further, the court's concern about reconciling the purpose of the cost justification proviso with the purposes of the Robinson-Patman Act, is completely misplaced. Specifically, the court questioned the statement by the Commission "that the obvious result of (Standard's) discriminatory rebate schedule is that a great number of low-cost customers are burdened with part of the expenses of higher cost purchasers" (Slip Op. 817). In the court's view this must be weighed against what the court considered to be a greater "economic discrimination" which would result from charging low-cost and high-cost purchasers

4

The court stated (Slip Op. 815): "In most classes *** the majority of purchasers had costs closer to the average cost of the class above or below ***.**

This is well settled. See United States v. Borden Co., 370 U.S. 460, 462 (1962); Federal Trade Commission v. Morton Salt Co., 334 U.S. 37. 44-45 (1948): Ruberoid Co. v. Federal Trade Commission, 189 F. 2d 893. 895 (2d Cir. 1951), Affirmed, 343 U.S. 470 (1952); Mueller Co. v. Federal Trade Commission, 323 F. 2d 44, 47 (7th Cir. 1963), cert. denied, 377 U.S. 923 (1964).

Slip Op. 817-819, citing Rowe, Price Discrimination Under the Robinson-Patman Act, 2.2(1962).

36-138-70-vol. 3- -32

the same price. But Congress itself, in enacting the statute, reconciled the existence of this so-called "economic discrimination" with the purposes of the Robinson-Patman Act. By prohibiting differences in price which may have an adverse effect on competition, unless such price differences can be justified as provided by statute, Congress emphasized equality of treatment in terms of price. See Federal Trade Commission v. Sun Oil Co., 371 U.S. 505, 519 (1963). Moreover, by limiting the cost justification proviso to "differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which ** commodities are * * * sold or delivered," Congress did not leave open the choice between the statutory and economic concepts of discrimination suggested by the court. It is clear that classification of customers according to the actual costs of selling them is required by the statute; use of classifications based upon volume of purchases unrelated to costs, as was done by Standard in this case, defeats the purpose of the statute in that it promotes the evil which Congress sought to remedy by enacting the Robinson-Patman Act, viz., "that a large buyer could secure a competitive advantage over a small buyer solely because of the large buyer's quantity purchasing ability." Federal Trade Commission v. Morton Salt Co., 334 U.S. 37, 43 (1948).

The Commission is not unmindful of the fact that the court afforded it the opportunity, in a further compilance proceeding against Standard, to comply with the court's suggestions for reanalyzing the case. But from a practical standpoint we do not foresee how the suggested reanalysis would result in any new standards for classifying customers and, in certain respects, compliance with the court's suggestion would be impractical. As we have pointed out, the Supreme Court has already stated its views as to the standards to be used in customer classification for cost averaging. United States v. Borden Co., supra. The Commission accepted these views as being controlling in this case.

Further, any requirement that the Commission make indepth studies of the automotive replacement-parts industry and other industries to determine whether the standards of customer classification applied by the Commission and the Supreme Court can be met in most instances would involve an investigation of monumental proportions. Under the views expressed by the Solicitor General on behalf of the Commission in the recent brief filed in the Universal-Rundle case. the Second Circuit had no power in this case to instruct the Commission to survey the entire industry as a condition to enforcing the Commission's order.

The court also appears to direct the Commission to reappraise the economic consequences resulting from Standard's discriminatory pricing practices, by considering Standard's average costs of selling to individual purchasers over a period of several years. But Standard did not supply the Commission with such data; it was Standard's burden to do so. In addition, citing the Seventh Circuit's second decision in Anheuser-Busch v. Federal Trade Commission, 289 F.2d 835. 840 (1961), and the Commission's decision in Minneapolis-Honeywell Regulator Co., 44 F.T.C. 351, 394 (1948), the court suggests that competitive injury is to be considered again in determining whether Standard violated the Commission's order (Slip Op. 818, 821-22, n. 12). This is contrary to the position taken by the Solicitor General on behalf of the Commission in the Supreme Court in the Jantzen case.

Finally, the court appears to require the Commission to make available in the instant enforcement proceeding the cost study submitted by Guaranteed Parts Co. as part of its compliance report in another proceeding (F.T.C. Docket 6987). In the court's view, this study is relevant "to the issue whether sellers in general would be able to comply with the Commission's standard for classification of purchasers" (Slip Op. 819, n. 9). Aside from our disagreement as to whether the "issue" referred to by the court is a proper issue, release of such cost studies usually is not practicable because of their highly confidential nature. This is especially true here where Guaranteed Parts Co. is a competitor of Standard. Quantity discounts are employed extensively in many industries. Very often. when challenged by the Commission under Section 2(a), respondents answer by alleging that their pricing practices are permitted by the cost justification proviso. In only a few cases, however, are these defenses pursued and when pursued they seldom prevail. This is true primarily because the cost studies usually are developed for purposes of the litigation long after the price dis

It should be noted that the Anheuser-Busch case involved primary line or seller compe tition. To the contrary of the court's understanding, the effect upon competition at the customer level is to be measured by the effect upon individual competitors. See Federal Trade Commission v. Morton Salt Co., 337 U.S 37 (1948).

criminations were initiated; few respondents in establishing their prices consider cost differences that are legally acceptable under the cost justification proviso.

The decision of the Second Circuit may seriously hinder future administration of Section 2(a). The court not only has failed to apply established precedent but has injected new and complicated factors into the consideration of the cost justification defense that may prompt many respondents to prosecute defenses which heretofore would be abandoned as legally untenable. By their nature cost defenses are quite involved and consume much trial time. The type of analysis suggested by the court might place an impossible burden on the limited resources of the Commission.

Enclosed are copies of the record, briefs and opinion and judgment of the court of appeals.

By the Commission, Commissioners Elman and Reilly not concurring.
PAUL RAND DIXON,

Chairman.

WILLIAM H. RORER, INC.

28. William H. Rorer, Inc. v. F.T.C., 374 F.2d 622 (2nd Cir. 1967)

(a) Court Action: Order enforced as modified.

(b) Commission Action:

1. No minutes showing any Commission action.

(486)

BORDEN CO.

29. Borden Co. v. F.T.C., 381 F.2d 175 (5th Cir. 1967)

(a) Court Action: Petition to set aside cease and desist order granted. (b) Commission Action:

1. On August 29, 1967 directed General Counsel to request Solicitor General to file petition for certiorari. Vote: 4-1, Commissioner Elman dissenting. 2. On November 14, 1967, Chairman Dixon presented a letter at table from Solicitor General that he has decided not to file a petition for certiorari.

SEPTEMBER 19, 1967.

(39) The Borden Company v. Federal Trade Commission, 5th Cir., No. 20,463 (Docket 7129-Borden Company)

Memorandum from the Assistant General Counsel for Appeals, dated August 25, 1967, advising that on July 14, 1967, the Court of Appeals for the Fifth Circuit issued its second opinion in the above matter, and again set aside the Commission's order, this time for the reason that in the court's view the Commission had not proved the requisite adverse effect on competition in either the primary or secondary line, and, therefore, the Assistant General Counsel for Appeals and the Bureau of Restraint of Trade (1) recommended that certiorari be requested, and (2) transmitted letter to the Solicitor General to that effect.

On August 29, 1967, Commissioners Dixon, MacIntyre, Reilly and Jones directed that the Solicitor General be requested to seek certiorari in the above entitled matter, and approved and ordered forwarded after signature by the Chairman the letter making such request.

As to the foregong action, Mr. Elman dissented, and filed a dissenting statement to be attached to the letter to the Solicitor General.

NOVEMBER 14, 1967.

(1) The Borden Company v. Federal Trade Commission, 5th Cir., No. 20463 (Docket 7129-Borden Company)

Chairman Dixon presented letter of November 9, 1967, from the Solicitor General advising, in response to the Commission's letter of August 30, 1967, that he has decided not to file a petition for a writ of certiorari in the above case. Copies of the letter were handed to the several Commissioners at the table.

AUGUST 30, 1967.

Re The Borden Company v. Federal Trade Commission, 5th Cir. No. 20,463—– FTC Docket 7129.

Hon. THURGOOD MARSHALL,

The Solicitor General,

Department of Justice, Washington, D.C.

DEAR MR. SOLICITOR GENERAL: On July 14, 1967, the United States Court of Appeals for the Fifth Circuit issued its second opinion and order setting aside the Commission's order requiring The Borden Company to cease and desist from discriminating in price in the sale of private label and Borden brand evaporated milk. In a prior opinion in this same case (339 F. 2d 133), the court of appeals on December 4, 1964, set aside the Commission's order on the ground that private label milk and Borden brand milk are not products of like grade and quality.