The Supreme Court reversed that decision on March 23, 1966 (383 U.S. (37). For the reasons set forth below, the Commission believes that certiorari should again be requested.

Because your office and the Antitrust Division are familiar with the facts, we will only briefly summarize the proceedings leading to the former appeal. The Commission's charge of price discrimination under Section 2(a) of the Clayton Act was based on Borden's practice of selling private label evaporated milk at lower prices than it sold its own advertised brand, even though the products were identical except for the labels on the cans. The Commission found that the difference in price had the prescribed statutory effect on competition at both the primary and secondary levels, and that the difference was not cost justified.

There were four issues before the court of appeals at the time of its 1964 decision: (1) whether private label and Borden brand milk were of like grade and quality; (2) whether the effect of the discriminations may be to injure primary or secondary line competition; (3) whether the discriminations were cost justified; and (4) questions relating to the scope of the order. The court decided only the first issue, and the Supreme Court reversed and remanded for consideration of the remaining questions. In its second decision the court of appeals reached only the question of injury to competition, holding, erroneously we believe, that the Commission had not met its burden of proving that the discriminations threatened competition in either the primary or secondary line. We believe that the effect of the court's opinion is essentially the same as if it had reinstated its prior ruling, and that the court has established impediments to a price discrimination case involving private label and advertised brands that the Commission may not be able to overcome. If this ruling is allowed to stand, the Commission and the public will have derived little benefit from the Supreme Court's decision that Borden's private label milk and its advertised brand are of like grade and quality.

1. Primary line injury. As to the effect of Borden's discriminations in price on Borden's competitors, the court of appeals conceded that "some private label business previously held by certain competitors of Borden, relatively small canners located in the Midwest, was diverted to those southern Borden plants which had begun to package private label milk" (slip op. 4). This is indeed an understatement: the record shows that in one year the seven affected small canners lost 7% of their sales (about 242,000 cases of private label milk) to Borden, and that the sales price of this milk was more than 1.2 million dollars (see Comm's Br.. Ct. of Apps., 19-22). The court apparently discounted this evidence of injury because it thought it "significant" that these competitors "experienced an increase in absolute sales volume and * ** bettered their market position in approximately the same proportion as *** Borden" (slip op. 10). But the increases in sales by these competitors were explained by other factors, not the least of which was that several other small companies had discontinued manufacturing evaporated milk and their business to a considerable extent was taken over as a “mere windfall" by the remaining companies (see citations to record in Comm's Br., Ct. of Apps., 6-7).

Moreover, we know of no case holding that positive evidence of injury to competition in the primary line, such as that present here, is offset by the fact that the competitors were able to some extent to increase their overall business. The court cites no such case: certainly the two Commission decisions relied upon. Purex Corp., 51 F.T.C. 100 (1954), and General Foods Corp., 50 F.T.C. 885 (1954), do not so hold. While in each of these cases the increase in sales of competing products was a factor considered, the Commission held in each that there was insufficient additional evidence to establish that injury resulted from the discriminations in price. Further we believe that Utah Pie Company v. Continental Baking Company, 386 U.S. 685 (1966), despite the fact that predatory intent was present there and was not found here, is authority for the Commission's position that expansion of sales and continued profitable operation does not preclude a finding of injury to competition in the primary line. There the Court said (p. 702) :

"*** the Court of Appeals placed heavy emphasis on the fact that Utah Pie constantly increased its sales volume and continued to make a profit. But we disagree with its apparent view that there is no reasonably possible injury to competition as long as the volume of sales in a particular market is expanding and at least some of the competitors in the market continue to operate at a profit."

As a second reason for deciding that there was no cognizable injury to competition in the primary line, the court held (slip op. 11) that there was an "absence

of the necessary causal relationship between the difference in prices and the alleged competitive injury." It said that because "none of the evidence adduced by the testifying competitors relates to the price difference between the milks marketed by Borden," but only to the fact that Borden "was able to sell private label milk for a lower price than they could" sell it, "the price of Borden brand milk is immaterial in this case." It said that "injury proved in the primary line, if any, is not the effect of the price difference in issue."

If we follow this reasoning, it is difficult to see how a finding of injury could ever be made in a primary line case. In this case, as in all primary line cases, the injury is caused by the low price; the fact that the injured competitors may or may not have referred to the higher price of Borden brand is of little if any significance.

The existence of substantial discrimination in price between Borden brand and Borden private label is not even contested. And the Commission of course is not required to prove that the higher prices in some way subsidize the lower prices, because "Congress and the cases assume that the higher price to purchasers supports the lower price to others'." Lloyd A. Fry Roofing Company v. Federal Trade Commission, 371 F.2d 277, 285 (7th Cir. 1966).

2. Secondary line injury. The court of appeals also erred in finding that "The price difference does not create a competitive advantage by which competition could be injured, and, furthermore, no customer has been favord over another" (slip op. 14). In arriving at this conclusion as to customer competition the court may have been influenced by its apparent misconception that Borden's private label milk was made available to all purchasers of Borden brand. The court emphasized the fact that there was no proof that Borden had refused to sell private label milk to any customer who requested it, at the price charged other customers (slip op. 6, 12). If the court equated these statements with the making "available" of private label milk to all purchasers of Borden brand milk, as it apparently did (slip op. 12, n. 14), it committed serious error, for the injury at the secondary line resulted from the uncontroverted fact that private label milk was not made available to all customers. The record is replete with evidence to this effect (Comm's Br.. Ct. of Apps.. 7-9, 22–24, 25–26). In the brief filed by your office for the Commission in the Supreme Court, it was stated (p. 4) :

There is no evidence in the record that Borden refused to sell private brand evaporated milk to any purchaser who specifically requested it. But Borden never offered the private brand milk to its customers generally. Indeed, its merchandising manager in May. 1957, explained that Borden's policy was that "Our Brokers should not bring up the subject [of private label evaporated milk] themselves. *** We do not wish Brokers to solicit such business" (emphasis in original; R. 743). A few months later, he stated that "We certainly don't want to end up by soliciting a bunch of 'peanut' accounts." (R. 827).

And as the Commission conceded in the Supreme Court, insofar as secondary line injury is concerned the order requires only that Borden offer private brand milk to all customers "on terms that would make it actually available to them" (Comm's Br., Sup. Ct., 21, n. 9).

The court of appeals held that "where a price differential between a premium and nonpremium brand reflects no more than a consumer preference for the premium brand, the price difference creates no competitive advantage to the recipient of the cheaper private brand product on which injury could be predicated" (slip op. 14). We do not agree with this ruling of the court. There was a great demand-an increasing demand-for Borden private label milk (Comm's Br.. Ct. of Apps., 22-23), and to the extent that Borden private label was not made available to some of its customers they were unable to compete at all for this business. Many wholesale and retail grocers testified that Borden private label was not available (Comm's Br., Sup. Ct., 4-5), and that "they would have purchased respondent's private label evaporated milk had it been made available to them, to enable them to compete more effectively with the large retailers who had such private brand" (id. 18). Thus it is contrary to the evidence for the court to say, as it did, that "no customer has been favored over another" (slip op. 14).

Moreover, the court has completely failed to follow the guidelines set forth by the Supreme Court on the former appeal. The Supreme Court said that where a seller markets the identical product under several different brands, the "transactions are too laden with potential discrimination and adverse

competitive effect to be excluded from the reach of § 8(a) by permitting a difference in grade to be established by the label alone or by the label and its consumer appeal" (slip op.. 6-7). The Court also said (id. 7):

Those who were offered only one of the two products would be barred from competing for those customers who want or might buy the other. The retailer who was permitted to buy and sell only the more expensive brand would have no chance to sell to those who always buy the cheaper product or to convince others, by experience or otherwise, of the fact which he and all other dealers already know-that the cheaper product is actually identical with that carrying the more expensive label.

The above statements by the Supreme Court exactly fit the facts of this case. If the decision of the court of appeals is allowed to stand, the Commission will be greatly hampered in enforcing Section 2(a) of the Clayton Act where the injury results from price discriminations in sales by the same seller of private brands and advertised brands.

Copies of the briefs, the slip opinions and the printed record are forwarded hereinwith.

By the Commission.

Commissioner Elman dissented. His Dissenting Statement is attached.

PAUL RAND DIXON,

Chairman.

DISSENTING STATEMENT OF COMMISSIONER ELMAN

Re Borden Co. v. Federal Trade Commission

I do not concur in the Commission's request that certiorari be sought, principally for the following reasons:

(1) There is ample warrant in the record for the Fifth Circuit's conclusion that the findings of injury to competition are not sustained by the evidence. The issues are primarily factual, and the government could not show that the Court of Appeals did not make a "fair assessment" of the record (Federal Trade Commission v. Standard Oil Co., 355 U.S. 396, 401).

(2) The legal and economic questions raised by private brand selling are exceedingly complex, as is evidenced by the majority and dissenting opinions in the Supreme Court in this case, 383 U.S. 637. These questions have not yet been squarely confronted and analyzed by the Commission in a decided case, including this one. The Commission's decision here was concurred in by only two members. One searches the Commission's opinion in vain for any glimmering of awareness of the difficult economic issues posed by dual branding; the Commission, once it had leapt the hurdle of like grade and quality, drew a virtually automatic inference of competitive injury from the existence of the price differential. Mr. Justice White's opinion quoted with approval the following statement in the Attorney General's Report: "[T]angible consumer preferences as between branded and unbranded commodities should receive due legal recognition in the more flexible injury' and 'cost justification' provisions of the statute." Report of The Attorney General's National Committee to Study the Antitrust Laws 159 (1955). This is, in essence, what the Court of Appeals held on remand. The Commission, whose opinion fails to accord any recognition whatsoever, legal or economic, to "tangible consumer preferences as between branded and unbranded commodities", is hardly in a position to attack the fifth Circuit's holding. In any event, the majority and dissenting opinions of the Supreme Court in Borden strongly suggest the desirability of having the Commission take a hard look at dual branding, in all its aspects, before the Court is asked again to review this troublesome area of the law. The Justices are likely to feel that they have already said about as much on this subject as they can, and that the next step should be taken by the Commission.

AUGUST 29, 1967.

UNIVERSAL-RUNDLE CORP.

30. Universal-Rundle Corp. v. F.T.C., 382 F. 2d 285 (7th Cir. 1967)

(a) Court Action: Order set aside.

(b) Commission Action:

1. On September 28, 1967 directed that certiorari not be sought.

SEPTEMBER 28, 1967.

Nonagenda matters:

(1) Universal-Rundle Corporation v. Federal Trade Commission, 7th Cir. No. 14,463 (Docket 8070-Universal-Rundle Corporation, et al.)

Circulated by Mr. Reilly.

September 28, 1967-It was determined that certiorari not be requested in the above proceeding.

(491)

AMERICAN MOTORS CORP.

31. American Motors Corp. v. F.T.C., 384 F. 2d 247 (6th Cir. 1967), cert, denied, 390 U.S. 1012 (1968)

(a) Court Action: Cause remanded with directions to dismiss complaint. (b) Commission Action:

1. On October 31, 1967 directed that Solicitor General be requested to file petition for certiorari. Vote: 4-1, Commissioner Elman not concurring. 2. On May 2, 1968 complaint dismissed. Vote: 5-0.

OCTOBER 31, 1967. (2) American Motors Corporation, et al. v. Federal Trade Commission, 6th Cir. No. 16,841 (Docket 7357—American Motors Corporation, et al.) Memorandum of October 19, 1967, from Assistant General Counsel Truly recommending that the Solicitor General be requested to petition the Supreme Court for a writ of certiorari to the United States Court of Appeals for the Sixth Circuit to review that Court's decision in the above entitled matter setting aside the Commission's order to cease and desist; and transmitting draft of letter in accordance with his recommendation.

Agenda matter circulation of October 26, 1967, by Miss Jones submitting the matter to the Commission for such action as it wishes to take.

After consideration, on motion of Mr. Dixon, the letter to the Solicitor General requesting him to petition the Supreme Court for a writ of certiorari to the above Court to review that Court's decision in the above matter was amended, and thereafter approved and ordered forwarded after signature by the Chairman. As to the foregoing action, Mr. Elman did not concur and requested that he be shown on the letter as follows: Commissioner Elman does not concur for the reason that the decision below, even if deemed erroneous, turns on the special facts of this case and presents no questions of law having general importance in the enforcement of Section 2 of the Clayton Act.

MAY 2, 1968.

(1) American Motors Corporation, et al. v. Federal Trade Commission, 6th Cir. No. 16,841 Docket 7357-American Motors Corporation, et al. Memorandum of April 17. 1968, from Assistant General Counsel Truly, approved by the General Counsel, transmitting draft of order dismissing the complaint herein in compliance with the opinion and order of the above court, the Supreme Court having denied a petition for a writ of certiorari.

Miss Jones submitted this matter to the Commission with her adjudicative circulation of April 25, 1968.

After consideration, on motion of Miss Jones, the Commission dismissed the complaint in this matter, and approved and referred to the Secretary for issuance and service upon the parties, order to that effect.

For the public record. Commissioners Dixon, Elman, MacIntyre, Jones and Nicholson voted in the affirmative as to the foregoing action.