Petition for Writ of Certiorari — International Air Industries, Inc. v. American Excelsior Co.

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1975

No. %@9-948 '

INTERNATIONAL AIR INDUSTRIES, INC. and

VEBCO, INC.,

Petitioners,

versus

AMERICAN EXCELSIOR COMPANY,

Respondent.

Petition for a Writ of Certiorari to the United States Court

of Appeals for the Fifth Circuit

KENNETH L. KING

P. O. Box 2900

El Paso, Texas 79999

Attorney for Petitioners,

International Air Industries, Inc. and

Vebco, Inc.

Of Counsel:

GOODMAN, HALLMARK, AKARD

& KING

SCOFIELDS QUALITY PROANTERS P O BOX 53096 N O LA 70153 504 822 1611

SUBJECT INDEX

Page

Citations to Opinions Below ...................... 1

Re EE A yr PEPPER T Te LeU TT See eT ee 2

| PPO T ELE TUR TTT eee eee 2

Statutes IMVOIVOR 2... cic sc cece cences 5

Statement OF Che CASS ... 2... cccscsccescccccesccece 6

IED WE I is 64.5 da ncasncewbesedeavaeseanes 7

ig ce te a ea, 7

Ee, DEE 6s PREC Sced vataa cab wactane ceecies 7

3. American Excelsior Company (AMX-

GEE wack ve RURC ERMA EA TEN cba sek SOARES WEEE S RS 8

The relevant market ...................008- 9

5. The interrelations of the parties and

the alleged antitrust violations ........... 13

Reasons for Granting the Writ ................... 28

1. Sales below cost are not an essential

element of proof in making out a

Robinson-Patman, Section 2(a) viola-

WU ck6 Rann SERS AK Cha daDRA CS aN Cand e ESN ROB AS 28

2. The evidence of predatory conduct

was overwhelming so that the pro-

scribed effect upon competition was

proved conclusively ...........cccsceesees 31

3. The relevant geographic market is a

fact question and is to be ascertained

by considering the area in which the

competitors actually sold, the areas in

which they attempted to sell and the

areas into which they might reason-

SE A AI Big STII PERE PT NES REIGATE, RP OEE ARMIES BPs RE SII

SUBJECT INDEX (Continued)

ably have been expected to extend

their efforts to sell in the reasonably

foreseeable future ...................

The means and methods by which a

monopolist obtains its market posi-

tion and its stated predatory intent

toward its smaller, less well financed

competition may prove the requisite

specific intent to attempt to

monopolize a particular market ....

Injury to only one competitor is suffi-

cient to prove a substantial adverse

effect upon competition especially

when no other competitor could have

filled the competitive void created by

the destruction of that one competitor

Evidence of damage to petitioners

occurring during the post complaint

period tended to show the adverse

effect upon competition and should

not have been omitted ...............

When there is undisputed evidence

that a price cutting, large. national

seller is aware of its smail, local com-

petitors’ prices but nevertheless cuts

its prices to only the local com-

petitors customers by ten percent

(10%) the good faith meeting of com-

petition has not been proven. On the

contrary such conduct is predatory .

ees 42

iii

SUBJECT INDEX (Continued)

8. The reason respondent receiveda jury

verdict was the attitude expressed by

the court toward certain evidence

presented by petitioners as well as the

court's failure to allow the expansion

of the case to its proper limits ......

REED AE Ae Teer

APPENDIX A — Opinion of the U.S. Court of

Appeals, Fifth Circuit ....................

WE RU es Wh iene ein eee Cie eshits vee

INDEX OF AUTHORITIES

Cases:

American Tobacco Co. v. United States, 328

wy ,,. SRS eae areas

RPP Ra ERGNS Neb NeNedbna Kes bua eda i;

A. C. Becker Co. v. Gemex Corp., 314 F.2d 839

(7th Cir. 1963) cert. den. 375 U.S. 816 (1963)

Continental Ore Co. v. Union Carbide and

Carbon Corp., 370 U.S. 690 (1962) .........

F.T.C. v. A. E. Staley Mfg. Co., 324 U.S. 746

fo BRP TSe Sos Siete ol aes ee

Klor'’s, Inc. v. Broadway Hale Stores, Inc., 359

Pe ET EEE ha xa cues wal eee)

Sho CTIA ERIS ty aC More g

Page

PAM a NET OTT VE NER

INDEX OF AUTHORITIES (Continued)

Page

Lorain Journal Co. v. United States, 342 U.S.

Se... haa nape Cetin ah Ae tea en hs cate 40

Maryland Baking Co. v. F.T.C., 243 F.2d 716

iia Sire eMKkVE AAS cheek seers 33

Moore v. Mead's Fine Bread Co., 348 U.S. 115

"nee am Cae phaser I ast ae tary a ae 30

E. B. Muller & Co. v. F.T.C., 142 F.2d 511 (6th

CFE NS ai ciate picts oe uae i hes teh east 33

Standard Oil Co. of New Jersey v. United

Bk SG.) SR eres eee ere 40

Swayne Co. v. Sunkist Growers, Inc., 369 F.2d

449 (9th Cir. 1966) cert. den. 387 U.S. 932

as Ses bre Wl ch SORDKRAR SOTERA CAR RNA CLEA OS 34

United States v. Griffith, 334 U.S. 100 (1948) ...... 40

United States v. Grinnell Corp., 384 U.S. 563

SO a oic kk Ae RAEN AERA eke ORR Oe a a ccews 34

United States v. Pullman Co., 330 U.S. 806

SS CAR ic Wak ina UOCNCN ESC RSSS EMTS AE SES bak bon 40

United States v. Reading Co., 253 U.S. 26

CEE ent kak ck kek Webbe CESEETC Cos kbbeNahbeabe cs x 40

Utah Pie Co. v. Continental Baking Co., 386

Se EEE yA Rss womnadceuday kaccttcasd sek een 30

Statutes:

ee I Te NE ikark Kanone gee a a Ueke nae eek dens 6

Se ia EE CED GAS iy dens sais ncededsds tens 5

Re SPR ee Eat

BTR Ds a a ec ee

INDEX OF AUTHORITIES (Continued)

Constitutions:

United States Constitution, Amendment VI1....... 6

Treatises:

Manual for Complex and Multidistrict Litiga-

scthste ecsciune, ORE ET Ee PCP Peg ye PEE Ne al eR 50

Articles:

Areeda and Turner, Predatory Practices un-

der Section 2 of the Sherman Act, 88 Harv.

Coase. igsmtaliy copie. ETE PRR UDA Semele 30

neve: se or er: cree riences cee Hse eeenenney menieenneneeees

Se wee Se eee ere TSE. nr ee ae mE a Ra ND

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM. 1975

INTERNATIONAL AIR INDUSTRIES. INC. and

VEBCO, INC..

Petitioners.

versus

AMERICAN EXCELSIOR COMPANY.

Respondent.

Petition for a Writ of Certiorari to the United States

Court of Appeals for the Fifth Circuit

Petitioner prays that a writ of certiorari issue to

review the judgment of the United States Court of

Appeals for the Fifth Circuit, entered in the above-

entitled case on August 18. 1975.

CITATIONS TO OPINIONS BELOW

The opinion of the United States Court of Appeals

for the Fifth Circuit is reported in CCH Trade Cases. in

paragraph 60,447 and 517 F.2d 714 (5th Cir. 1975). A

copy of the opinion is attached hereto as Appendix A.

No opinions were issued by the District Court. The

judgment of the District Court is attached hereto as

Appendix B.

JURISDICTION

The judgment of the United States Court of Appeals

for the Fifth Circuit was entered on August 18, 1975.

The order overruling petitioner's motion for rehear-

ing was entered on October 8, 1975. The jurisdiction of

this court is invoked under 28 U.S.C., Section 1254(1).

QUESTIONS PRESENTED

I. Whether the Court of Appeals erred in holding

that predatory intent cannot be proved unless the

respondent's prices are below its marginal oraverage

variable costs even though respondent:

1) attained its monopolist position through

acquisition of its competitor companies:

2) was many times the size of petitioner com-

panies:

3) engaged in industrial espionage:

4) terminated petitioner's distributorship:

5) engaged in false advertising which dis-

paraged petitioners’ product:

6) maintained higher prices in other

geographic areas;

7) by-passed its other distributors to sell

directly only to petitioners’ customers; and

8) applied financial pressure by establishing

a “hold file” on petitioners’ invoices so that

petitioner's cash flow position would be hurt:

and even though the management of respondent AMX-

CO had made it abundantly clear from their intra of-

fice correspondence what their intent was with

respect to the new competition of petitioner com-

panies, to-wit:

1) a commitment to “stunting the possible

growth of Vebco” [R. - 473]:

2) a recognition by respondent officers that

the new pricing cuts were taking their toll and

that “El Paso was American Excelsior Terri-

tory” [R. - 474]:

3) a management attempt to purchase

petitioner's only supply of wood and “make it

rather difficult for them to continue their

operation” [R. - 471];

4) a recognition by management that if

petitioners were to be discouraged it must be

hit “hard” or petitioner might become “en-

trenched”™ [R. - 479]:

5) a statement that AMXCO’s “fair share” of

the new pad business was near 100%" [R. -

484]; and

RRR sip cee orange LORIE A ARIE RRS ETI RE ON te

6) arecognition by management that by pric-

ing its pads low enough that petitioners could

not profit it would also lock out its only other

viable competition from the El Paso market

[R. - 485].

II. Whether the Court of Appeals erred in holding

that petitioners received a fair and impartial trial

even though:

1) evidence relating to respondent's acquisi-

tion of competitor companies was disallowed:

2) evidence of the attempts to purchase

petitioners’ wood supply was disallowed;

3) evidence ofall of respondent's pricing out-

side the El] Paso area was disallowed even

: though a stipulation as to that pricing had

been entered into:

4) evidence that a manager of one of

petitioners’ customers quoted a respondent

salesman as agreeing that respondent wanted

to put petitioners “out of business” was dis-

allowed;

: 5) the court failed to inform the jury that the

KS lengthy stipulation among the parties was

conclusive as to the facts which were agreed to

therein;

6) the court failed to inform the jury that all

the elements of a Robinson-Patman claim had

been stipulated to except for the proscribed

effects on competition and damage to

petitioners; and

7) the district court interjected himself into

the trial in such a way as to prejudice

materially the petitioners’ case by exclusion

of petitioners’ evidence continuously

throughout the trial without prior objection by

counsel, by stating to the jury on several oc-

casions that petitioner's proffered evidence

had nothing to do with the charges and by fail-

ing to allow petitioners to develop its

testimony in an orderly manner and taking

over completely the questioning of

petitioners expert witness.

III. Whether the Court of Appeals erred in holding

there was sufficient evidence to support the “good

faith meeting of competition defense” even though it

was uncontroverted that respondent's price cutting

was at least ten percent (10%) below petitioners’ pric-

ing to the same customers, that the price offered did

not require a quantity purchase and that respondent

had actual knowledge of petitioners’ prices prior to

making its price cuts.

STATUTES INVOLVED

The statutory provisions involved are Section 2 of

the Clayton Act, 38 Stat. 731, Sec. 2 (1914). as amended

by the Robinson-Patman Act, 49 Stat. 1526, Sec. 1

(1936), 15 U.S.C. Sec. 13 (1973), Sections 4 and 16 of the

Clayton Act, 38 Stat. 731, Secs. 4 and 16 (1914). 15 U.S.C.

Ye VRS

2A ARE WTB Sy

Secs. 15 and 26 (1973) and Section 2 of the Sherman Act,

26 Stat. 209, Sec. 2 (1890) as amended 69 Stat. 282 (1955),

15 U.S.C. Sec. 2 (1973): United States Constitution,

Amendment VII. These statutes are set out in Appen-

dix C attached hereto.

STATEMENT OF THE CASE

This was an action brought by Vebco, Inc. (“ Vebco"’)

and International Air Industries. Inc. (‘Inter-

national”), petitioners, to recover damages and in-

junctive relief under the Clayton Act as amended by

the Robinson-Patman Act for price discriminations

by the respondent American Excelsior Company*

which injured competition in the sale of evaporative

cooler pads at both the primary and secondary levels.

They also sought the same relief under the Sherman

Act for an attempted monopoly of the evaporative

cooler pad market in the southwestern states of the

United States. The seven-man jury returned a defen-

dant’s verdict on all the claims.

oa soiaiatsibessablias Tisai casa ie laaes rei oermarial al gic at soi 4 ath gti SEN eae oe

The Court of Appeals concluded that all the alleged

points of error made by the District Court were

meritless. The Court of Appeals for the Fifth Circuit

also held that predatory intent could only be proved if

the respondent's prices were below its marginal or

average variable costs for cooler pads.

PPE STO TLR ee Pens Si ats

American Excelsior Company was the named defendant in the

District Court but during the course of discovery it developed that

AMXCO. Inc. was the corporate successor to that company.

Throughout this petition the respondent will be referred to as

AMXCO

REE APR PHI LTR ETE IAG Oe CIRM .

OSM UY ERNE ERIS Ty

STATEMENT OF FACTS

1. Vebco

Vebco, Inc. isa New Mexicocorporation, qualified to

do business in the State of Texas and has its principal

place of business in E] Paso, Texas. It is the successor

to a sole proprietorship established in 1950 by Vernon

E. Britt, President of Vebco, and was incorporated in

1959. [R. - 132] Mr. Britt and his son, Paul E. Britt, are

the principal shareholders of the company.

Vebco is presently engaged in the business of dis-

tributing certain heating and air conditioning equip-

ment, some of which equipment it manufactures itself.

[R. - 188, 189] It distributed cooler pads for AMXCO

and its predecessor from 1953 through 1971. It began to

manufacture evaporative cooler pads in January 1972.

Its only warehouse is located in E] Paso, Texas, but it

has customers in all the southwestern states with the

exception of Nevada. [R. - 144]

2. International

International Air Industries, Inc. is a Texas cor-

poration with its principal place of business in El

Paso, Texas. International was incorporated in 1969

for the purpose of manufacturing evaporative cooler

pads and evaporative cooler covers. The original

owners of International were Vernon E. Britt, Paul E.

Britt and three others, but in 1970 the Britts. through

Vebco, acquired control of the company.[R. - 141-142]

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3. American Excelsior Company (AMXCO)

Defendant respondent, AMXCO, Inc., a corporation

with its principal place of business in Arlington, Tex-

as. manufactures, inter alia, evaporative cooler pads

for use in evaporative type air coolers. It is a sub-

sidiary of Texstar Company, a publicly held, diver-

sified corporation, and markets its products national-

ly. It first began manufacturing cooler pads in 1953 or

1954 when it acquired two established manufacturing

companies, Western Wood Excelsior in Los Angeles,

California and Western Aspen Excelsior in Arlington,

Texas. In 1960 American Excelsior acquired still other

manufacturers of cooler pads, Texas Excelsior Cor-

poration and Palmer Manufacturing Company in

Phoenix which was AMXCO's largest competitor at

that time. [R. - 108-125] In approximately the middle of

1970. AMXCO negotiated to purchase the petitioning

companies, International and Vebco, but the purchase

was not consummated. [R. - 403-414, R. - 213-218]

Later. near the end of 1970 AMXCO negotiated to pur-

chase its largest competitor in the Arizona, northern

New Mexico and Texas Panhandle areas. Again the

purchase was not consummated. [R. - 108-125]

Although AMXCO was the world's largest producer

of cooler pads, [R. - 67-71] ithad no competition selling

in El Paso area as late as 1968. In 1968 it had no

manufacturing competition anywhere in the

southwestern United States. [R. - 229] It had in excess

of 69% of that market each year for the next three

years, however, [R. - 491] petitioners were not al-

lowed to introduce evidence of how that market posi-

tion was attained.

Me ae ee. es a OS ee ee neers a

CGIT TL a a a RE

Robert Case, President of Southwest Industries,

upon his deposition testified that American Excelsior

had systematically merged with or acquired at least

four companies in the cooler pad manufacturing

business from the years 1953 to 1968 [R. - 108-125]. The

court failed to admit evidence of any of the mergers or

acquisitions apparently on the ground that it had

nothing to do with the lawsuit before it. [R. - 296]

The court admitted evidence relating to the

negotiations among the parties to get the petitioners

out of the pad manufacturing business but evidence of

the same type of negotiations between AMXCO and

Southwest Industries about which Robert Case had

deposed was ruled inadmissible. [R. - 436, 437]

In December 1970, just prior to the AMXCO price

cutting activity in El Paso, respondent had broached

the possibility of Southwest's selling out to AMXCO.

Financial data was turned over to AMXCO and dis-

cussions were held between the companies in

Arlington, Texas. The negotiations fell through and it

was the opinion of Mr. Case that “at that particular

time they were more interested in what kind of state-

ment we had, and some Sales figures and so forth, more

so than they were in talking about, you know, actually

getting together on a merger or a buy out.”’ However.

none of this evidence was admitted by the district

court. [R. - 108, 125]

4. The relevant market

The parties agreed that the relevant product market

was the evaporative cooler pad market. The cooler pad

is made of aspen wood shavings, otherwise known as

“excelsior which is then covered with a crinoline

cloth Thy ‘ooler pad is one of the components of the

evaporal = type air cooler which is commonly used

in the dry southwestern United States to cool homes,

offices and industrial plants. [R. - 133, 134]

The evaporative cooler pads are inserted into the

cooler, water is pumped across the pads and the air is

pulled across the wet pad. As the water evaporates the

air is cooled. Of course, adry climate is essential tothe

efficient operation of the evaporative cooler. [R. - 133.

134]

Although AMXCO beginning in 1960 solda machine

made pad as opposed to the handmade pad manufac-

tured by International and Vebco. it was stipulated

among the parties that for purposes of the lawsuit

each of the pads was of the same grade and quality and

was interchangeable in its use. [R. - 67-71]

The parties disagreed, however. as to the relevant

geographic market. The original complaint alleged

both a geographic price discrimination by AMXCO

and also local price discrimination in the El] Paso, Tex-

as — Las Cruces. New Mexico area. [R. - 1]

After the initial discovery was completed and the

books and records of AMXCO had been examined, the

petitioners amended their complaint and filed a

supplemental complaint alleging geographic and

local price discriminations and price discrimination

throughout the southwestern United States. Ad-

ditionally, a Sherman Act Section 2 violation of

LLG Sl LON REEL IDO LEI EF NES

attempted monopoly throughout the southwestern

states of the United States was alleged. [R. -6.R.-21]

The contention of the petitioners was that the rele-

vant geographic market was a fact question to be

determined by the jury on the basis of where the par-

ties competed or might have competed had economic

forces been working freely.

Paul Britt testified that approximately eighty-five

percent (85%) of Vebco’s cooler pad sales were made

within an approximate 250 mile radius of El] Paso,

which included both Tucson, Arizona and Albuquer-

que, New Mexico. [R. - 455]

Vebco operated its own trucks and a warehouse in

Arizona was planned (but was never built because of

the atmosphere created by the illegal price cutting ac-

tivity of AMXCOQO). Vebco's ability to compete

favorably would have been enhanced with such a

warehouse.

Furthermore even the division manager of AMXCO

agreed that Vebco could have competed in Arizona.

Carl Gillespie stated:

I was speaking in terms of the area they

were to serve, that Vebco was to cover, and if

they're going to upset us in Phoenix and

Southern California and all of the other

branches that they have, which they could do.

They could very easily go in there and

demoralize the market with one truckload of

pads, and we should try to discourage them.

* * if

nen TLE on ARTE

We just — somehow we had to indicate to them

we weren't going to let them do that. [R. - 431]

Petitioners requested the court to instruct the jury

that the jury must

determine the relevant geographic market;

that is the area in which the petitioners and

respondent were competing during the period

involved in the suit. In making this determina-

tion, you may take into consideration the area

in which the parties actually sold. the areas in

which they attempted to sell, and finally, the

areas into which they might reasonably have

been expected to extend their efforts to sell in

the reasonably foreseeable future. [R. - 43]

The last sentence of the requested instruction was not

given. [R. - 85]

Bs:

; Respondent AMXCO argued that as a matter of law

the relevant geographic market was the El Paso-Las

Cruces trade area. Additionally. its theory was that

the year 1971 was the relevant time period. According-

ly, the court instructed the jury that E] Paso-Las

: Cruces was the relevant geographic market. [R. - 97]

Before trial a lengthy stipulation [R. - 67-71] had

been entered setting out various prices charged by

AMXCO throughout the southwestern United States.

However. when the stipulation was to be read to the

jury, petitioners learned for the first time that AMXCO

had certain objections concerning the relevancy and

the materiality of certain of the prices which had been

stipulated. [R. - 344, 345]

LOS RTA EPILEPSY RE MY ;

: ; LET LLL TE RY TIS eA

Such stipulation had been relied upon by petitioners

as an integral and important part of its proof. It was

thought to have done away with the requirement for

the admission of hundreds of AMXCO invoices which

would have cluttered an already extensive record.

Nevertheless, the district court ruled that all pricing

outside E] Paso-Las Cruces would be omitted from the

stipulation. The ruling was based on the court's opin-

ion that the case had not been “fully developed” out-

side El Paso-Las Cruces area. [R. - 457] But the very

reason that the case had not been fully developed was

because of the petitioners’ reliance on the stipulation

and that the court would not admit any evidence of il-

legal activity in any area other than El Paso-Las

Cruces.

5. The interrelations of the parties and the

alleged antitrust violations

The business relationship between Vebco and

respondent AMXCO had been lengthy. if not entirely

satisfactory. Mr. Vernon E. Britt. founder of Vebco.

began distributing pads for a predecessor of AMXCO

in 1953. At that time AMXCO’'s predecessor was mak-

ing a handmade pad and had few customers in the E]

Paso-Las Cruces area. [R. - 132, 135-138]

Mr. Britt expanded his merchandise line from brass

fittings only in 1950 to a full line heating and cooling

distributor, including a large number of specialty

lines such as polyethylene packaging of brass fittings

and cooler accessory kits. [R. - 188. 189]

From 1953 to January, 1969, with the exception of

1956, Vebco distributed only AMXCO’'s or its

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predecessor s pads. In 1956 Vebco had briefly

manufactured its own pads from excelsior purchased

from an outside source. [R. - 138]

Historically Vebco’s primary customers in the El

Paso-Las Cruces trade area were the discount stores.

The only large discount store to whom they did not sell

cooler pads was K-Mart. [R. - 254] That store was ser-

viced by Passage Supply. an independent distributor

for AMXCO. [R. - 224]

Over the years Vebco’s evaporative cooler pad sales

had grown from $66,750.00 in 1968 to $112,300.00 in 1972

and its sales in all lines had risen from $128,846.00 in

1961 to $885.895.00 in 1972. [R. - 347-349] From 1968 to

1970 in only one branch of AMXCO. sales of pads went

from $233.442.00 to $360,458.00. [R. - 422. 423] This was

only one branch of several and a branch serving a

market which supposedly was not good for cooler

pads. [R. - 380. 381] The El Paso branch sold as many

pads in 1968 in one month as Vebco sold all year. [R. -

444a]

Although Vebco's overall profits increased in 1971,

its cooler pad sales in the El Paso-Las Cruces area

were down 16%. [(R. - 274] Furthermore, the price cut-

ting activity of AMXCO did not begin until the season

was in full swing. When AMXCO continued its ac-

tivities in 1972 Vebco’s cooler pad sales were off by

$17,150.00 from the previous year and $9,800.00 below

1970 sales. [R. - 350] This does not even take into ac-

count the reduced profit margins because of the reduc-

ed prices and the phenomenal growth Vebco had ex-

perienced in prior years nor the lost good will of Veb-

co.

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' tN OT RAP Ty FANS, STOR Oy

AMXCO became the world’s largest producer of

cooler pads primarily through a series of acquisi-

tions of smaller manufacturing concerns. Addi-

tionally, over the years it had taken certain other ac-

tion which had made it less appealing for its com-

petitors to remain competitors rather than becoming

customers. For instance AMXCO penetrated the

southern California market by lowering the prices of

its pads to the existing manufacturers in that area so

that those manufacturers would no longer manu-

facture pads in competition with it.[R. - 108-125] This

evidence was omitted by the trial court and such ac-

tion was endorsed by the Court of Appeals as being

“socially and economically justifiable.”

Except for direct sales to “national accounts” such

as Sears Roebuck, Montgomery Ward and White's

Auto, in the El Paso-Las Cruces area AMXCO

marketed all its cooler pads through independent dis-

tributors such as Vebco. [R. - 28] [R. - 67-71] AMXCO's

policy had been to ship cooler pads, freight prepaid, to

any customer of a distributor regardless of the

customer's location. Typically AMXCO’s shipment

would be from its warehouse nearest the Vebco

customer; therefore AMXCO’'s cost for shipping to a

Vebco customer in Arizona, for example, would not

exceed its cost for shipping to another distributor's

customer in Arizona, and under this policy Vebco sold

AMXCO pads at competitive prices outside the E]

Paso-Las Cruces area. [R. - 140, 151, 152][R. - 325, 424-

425, 445-448]

AMXCO sold cooler pads to Vebco at a price of 10%

off the published distributor price sheet for freight car

bie ce: SI an a fe ae A Tg AEN A SOO AHN BAY ORD BART ES A ELLE SE HEMEL AE EINES IO RIND

, PPR a oor mi APE F Be PALES

quantities and Vebco purchased approximately 72,000

pads from AMXCO for resale during 1968. [R. - 139,

140, 143, 145] [R. - 67-71]

Late in 1968 Vebco was advised that AMXCO would

no longer ship cooler pads, freight prepaid, to Vebco's

customers unless such customers were in the El] Paso-

Las Cruces area. The consequence of this change in

policy was that Vebco’s ability to make sales of AMX-

CO pads at competitive prices was contained within

the El Paso-Las Cruces area. [R. - 140] [R. - 424-425]

As a consequence of the above change in AMXCO's

policy, Vebco began to look elsewhere for a supply of

cooler pads. It therefore accepted an opportunity to

purchase a minority interest in a cooler pad manufac-

turing company to be formed by three former AMXCO

employees, which company became International, a

petitioner in this suit. [R. - 141-143]

In early 1969 AMXCO learned that Vebco planned to

purchase pads from the new company, whereupon

AMXCO’'s El Paso branch manager wrote Vebco as

follows:

Due to the fact that your company, Inter-

national Air, has gone into the business of

manufacturing cooler pads in direct competi-

tion with this company, we can no longer

qualify you asa distributor of our cooler pads

or other allied lines. [R. - 489]

This was followed by a radio campaign in the El

Paso area to warn the public against the use of “hand-

RAMEE GIS RTS OIA TERING! —

: NIE LES GGL IS S ORES IAD GIO I MOE NEL DT LE AGIOS, HAY -

——— OOM LLE EL TOE OO AS GO

made” cooler pads. The AMXCO radio announcements

falsely indicated that the use of handmade pads would

cause cooler motors to burn out. [R. - 144, 145]

As to all its distributors other than Vebco, AMXCO

also then reinstated its policy of shipping pads.

freight prepaid, to any customer of a distributor

regardless of the customer's location. [R. - 326, 427.

445-448]

In the fall of 1969 representatives of AMXCO and

Vebco met to discuss the following: 1) International's

possible purchase of excelsior “mats” from AMXCO,

2) AMXCO's possible manufacture of a cooler pad for

Vebco according to its specifications for sale during

the 1970 season under the Vebco label, 3) AMXCO’s

possible purchase from Vebco of water pumps and

other cooler accessories to be manufactured by Vebco

under the AMXCO label, and 4) AMXCO’s possible

purchase of International. An agreement. later

referred to as the “buy-sell” arrangement, was reach-

ed on items 2) and 3). [R. - 201-202] [R. - 397-402]

It was agreed that nothing could be done on the

above item 4) while AMXCO's former employees were

associated with International, but AMXCO offered to

loan $20,000.00 to Vebco for its purchase of those

former employees’ interests in International. That

offer was accepted and Vebco acquired those interests

in January 1970. [R. - 201, 202] [R. - 399-403]

Negotiations with AMXCO then became more con-

centrated and continued throughout the year. Finan-

cial data was provided AMXCO concerning the opera-

—— snags eee PA) ROIS EDEL AS re /)

EAS POE ILS ARAL PEI ELA Aa PAE NCIME pe oem: EE RPS EME MLE ES AE PTO LIOR,

eee

jenkt

ge ate ett ee gio ee GbE ain aD POOR

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iin wi stiteeerste Basa aie canine uti bib ae bit cA SBE I OED i

tion. Several key employees of AMXCO including its

president, D. D. Albers, were given guided tours

through the International facility. [R. - 212, 213] [R. -

400-414]

After the selling season, however, and before the end

of 1970 it became apparent that no agreement for

AMXCO's acquisition of International could be reach-

ed. At that time a joint venture between Vebco and

AMXCO was proposed whereby a third company

would be formed. No agreement was reached and late

in 1970 it was agreed that the buy-sell arrangement

would continue through the 1971 season. [R. - 400-414]

Paul Britt informed the AMXCO representative that

International would be producing most of the Vebco

pads in 1971 and would purchase only five freightcars

of pads from AMXCO during the 1971 season. [R. - 216-

219]

AMXCO then began to exert financial pressure on

Vebco. Although the “buy-sell” agreement required

AMXCO to pay for the Vebco goods it purchased

within twenty-five days of the invoice date, in late 1970

and early 1971 AMXCO refused to pay according to the

agreed terms. The putative reason was that AMXCO

was concerned about the two carloads of pads carried

over by Vebco from the previous year which had not

yet been paid for, even though the local AMXCO

manager had previously agreed that the

payments would not be due until June 1971. [R. - 324]

At the same time. AMXCO personnel were trying to

get Vebco to take delivery of three additional carloads

with a June 1971 billing. [R. - 147] [R. - 328, 335]

In early 1971 and late 1970 Vebco representatives

made their usual early season calls on the El Paso-Las

Cruces area discount stores, which. stores had

traditionally been Vebco’s primary customers in this

area. The price quoted was 10% off the Vebco price

sheet* for a trailer load of pads and 5% off for a “bob

tail” load. Substantial sales orders were obtained. [R. -

222, 223]

In late January 1971, Vebco dropped its price to a

14.5% discount, to meet competition in Las Cruces

from AMXCO. [R. - 149] [R. - 225] As it turned out the

information the price change was based upon that

AMXCO was selling direct to Surplus City at a dis-

count of less 10%, less 5%, a price which Vebco was

meeting was incorrect, but only to a certain extent. It

was not AMXCO who was making the offer but one of

its distributors, West Texas Wholesalers out of

Abilene, Texas. [R. - 283, 284, 285, 365] Nevertheless.

Vebco did lower its price an additional 5% not only in

Las Cruces but in El Paso, the reason being that the

Las Cruces store owner also had a store in E] Paso.

[R. - 263] At that time K-Mart placed an order for Veb-

co pads.

Contrary to the Court of Appeals’ opinion, atnotime

did Vebco ever offer a price below that of AMXCO’s. At

that time, of course, AMXCO was selling only to dis-

tributors (including Vebco itself) and national ac-

counts.

In February 1971, Mr. Carl Gillespie, the division

manager of AMXCO who was in charge of the El Paso

* The Vebco and AMXCO prices from the price sheets used dur-

ing this period were identical.

(TESA SOLE PTE ‘ae tar eR OK

PUSS aR ee a Oe aml

Re eas RR

rite re act tne mene rin

area came to El Paso and balanced” the accounts of

the two companies. His report concerning that El Paso

meeting concluded that the “problem of what would be

the best route to take to accomplish the one matter of

most interest to us, that being that we want our pads to

be the pads that are being sold at the dealer level in El

Paso” should be solved in March. [R. - 482-483]

On March 1, AMXCO requested Vebco's order for the

remaining three of the five carloads of pads which

Vebco had indicated it would purchase from AMXCO

in the 1971 season, but Vebco did not place the order.

[R. - 328, 331]

Immediately AMXCO determined to bypass its El

Paso distributors and sell directly to the discount

stores. [R. - 328, 329. 332]

On March 2, 1971, Vebco began to receive calls from

its various discount store customers that AMXCO was

offering to sell direct to them for the first time and ata

discount of twenty-five percent (25%). without regard

to quantity purchased. [R. - 229]

The management of Vebco conferred and decided

that if the AMXCO price could be verified, Vebco

would meet the 25% discount to avoida loss of sales. A

Vebco salesman was immediately dispatched to the

various stores with instructions to pick up AMXCO

price sheets from the various store buyers to verify

the offered discount. Upon verification of the price

Vebco infomned the stores that it would meet the 25%

discount of AMXCO. [R. - 230] and as a result none of

the customers switched to AMXCO at that time.

Next AMXCO reduced its prices to the E] Paso-Las

Cruces area discount stores to a discount of 32.5%. An

AMXCO representative testified that they had no idea

what the market price was at the time and that the deci-

sion to lower the price was done solely because they

had made no sales at the less 25% price. [R. - 322]

However, several of the other AMXCO employees

testified they knew that they lost the K-Mart account

at “three fives” off or “15%” off. [R. - 327] AMXCO's

primary distributor in El] Paso. Bill Paschich, had

given them that information. It isclearthat atthe time

Vebco offered the less 10%, less 5% discount to K-Mart,

Vebco was bidding against itself. [R. - 272] In fact

Paschich testified that his only offer to K-Mart was

less 3% in February, which was made after the Vebco

offer of less 10% less 5%. [R. - 308-311] Furthermore.

AMXCO knew that the large majority of Vebco inven-

tory had been purchased at a 23.5% discount.

Frank Turner, El] Paso branch manager for AMXCO.

testified that no one from AMXCO asked for substan-

tiation of any competitors’ price, only whether AMX-

CO's price was “competitive.” It was later developed

that “competitive” was the jargon of the trade mean-

ing “better.” [R. - 316]

One of the considerations allegedly used in setting

the initial AMXCO price cut was Southwest Industries

price to Gibson's Discount Store but Gibson's did not

even have a store in the area at that time[R. - 334]

Additionally, it is undisputed that Paul Britt wrote

AMXCO a letter March 8, 1971.[R. - 463] stating exact-

ly what the Vebco price was. He testified that later he

told both Turner and Webb that Vebco would continue

to meet the AMXCO prices to retain its customers. The

testimony stands uncontroverted.

On or about March 15, 1971, upon receiving informa-

tion that AMXCO had reduced its price another ten

percent (10%), Mr. Britt, in addition to dispatching his

salesman to collect additional AMXCO price sheets.

requested Surplus City to purchase pads at the AMX-

CO price as further verification. Pads were purchased

at that price and a copy of the invoice was given to Mr.

Britt as proof of the market price. [R. - 235]

Vebco again informed its customers it would meet

the AMXCO price of less 32.5%. However, this was

possible only for approximately two weeks and on

March 29. 1971, it was necessary for Vebco to go back

to the less 25% discount of March 2. [R. - 238] Upon

informing Vebco’s customers on March 29, 1971, that it

could not continue the additional 10% reduction it was

discovered that AMXCO had dropped its price by yet

another 10% discount, making its price a discount of

39.25% without regard to the quantity ordered. [R. -

239] [R. - 315]

After March 29 Vebco began to lose sales to AMXCO.

with the effect as shown by the reproduction of

petitioners: Exhibit 19 in the Record at 464.

In March 1971, at the time AMXCO was offering pads

to Vebco customers at a 32.5% and 39.25% discount

these were the lowest AMXCO prices in the nation. At

the same time AMXCO was offering pads to Vebco

customers at a 32.5% discount, it was offering pads to

others in the E] Paso-Las Cruces area at discounts

ranging from 10% to 23.5% [R. - 67-71]

On March 16, 1971, at the request of AMXCO’s presi-

dent, D. D. Albers, Mr. Gillespie reviewed and for-

mulated “an up-to-date opinion of the competitive

Situation.” [R. - 485-487] His conclusions were that:

Vebco has become a real competitor in the El

Paso area,

and that

Loss of any sales to Southwest Industries or

Vebco, although they may prove to be non-

profitable to them, will result in reduced

production requirements ... which will in-

crease unit cost of production.

I would conclude that we cannot afford the

luxury of being complacent. unless we have

made plans to correct the situation in the com-

ing season. I am not at all sure what approach

is proper; retain as much profit as possible

this season with a revised program for next

season as opposed to taking areal “bath” right

now while making use of available plant

production at Englewood in the months of

April, May and June.

Among his recommendations were the following:

a " ———— eee

1. Offer prices in El Paso low enough to in-

sure that Vebco cannot profit from com-

petitive priced sales. Stock our warehouse in

El Paso “to the brim” to insure ability to

deliver promptly.

A. Aside benefit would be that Southwest

Industries would be “locked out” of

the El Paso Market area.

B. Another side benefit would be the add-

ed production requirements for the

Englewood Plant.

2. Continue to police all possible Southwest

Industries customers to apply pressure by

meeting their offerings as they become evi-

dent, on a case to case basis.

3. Begin planning for a change in sales

policies for the next season to “up date’ our

approach to sales through distributors to be

compatible with a program of direct sales to

all large discount and chain groups.

One day later Gillespie wrote another memorandum

to his Division Sales Manager, June Morris, re

“Cooler Pad Sales Approach in El Paso.’[R. - 472-473]

Some of his comments were:

Probably we should also think of what

benefits we might derive from localizing this

price struggle as much as possible. If Vebcois

hard pressed to supply the local customers in

El] Paso and perhaps Las Cruces, they certain-

ly will not be too interested in spreading out to

Tucson and Phoenix.

June, if we are committed to a program of

stunting the possible growth of Vebco and

keeping our foot in this quite sizeable cooler

pad market, then the real question we have is

just what price do we need to determine as our

lowest price level. Should it be the 50¢ figure

for a No. 1 cooler pad covered, or should it be

perhaps even a little lower. Since the season is

just about ready to break, I would think that we

need to establish whatever price is now deter-

mined, at once, and then let the chips fall

where they may.

Finally, on April 11, 1971, Gillespie sent a

congratulatory note [R. - 474] to Frank Turner, El

Paso Branch Manager, stating:

Looks like we may be making our point, El

Paso is American Excelsior Territory. withor

without distributors. When it is all over, we

than can look at patching up our distributor

relations. We still prefer distributors but

times seem to be changing. Keep the pressure

on.

In late March 1971, the amount due from AMXCO to

Vebco under the buy-sell arrangement was overdue by

$18,000.00. [R. - 240] It was later determined that this

was because the Vebco invoices were placed in a “hold

file.” The “hold file’ was a means by which AMXCO

controlled the Vebco account in such a way that it was

assured that Vebco invoices were not paid until Veb-

co's indebtedness to AMXCO was sufficient to be off-

set — even though none of the Vebco indebtedness was

due and payable until June 1971. [R. - 241-243] [PX -

76] (Tr. Vol. III - 1152]

On September 24, 1971, ina continuation of the AMX-

CO espionage program established with respect to

petitioners’ operations, June Morris. AMXCO sales

manager, wrote a memorandum to the AMXCO presi-

dent, D. D. Albers, dutifully reporting information

concerning the source of Vebco’s wood supply. Items

covered in the report were 1) the supplier's name, ad-

dress and phone number, 2) cost of the timber, 3) meth-

od of payment, 4) freight cost and 5) quantity con-

tracted for. [R. - 467]

An elaborate scheme was concocted whereby AMX-

CO would request the contractor to write a letter re-

questing petitioners to pick up their wood by a cer-

tain date or it would be sold to other parties. A copy of

the letter was to be made available to AMXCO for its

protection in the present lawsuit. After the expiration

date the contractor would then write to AMXCO to of-

fer the wood, thus giving the misleading appearance

that it had all been the contractor's idea rather than

AMXCO's. [R. - 468-469]

This plan did not get off the ground as AMXCO'sfur-

ther contacts with the supplier indicated an excellent

relationship between Vebco and the contractor.

Nevertheless. it was agreed between AMXCO per-

sonnel to attempt to buy the contractor's “total output

of wood.”

This would not only relieve the pressure on

Englewood and Cedar City to supply wood to

Fresno, but it would also deprive Vebco of

their present source of wood and possibly

make it rather difficult for them to continue

their operation. [R. - 471]

The activity could hardly have been more blatant

and yet, the trial court ruled the memoranda

inadmissible on the grounds of irrelevancy and imma-

teriality.

The court stated at page 1111 of the transcript:

There was nothing in there — they said — if

they don't want the wood, we'll buy it. That's

all right... it was all above board.

The Court of Appeals stated that the excluded

memoranda were “only a minor piece of evidence,

highly unlikely to change the result.”

After March 1971. when AMXCO had obtained Vebco

customers by lowering prices beyond what Vebco

could go, AMXCO began to raise its prices. Former

Vebco customers, to whom AMXCO offered 32.5% and

39.25% discounts in the 1971 season, were offered dis-

counts of only 25% to 27.1% for the 1972 season which

were, nevertheless, lower than the prices offered to

buyers other than Vebco’s customers. [R. - 67-71]

ee eee ee

Ee she

REASONS FOR GRANTING THE WRIT

1. Sales below cost are not an essential ele-

ment of proof in making out a Robinson-

Patman, Section 2(a) violation.

During the trial of this case no attempt was ever

made by petitioners to prove that respondent was sell-

ing cooler pads in the El Paso area below its cost. An

effort was made, however, to prove that respondent's

prices outside the area were well in excess of the

prices being charged by respondent in the El Paso

area.

A lengthy stipulation was entered between the par-

ties which set out all the prices respondent charged its

various customers in other geographic areas upon

which petitioners were relying to make out their case

of geographic price discrimination as well as the in-

tent to monopolize. However, at the end of the trial just

before the stipulation was read to the jury, re-

spondent offered objections to the stipulation and the

district court omitted all prices outside the El Paso

area,

The Court of Appeals ruled that because there was a

general stipulation that respondent's prices outside

the E] Paso area were different, and because there was

other testimony that the prices in the E] Paso area

were lower, the exact prices were irrelevant and im-

material.

Such a holding completely disregards the fact that

the prices being charged in El Paso were the lowest in

TRE AAG LER REAM ONE ECP RR RIO TER LE IOEERS

SMS aS BONY RE MSN CRT LOD Sa RAINS PPB Sa

the nation and that most of the cities whose pricing

was omitted were closer to the respondent's factory

than was El Paso and therefore should have been

lower, not higher. Additionally without the total price

differential being presented, the full impact of the

severity of respondent's actions were lost upon the

jury.

Furthermore, the Court of Appeals held that*‘a price

differential alone would not show predation; unless

AMXCO was selling below marginal cost, it would

have no need of aid from other markets and the dollar

figures elsewhere would therefore be irrelevant.”

[App. 26a-27a]

The Court of Appeals [App. 19a] had previously ex-

plained that

... even if a monopolist is price discriminat-

ing. we will notinfer damage to competition as

a matter of law if the firm is charging a short-

run, profit-maximizing price (above average

variable cost) in the market in which it faces

competition. And, even if its price is below

this level, we will not infer damage to competi-

tion if the firm’s price discrimination has

beneficial effects or insignificant effects in the

competitive market. In short, in order to

prevail as a matter of law, a plaintiff must at

least show that either (1) a competitor is

charging a price below his average variable

cost in the competitive market or (2) the com-

petitor is charging a price below its short-run,

profit-maximizing price and barriers to entry

_— . — a ee gS RI eR PES AWA EOE NML ES BOGE GT GOED

initiated She git BE ee Wer ciaernreer

are great enough to enable the discriminator

to reap the benefits of predation before new en-

try is possible.

Based upon the Court of Appeals same reasoning

vis-a-vis below cost sales, the court held it was unnec-

essary to construe the “may be” language of the

Robinson-Patman Act* and cited Areeda and Turner,

Predatory Practices under Section 2 of the Sherman

Act, 88 HARV. L. REV. 697, 727 (1975). In other words

the Court of Appeals has ruled that unless there is

below cost selling the “incipiency”™ sections can have

no force or effect.

Adoption of the predatory pricing standard

enunciated by the Court of Appeals could well spell

the end of actions under the Robinson-Patman Act and

would certainly discourage private treble damage ac-

tions. Such a ruling conflicts with this court's hold-

ing in Utah Pie Co. v. Continental Baking Co., 386 U.S.

685 (1967).

Furthermore, this is the first reported opinion

wherein such an economic analysis has been used.

Such analysis must necessarily have serious adverse

precedential effect on future enforcement of the anti-

trust laws. It conflicts with this court's opinions in

Anheuser-Busch, Inc. v. F.T.C., 363 U.S. 536 (1960) and

Moore v. Mead’s Fine Bread Co., 348 U.S. 115 (1954).

“where the effect of such discrimination may be substantial-

ly to lessen competition...” 15 U.S.C. § 13(a).

REP IONE LESSEE IU LOE SOLS RL GIONS LIED AK EES LIE SEE DI AGE NLT DEE MLS COTE LENS ELH EIST NEI

31 sn,

2. The evidence of predatory conduct was

overwhelming so that the proscribed effect

upon competition was proved conclusively.

The Court of Appeals ruled that certain types of

predatory conduct on the part of respondent would

enable petitioners to show the proscribed effect upon

competition to make out a Robinson-Patman. Section

2(a) violation. It then proceeded to examine one action

taken by respondent which the court considered the

only one to have merit with respect to the predatory in-

tent of respondent.

Carl Gillespie, Division Manager, had written a

memorandum to the Division Sales Manager statinga

desire to “localize this price struggle as much as

possible” and a commitment “to a program of stunt-

ing the possible growth of Vebco.” [R. - 473]

The Court of Appeals smoothly passed two other

items — the tour of the respondent representatives

through the Vebco facilities on the pretext that re-

spondent was interested in purchasing the company

and the termination of the petitioners’ distributor-

ship, both in 1969 and 1971 when petitioner became a

competitor.

The Court of Appeals made no mention whatsoever

of the following predatory conduct and evidence

relating to the predatory intent of respondent:

(a) The branch manager of the respondent

checked the supply of wood of petitioner

periodically and on at least one occasion, en-

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————= i ‘SC;:;~™~™~—™

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tered petitioner's plant unannounced and

without permission to inspect the facilities

and reported his findings to his superiors.

(b) The respondent engaged in a false radio

advertising campaign disparaging

petitioners’ product.

only to the customers of petitioners. In no

other instances were sales made direct

without going through its regular distribu-

tors.

(d) Recognition by respondent's manage-

ment that its price cuts were taking their toll

and its low prices would keep petitioners from

profiting and lock out of El Paso the one other

existing competitor, and statements that “El

Paso was American Excelsior territory.”

“keep the pressure on.” that the situation was

“war,” that petitioners must be hit “hard” or

they would become “entrenched,” and that

AMXCO’s “fair share” of the new business

was "100%."

Furthermore, because petitioners and respondent

had been buying and selling to each other, respondent

was presented with an opportunity to exert financial

pressure on petitioners by withholding payments of

its invoices. Respondent established a “hold file” of

petitioners’ invoices so that petitioners’ cash flow

position was hurt. Finally evidence was presented

that the supplier of crinoline, a necessary ingredient

to making cooler pads, was informing respondent of

prices on crinoline quoted to petitioners and assuring

them that it would not lower its price to petitioners.

[R. - 465-6]

Additionally the trial court failed to instruct the jury

that the proscribed effect upon competition could be

inferred from predatory conduct, although requested

to do so by petitioners.

Other evidence relating to predatory conduct and in-

tent was kept from the jury by the trial court and will

be considered, infra.

To hold that the above described conduct is not suf-

ficient to a holding that the requisite substantial

adverse effect upon competition may exist creates a

conflict between the Fifth Circuit and Fourth and

Sixth Circuits. See Maryland Baking Co. v. F.T.C., 243

F.2d 716 (4th Cir. 1957) and E. B. Muller & Co. v. F.T.C..

142 F.2d 511 (6th Cir. 1944).

3. The relevant geographic market isa fact

question and is to be ascertained by con-

sidering the area in which the competitors ac-

tually sold, the areas in which they attempted

to sell and the areas into which they might rea-

sonably have been expected to extend their ef-

forts to sell in the reasonably forseeable

future.

Although the trial court instructed the jury that the

relevant market was where the parties compete, the

jury was also instructed that “the relevant market in

gir ee

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taavansn ey xe cane iil euler Has Ree Ci

this case is the so called El Paso-Las Cruces market

for evaporative cooler pads. That is the relevant geo-

graphic area involved in this case.” [R. - 97]

At every turn the court failed to admit evidence of

the respondent's illegal activities outside the El Paso

area. Such failures were culminated by the heretofore

described omissions of respondent's prices in other

areas.

It was clear from the petitioners’ pleadings that they

alleged an attempted monopoly of the cooler pad

market in all of the southwestern states.

Failure to allow evidence of the illegal activity of re-

spondent in those other areas and instructing the jury

that as a matter of law the relevant geographic market

was El Paso-Las Cruces goes against the well rea-

soned rule established in both United States v.

Grinnell Corp., 384 U.S. 563 (1966) and Swayne Co. v.

Sunkist Growers, Inc., 369 F.2d 449 (9th Cir. 1966) cert.

den. 387 U.S. 932 (1967).

4. The means and methods by which a

monopolist obtains its market position and its

stated predatory intent toward its smaller,

less well financed competition may prove the

requisite specific intent to attempt to

monopolize a particular market.

The Court of Appeals’ opinion with respect to the

share of the El Paso market held by the parties to this

suit is incorrect and not supported by the record.

Petitioners’ share of and sales in the El] Paso market

decreased in 1971 — not increased. Furthermore.

AMXCO's sales in El Paso increased from year to year

from 1968 through 1971 — contrary to AMXCO’'s Ex-

hibit D-O. The only way AMXCO wasable to give such

appearance was by using sales figures that included

the entire state of New Mexico as well as El Paso.

AMXCO’'s strongest regional competition was locat-

ed in northern New Mexico. In reality AMXCO’'s

accounting records relating to E] Paso showed an in-

crease each year. [Tr. - 1125, 1126] Vebco’s sales in E]

Paso actually decreased in 1971 by 16%. [R. - 274]

AMXCO's Exhibit D-O also contains duplicate AMX-

CO pad sales in the petitioners’ sales figures which

causes an Overstatement of their market share for

each of the years in question. [Tr. - 1118, 1119]

Although AMXCO was the world's largest producer

of cooler pads. [R. - 67-71] it had no competition sell-

ing in the El Paso-Las Cruces area as late as 1968 and it

had in excess of 69% of that market each year for each

of the next three years. [R. - 491] petitioners were not

allowed to introduce evidence of how that market posi-

tion was attained.

Robert Case, President of Southwest Industries.

upon his deposition testified that American Excelsior

had systematically merged with or acquired at least

four companies in the cooler pad manufacturing busi-

ness from the years 1953 to 1968. [R. - 108-125] The

court failed to admit evidence of any of the mergers or

acquisitions apparently on the ground that it had

nothing to do with the lawsuit before it. [R. - 296] But

clearly the method by which a defendant attains a

dominant position in a market is relevant to an

attempted monopoly charge.

Mignone ede TES

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LRRD LARP OR LA

One Tex

BVI EREDAR ION TA EEE

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Although such acquisitions when considered in and

of themselves arguably do not indicate an illegal at-

tainment of monopoly power, when considered with

other evidence that AMXCO had negotiated to

purchase its largest competitors, petitioners and

Southwest Industries, the conclusion is inescapable

that such methods were part and parcel of AMXCO's

method of keeping or attempting to keep the cooler

pad market to itself.

The court admitted evidence relating to the negotia-

tions among the parties to get the petitioners out of the

pad manufacturing business but the same type of

negotiations between AMXCO and Southwest Indus-

tries about which Robert Case had deposed were ruled

inadmissible. [R. - 436, 437]

In December 1970, just prior to the AMXCO price

cutting activity in El Paso, respondent had broached

the possibility of Southwest's selling out to AMXCO.

Financial data was turned over to AMXCO and dis-

cussions were held between the companies in Arling-

ton, Texas. The negotiations fell through and it was

the opinion of Mr. Case that ‘at that particular time

they were more interested in what kind of statement

we had, and some sales figures and so forth, more so

than they were in talking bout, you know, actually get-

ting together ona merger ora buy out.” However, none

of this evidence was admitted by the district court,

[R. - 108, 125] even though industrial espionage is

evidence of predatory intent.

In conjunction with the same type “negotiations "

between petitioners and AMXCO it would have estab-

lished a method of operation reflecting on its intent to

monopolize. Because the jury did not have the benefit

of knowledge of the Southwest negotiations it could

easily have been led to the conclusion that AMXCO’s

negotiations to get Vebco “out of the pad business” by

paying “for some blue sky” [R. - 488] was no more

than an innocent attempt to “help out” Vebco.

When AMXCO made the decision to penetrate the

southern California market with its cooler pads, there

were several large cooler pad manufacturers ser-

vicing that particular market area. Rather than com-

pete for the various accounts, AMXCO’'s approach was

to offer the existing manufacturers a price low enough

to make it worth their while not to continue to manu-

facture cooler pads. [R. - 108-125]

Again, the court would not admit the evidence and

ruled the stipulation relating to AMXCO prices to

those companies irrelevant.

All attempts by the petitioners to extend the factual

inquiry at the trial to any area outside of El Paso-Las

Cruces were met with similar rulings by the trial

court.

The petitioners attempted to admit the deposition

testimony of Tom Webb, AMXCO salesman, regarding

AMXCO’s sales tactics in the Midland-Odessa area but

the court sustained the respondent's objection [R. -

320] as being outside El Paso-Las Cruces. The same

tes

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was done with the Amarillo area. Every step along the

way the court made it abundantly clear that it con-

sidered El Paso-Las Cruces as the only relevant loca-

tion. Further, at one point the court indicated he want-

ed only evidence of actions by the parties to the law-

suit and involving none other. [R. - 298]

Such an approach ignores the fact that AMXCO’'sac-

tion toward its other competitors may and did directly

affect the competitive situation with petitioners and

more particularly would have established a course of

conduct reflecting directly on its intent to monopolize

the cooler pad market throughout the southwestern

United States.

To the same effect was the omission of the respond-

ent’s attempt to buy petitioners’ wood supply. See

Statement of Facts, supra.

Additionally. the trial court, sua sponte, refused

direct evidence that respondent's intent was to put

petitioners out of business.

Mr. Manuel Gomez, a manager of one of the El Paso

Feed Mart stores. testified that at one point in March

1971, a representative of AMXCO made a sales call on

his store on Montana Street to sell cooler pads.

Following is the testimony elicited:

“Q. Could you tell us the circumstances and

what happened at that particular call that you

had in 1971. sir?

“A. My assistant and myself were working at

the time. and this representative of American

Excelsior wanted to talk to us, and then he said

he wanted to do business with us, and at that

time I told him that we had an authorized

source, but I would listen to his offer. I asked

him what his prices were, and he quoted a

price of less 25 per cent from the listing, and I

asked what prices he had on his listing, and I

was comparing them with the present sheet

that I had from VEBCO. The listing prices

were the same. In other words, he was asking

— he was quoting us 25 per cent off.

“Q. The same price?

“A. Of the same list price.

“Q. All right. sir.

“A. Which, in turn, I told him I would have to

relate all the information to the buyer.

“Q. Sir,did you make any comment to himat

that time concerning your view ofthat price?

“A. Yes, I did. I asked him if he was trying to

run VEBCO out of business.

“Q. Was there any response to that, sir?

“A. He said, “Yes.”

“THE COURT: Disregard that: strike that.

That's a voluntary conclusion on his part. He

can tell what happened, but —

The trial court stuck to its ruling on the grounds that

the respondent salesman could not be identified by

name.

Again the Court's excluding such pertinent

testimony on intent, and effectively on his own mo-

tion, requires reversal of the case.

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Nevertheless the Court of Appeals upheld all these

rulings by the trial court on the grounds thatiferrorat

all, they were harmless and had no effect upon the

substantial rights of petitioners.

Such a ruling misapprehends the difficulty of prov-

ing the “specific intent” necessary to an attempted

monopoly charge and failure to admit all relevant

evidence on such an important question conflicts with

the rule established in American Tobacco Co. v. Unit-

ed States, 328 U.S. 781 (1946): Lorain Journal Co. v.

United States, 342 U.S. 143 (1951): Continental Ore Co.

vy. Union Carbide and Carbon Corp.., 370 U.S. 690 (1962):

United States v. Griffith, 334 U.S. 100 (1948): United

States v. Pullman Co., 330 U.S. 806 (1943): Standard Oil

Co. of New Jersey v. United States, 221 U.S. 1. 46, 47.75

(1911): United States v. Reading Co., 253 U.S. 26. 43-45

(1920).

5. Injury to only one competitor is suf-

ficient to prove a substantial adverse effect

upon competition especially when no other

competitor could have filled the competitive

void created by the destruction of that one

competitor.

During the relevant period there were only three

competitors in the El Paso area — petitioner. re-

spondent and Southwest Industries (“SWI’). SWI

started its business in 1970 and respondent started its

manufacturing in 1969. Using AMXCO figures [R. -

491] the market shares were as follows:

AMxXCO VEBCO SWI

1968 100% 0% 0%

1969 77.43% * 22.57% 0%

1970 73.27% 23.55% 3.18%

1971 69.05% 26.92% 4.03%

As pointed out previously the Vebco figures includ-

ed all the AMXCO pads it sold so that the Vebco

percentages were overstated considerably. Also the

accounting records of AMXCO relating to the El Paso

branch sales showed an increase of sales in each of the

relevant years while Vebco sales in E] Paso dropped

16% in 1971.

Nevertheless the Court of Appeals held that Defen-

dant’s Exhibit D-O represented the true picture.

Petitioners have not to this day been able to return to

its former level of business in the E] Paso area and

SWI has lost the only customer that it ever had in El

Paso. Yet. because petitioners never closed their

manufacturing doors and the court found no predation

— only innocent competitive activity — the Court of

Appeals ruled that a mere loss of profits and a shift of

customers were not enough to prove a substantial

adverse effect upon competition.

It is clear, however, that the filing of the present law-

suit in June 1971, conditioned the respondent's activi-

ty in the market. Furthermore it continued to sell to the

discount stores and national chains (retailers), Veb-

co's old customers, at prices lower than it offered to its

distributors.

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To hold that in such a market competition there was

no reasonable possibility of competitive injury con-

flicts with the rule established in Klor’s, Inc. v. Broad-

way Hale Stores, Inc., 359 U.S. 207 (1959).

6. Evidence of damage to petitioners occur-

ring during the post complaint period tended

to show the adverse effect upon competition

and should not have been omitted.

The petitioners filed a supplemental complaint in

July 1972, and the trial was held in June 1973.

Paul Britt attempted to testify concerning the 1973

post-complaint market situation and Vebco’s sales

and margins figures, but the trial court excluded such

evidence on its own motion.

Such information should have been admitted to

show the lasting effect the anticompetitive activities

of respondent had had upon the petitioners and to sup-

port the projections of the expert witness relating to

damages. Such failure abrogates the rule established

in A. C. Becker Co. v. Gemex Corp., 314 F.2d 839 (7th

Cir. 1963) cert. den. 375 U.S. 816 (1963) and creates a

conflict in the circuits.

7. When there is undisputed evidence thata

price cutting, large, national seller is aware of

its small, local competitors’ prices but never-

theless cuts its prices to only the local com-

petitors’ customers by ten percent (10%) the

good faith meeting of competition has not been

proven. On the contrary such conduct is

predatory.

This case is not only a “primary line’ Robinson-

Patman case as the Court of Appeals suggested but it

is also a ‘‘secondary line” case in that Vebco wasa pur-

chaser of and distributor of AMXCO cooler pads in all

the years complained of with the exception of 1972.

The stipulation entered into between the parties

shows the widespread disparity between the prices of

the AMXCO cooler pads both in other southwestern

States and in the El Paso area. No attempt was made by

AMXCO to prove that any of the disparities were in ex-

istence because of any “good faith meeting of competi-

tion” with the exception of those of the 1971 season.

Even then no effort was ever made to justify the dis-

crimination between the independent distributors and

the retail discount trade.

It was AMXCO's theory that the relevant market

was the discount trade in E] Paso-Las Cruces. that no

prices outside that area were relevant and even the

discriminatory prices offered to the various classes of

trade in El Paso-Las Cruces were not relevant. [R. -

449-56]

With that background, nevertheless, AMXCO's

personnel did testify with respect to their price cut-

ting activities in 1971 and attempted to justify it for

business reasons other than the ‘good faith” meeting

of competition.

They testified that the factors relevant to their set-

ting cooler pad prices were 1) quantity purchased, 2)

from where they are delivered (local warehouse or fac-

tory), 3) the existing “competitive situation” and 4) the

class of trade the customer serves. [R. - 336, 378-379.

421] It was developed that the “competitive situation”

was no more than what it takes to get the business ina

given locale.

AMXCO personnel also testified it was Vebco who

made the first illegal price cut. Although in January

1971, Vebco dropped its prices to a discount of 14.5%

off list price, such price was not below the AMXCO

price being offered at the time. Prior to that date and

for a short time thereafter AMXCO sold its cooler pads

only to independent distributors, and some chain

stores such as Sears. The record shows conclusively

that AMXCO’s price to its primary independent dis-

tributor in El] Paso, Passage Supply, was 23% below

the list price. [R. - 69] Only one distributor, R.S.I., in

the El] Paso area received a higher price from AMXCO

than the 14.5% discount price Vebco was offering, and

that distributor received only a 10% discount

apparently because it only purchased approximately

seven percent of the dollar volume that Passage Sup-

ply purchased. AMXCO’'s price to Sears was 19% off

the list price. Even if it was not AMXCO who made the

price cut in January 1971. nevertheless. AMXCO did

initiate the illegal price cutting in March 1971.

Furthermore the offer of the 14.5% discount by Vebco

to K-Mart was made long before Passage Supply

called on K-Mart in 1971 and could not be construed to

be cutting Passage’s price even if K-Mart were to be

considered AMXCO’s customer. The first illegal price

cutting in the El Paso market occurred on March 2.

1971 by AMXCO when knowing from its own dis-

tributor, Passage Supply. [R. - 327] what price it

would take to beat (not meet) Vebco’s price. it reduced

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its price 10% below Vebco’s prices and required no

volume purchases to obtain that price.

Furthermore it is clear from the record that at least

some of the AMXCO personnel knew exactly what was

going on. Immediately after the initial price offer of a

25% discount, Paul Britt wrote AMXCO’s Pico Rivera

division manager to thank June Morris for “the lesson

in salesmanship (find out what the competition is and

cut the price 10%). [R. - 463] The owner of AMXCO’'s

largest independent distributor told them it would

take “three fives” off to get the K-Mart business. [R. -

308] After AMXCO began selling direct, Paul Britt

told both AMXCO’'s salesman and branch manager

that Vebco would meet AMXCO's price cuts and that

Vebco would retain the business [R. - 233, 237, 237].

Every discount store buyer except one testified that

the AMXCO people knew what Vebco's price was and

Vebco was merely meeting each subsequent cut of

AMXCO’s. Furthermore, even the division manager,

Gillespie, testified that Turner and Paul Britt had told

him on many occasions that the El Paso discount trade

were customers of Vebco. [R. - 432-33]

Not only was it made undisputedly clear that AMX-

CO was not in “good faith” in its price reduction but it

never merely met ‘an equally low price” of a com-

petitor which is a prerequisite to relying on the good

faith defense. Nevertheless the Court of Appeals held

the “good faith meeting of competition” defense was

proved. Such a holding is adverse to this court's opin-

ion inA. E. Staley Mfg. Co. v. F.T.C., 324U.S. 746 (1945).

8. The reason respondent received a jury

verdict was the attitude expressed by the court

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toward certain evidence presented by

petitioners as well as the court’s failure to

allow the expansion of the case to its proper

limits.

The district court's participation in the trial of the

case was in marked contrast to his pretrial participa-

tion and his bland instructions to the jury with regard

to the evidence. Clearly the court's comments on par-

ticular items of evidence sought to be introduced by

petitioners, his numerous admonitions to “move on™

and “not” to “get into that” as well as his objections

sua sponte to various attempts by petitioners to

develop certain evidence were an abuse of discretion.

prejudiced the petitioners case and require reversal.

During the course of the trial the judge interrupted

the questioning by the attorneys no less than one hun-

dred eighty-seven times. [R. - 131] These interrup-

tions were gratuitous in that the opposing counsel had

not first objected to the proceedings or what was being

said at the time.

Of those one hundred eighty-seven interruptions,

one hundred fifty-one were at times when counsel for

the petitioners was interrogating the witnesses. Only

nine of the total interruptions worked even con-

ceivably to the detriment of the respondent.

The court's exclusion of competent evidence tend-

ing to prove the petitioners charges are complained of

and argued in other sections and will not be repeated

except to say that of all those exclusions, 1) mergers

and acquisitions, 2) the negotiations to purchase

>»

Southwest Industries, 3) activity in other areas, and 4)

the penetration of the southern California market

were first objected to by the district court who was

then followed by AMXCO's objections on some of the

questions.

One of the most exasperating aspects of trial of the

case was the repetitive comments of the court that cer-

tain testimony had “nothing to do with it’ or “I don't

think that’s material.” Examples of the evidence and

comments thereon by the court are many. Through-

out the trial as stated elsewhere, petitioners attempt-

ed to prove the specific intent to monopolize. Such

proof necessarily required a wide range of evidence

relating to the many facets of AMXCO’s activities.

Nevertheless at one point when counsel for

petitioners was attempting to delve into AMXCO’'s

receipt of information from a crinoline supplier re-

garding Vebco’s orders of crinoline (a necessary in-

gredient to make a cooler pad). the following took

place:

“Q Are you telling me it is anormal! situa-

tion for one of your suppliers to tell you what

price they re going to charge one of your com-

petitors?

“A Not normally. no; that is not normal.

“Q Okay. Now. there's a last paragraph

there that says, ‘Kendall has promised to ad-

vise me if they do in fact receive an order from

VEBCO. and I will keep you informed’

“THE COURT: What is wrong with that:

They've been dealing with these people for 20

years, and undoubtedly have a close relation-

ship. We're not going into all of these different

things as to the quantity he buys or the other

circumstances. They're entitled to this — this

other company is not involved inthis lawsuit.

“MR. KING: VEBCO and American Ex-

celsior are competitors, Your Honor.

‘

Sah

“THE COURT: That may be. but you have

just now come into this. and he said for 20

3 years they've been dealing with this Com-

3 pany. We're not going to try two or three dif-

ferent lawsuits in here. I think it speaks for

4 itself. I'll let that in, but we're not going to try

q two or three different lawsuits.” [R. - 314]

: And at another point involving the same exhibits

: [R. - 465, 466] the following:

4 “THE COURT: Why are we putting so

4 much in on that? They're not part of this law-

| suit. What's the significance of it?

: “MR. KING: Your Honor, the significance

f is that everybody that VEBCO had to get sup-

\ plies from, these people, American Excelsior

were in contact with them.

“THE COURT: That doesn't prove any-

thing. You'll have to get something here —

don't take up our time unless you can getdown

to it. I don’t see anything yet except we re

wasting a lot of time.

2 SEE I OSERE.

Perio: Eecrt

“MR. DERRICK: There's no evidence that

we contacted them. They contacted us.

“THE COURT: You'll have to show me

something here that ties it in. This doesn't tie

anything in. They notified them, andI don’t see

any harm in these matters here. [Tr. Vol. II -

509-10]

If the court could see no“‘harm in these matters.” the

jury would be hard pressed to believe any argument

made by petitioners’ counsel.

And on numerous occasions AMXCO personnel

checked the Vebco premises to determine the level of

their wood supply. An AMXCO witness testified such

practice was not unusual. “Our competition comes

around and checks our wood pile all the time.” When

petitioners counsel asked him to recite specific in-

cidences he had seen. the court stated “I think this is

probably immaterial ... I don't see any difference

whether Vebco checked their wood pile or didn't check

their wood piie... I don't see the materiality of that.

seeing what other businesses are doing.” The witness

could think of no instances that the competition had

checked the AMXCO wood supply. [R. - 333]

There are other instances relating to the court's

failure to admit evidence of AMXCO’s poor local

management [R. - 426], the freight rate that AMXCO

paid on its pad shipments [R. - 419] and the policies of

AMXCO as known by the various AMXCO witnesses.

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Each of these inquiries were relevant but were made

to appear by the court as totally without merit even

though AMXCO testimony was admitted claiming

AMXCO’s freight rate was lower than Vebco’s, AMX-

CO's loss of business over the years was attributable

only to the competition and it was unclear what the

AMXCO pricing policies were.

Prior to trial petitioners had prepared several large

exhibits to portray graphically not only the actions of

AMXCO but the effects of those actions. Each time

petitioner's witnesses began to testify the court inter-

rupted and jumped from one point to another, thus

creating chaos and complete confusion.

As is true with so many of the errors cited herein in

respect of the court's participation, the record must be

read in toto to grasp the full significance. A prime

example, however, was the attempt to admit

testimony concerning the facts summarized on Plain-

tiffs’ Exhibit 19.[Tr. Vol. II - 137-154] This exhibit, as

were several others. was prepared in accordance with

the recommendation in the Manual For Complex

Litigation that, “voluminous or complicated data of an

admissible character should be presented whenever

possible through written or oral summaries, tabula-

tions, charts, graphs or extracts.” Id. §2.611 at 27.

The court apparently disagreed with this principle

and objective in that he stated to the jury on several

occasions. and so instructed them, that “the jury

understands this isn't evidence. its merely con-

venience: the evidence it’s taken from will have to be

available.” [R. - 248] [R. - 346-351] [R. - 98]

When the court took over the questioning relating to

the exhibit the matter became hopelessly confused.

The court finally reached the conclusion that the

presentation of PX 19 was premature and other

witnesses should have been called first even though

the witness, Paul Britt, had made the summary on the

exhibit from the books and records. The witness was

passed and was recalled at a later time.

During the course of the trial several witnesses were

called out of order for the convenience of the re-

spondent when actual or potential witnesses were not

going to be available at the appropriate times. One

such witness was petitioners’ expert. Mr. Albert R.

Cox, a certified public accountant.

After the initial questioning by counsel, on its own

motion the court interrupted to ask the meaning of the

questioning, then minutes later the court took over the

questioning altogether. [R. - 353] The court's ques-

tioning lasted for the next fifteen pages in the record.

Although the court purportedly was trying to

“simplify it” [R. - 354] “so the jury will know what

you re doing” [R. - 355], it is clear from reading the

record it was not simplified by the court's jumping

from point to point and not allowing counsel to ques-

tion the witness.

Initially the expert's testimony had been expected to

be relatively simple and the report which was sub-

mitted to opposing counsel and filed of record was

quite thorough as the court stated. [R. - 356] However.

once the court began to question the witness. clarity

vanished completely because there was no organiza-

tion to the presentation of the material. There is ab-

solutely no way that the jury could have understood it.

Even with the benefit of the printed word the portion of

the record relating to this testimony is unclear.

Finally the court ordered that the witness read the

report to the jury which had been filed and some

semblance of order in the presentation was restored.

However, the damage had been done.

Clearly this type of conduct by the trial court is

prohibited as violating petitioners’ right to trial by

jury.

CONCLUSION

For the foregoing reasons the Petition forthe Writof

Certiorari ought to be granted.

KENNETH L. KING

Attorney for Petitioners

OF COUNSEL:

GOODMAN, HALLMARK, AKARD & KING.

A Professional Corporation

Post Office Box 2900

El Paso, Texas 79999

(915) 533-5581

CERTIFICATE OF SERVICE

The undersigned attorney of record for Petitioners.

INTERNATIONAL AIR INDUSTRIES, INC. and

VEBCO, INC.. hereby certifies as follows:

(a) that I am a member of the bar of the United

States Supreme Court, and that I have duly served all

parties required by the Rules of said Court to be served

with the foregoing Petition for Writ of Certiorari, as

hereinafter shown;

(b) that the names and addresses of the attorneys of

record for the adverse party are as follows:

William J. Derrick and Royal Furgeson.

P. O. Drawer 2800. El Paso. Texas 79999:

attorneys for American Excelsior Company

the foregoing Petition for Writ of Certiorari on the said

William J. Derrick and Royal Furgeson. attorneys for

Respondent. by depositing same in the United States

post office with air mail postage prepaid. properly ad-

dressed to said attorneys for Respondent at their said

address.

EXECUTED this the ___ day of January. 1976.

Attorney for Petitioners

REET SENE ee ee eC Ree oe ea

APPENDIX A

INTERNATIONAL AIR INDUSTRIES,

INC. and Vebco, Inc., Plain-

tiffs-Appellants,

¥.

AMERICAN EXCELSIOR COMPANY,

Defendant-Appellee.

No. 74-1953.

United States Court of Appeals,

Fifth Circuit.

Aug. 18, 1975.

Kenneth L. King, El Paso, Tex., for plaintiffs-

appellants.

W. Royal Furgeson, Jr., William J. Derrick, El Paso,

Tex., for defendant-appellee.

Appeal from the United States District Court for the

Western District of Texas.

Before TUTTLE, GODBOLD and MORGAN, Circuit

Judges.

LEWIS R. MORGAN, Circuit Judge:

Appellants Vebco, Inc., and International Air In-

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dustries, Inc.,! filed a complaint in the United States

District Court for the Western District of Texas chars -

ing AMXCO, Inc.,? with a violation of the antitrust

laws. A lengthy, complex and seemingly disorganized

jury trial was held, resulting in a verdict in AMXCO’s

favor. Vebco appeals, alleging at least twenty sub-

stantive trial errors. We affirm the judgment below.

The facts in this case are heatedly contested. Since

the trial below resulted in AMXCO’s favor, we con-

sider the facts in a light most favorable to it.

Vebco, Inc., is a New Mexico corporation with its

principal place of business in El Paso, Texas. It was

incorporated in 1959. Vebco is primarily a dis-

tributor of heating and air conditioning equipment,

although it does manufacture some products, in-

cluding handmade evaporative cooler pads. It sells its

pads primarily in Arizona, New Mexico, and West

Texas.®

1 Although Vebco and International were nominally separate

business entities, they operated as one business. Because of the

interrelation of the two corporations, they had only one counsel

and were treated as one entity for purposes of trial. Therefore,

“Vebco” will hereinafter refer to both plaintiffs, unless otherwise

indicated.

2 American Excelsior Company was the named defendant in the

district court, but during the course of discovery Vebco realized

that AMXCO, Inc. was the corporate successor to that company.

The defendant-appellant will therefore hereinafter be referred to

as “AMXCO”.

3 International Air Industries, Inc., was incorporated in 1969 for

the purpose of manufacturing evaporative cooler pads and

evaporative cooler covers for sale by Vebco. Vebco and Inter-

national, although separate corporate entities, operated as one

business. International ceased operations in 1972 and Vebco took

over the manufacturing operation.

AMXCO, a subsidiary of Texstar Company, has its

principal place of business in Arlington, Texas. It

maintains a branch office in El Paso, Texas, and

manufactures evaporative cooler pads which it sells

throughout the southwestern and far western parts of

the United States.

The source of the controversy in this case is the

cooler pad, an object made of aspen wood shavings

covered with crinoline cloth, used in evaporative air

conditioners. Such pads have historically been made

by hand, but around 1960 AMXCO achieved a

breakthrough in the field and began to produce a

machine-made pad. Hand- and machine-made pads

are interchangeable in use, but the latter can be

produced, transported, and stored more cheaply.

Through its technological success and business ex-

pansion AMXCO became the world’s largest producer

of cooler pads.

Vebco and AMXCO have enjoyed a lengthy business

relationship. The founder of Vebco, Vernon Britt,

began to distribute pads for AMXCO in 1953. Until

1969, with only one short exception, the only pads Veb-

co distributed were manufactured by AMXCO. By sell-

ing AMXCO’s pads, Vebco developed a highly

successful business and gradually expanded its

operations to include a complete line of heating and

cooling implements.

Except for direct sales to “national accounts,” AMX-

CO marketed all of its cooler pads through indepen-

dent distributors such as Vebco. Vebco’s primary

customers in the E] Paso-Las Cruces trade area were

discount stores. The only large discount store in the

area to which Vebco did not sell cooler pads was K-

mart. serviced by Passage Supply. an independent

distributor for AMXCO.

Prior to 1969, AMXCO favored its El Paso dis-

tributors over its Arizona distributors in freight

policy: AMXCO paid freight costs of its El Paso dis-

tributors to their customers in Arizona but did not pay

the freight costs of distributors in Arizona to their

customers in El Paso and Las Cruces. In order to rec-

tify this competitive inequity, AMXCO decided to

eliminate the freight pre-payment for its El Paso dis-

tributors. When AMXCO adopted a uniform freight

policy: AMXCO paid freight costs of its El Paso dis-

plant for cooler pads. With the aid of three former

employees of AMXCO, the owners of Vebco formed a

corporation and built a plant to manufacture cooler

pads by hand in 1969. Vebco then entered the market

as a manufacturer and successfully competed with

AMXCO. Later that same year, Southwest Industries

was formed. Like AMXCO, Southwest manufactured

and marketed machine-made cooler pads. There were

also numerous small scale handmade pad manufac-

turers in the market.

iiip wnt cy i

; When AMXCO learned that Vebco was manufac-

a turing its own cooler pads, AMXCO terminated its dis-

tribution relationship with Vebco. Although it lost

customers to Vebco in 1969, AMXCO took no action in

regard to price.

In 1970. Vebco expressed considerable concern to

AMXCO at the emergence of Southwest as a com-

petitor, particularly since partners in the Vebco

manufacturing operation were officers of Southwest.

Vebco even tried to induce AMXCO to purchase Vebco

or its manufacturing operation. AMXCO agreed to

loan the Vebco owners $20,000 to buy out the Vebco

principals then involved in Southwest and to pay off

Vebco’s outstanding indebtedness. The negotiations

to purchase Vebco never reached fruition but an

agreement was reached whereby AMXCO sold

specially packaged pads to Vebco which were offered

for sale under Vebco’s label. and Vebco sold pumps

and parts to AMXCO.

Because the 1970 agreement was profitable for both

parties, they agreed to continue the operation in 1971.

However, prior to the 1971 selling season, relations

between the two companies deteriorated. resulting in

the suit before us.

In late January. 1971 Vebco dropped its price to dis-

count houses 5% below the price currently being

quoted by both AMXCO and Vebco! — to a 14.5% dis-

count below list price. This price cut brought Vebco

considerable business, including the very lucrative K-

mart account which had previously been serviced by

AMXCO's distributor, Passage Supply. The record in-

dicates that AMXCO's distributors complained that

they could not effectively compete with Vebco,

because the latter manufactured its own pads for dis-

tribution.

4 Vebco alleged at trial that it was actually meeting a price which

had been quoted by either AMXCO or one of its independent dis-

tributors. However, Vebco did not attempt to verify the allegation

that AMXCO was offering a lower price and there is noevidence in

the record, other than Vebco's allegation, that AMXCO initiated

the price cutting.

ee, ee Gee

v= —

On March 1, 1971, AMXCO requested Vebco’s order

for three carloads of pads which Vebco had indicated it

would purchase from AMXCO. When Vebco failed to

verify its order, AMXCO determined that customers

which had previously used AMXCO pads distributed

by Vebco would now be serviced by Vebco’s own pads.

In effect, Vebco was going to compete against AMXCO

for its customers rather than distributing its pads.

AMXCO then decided to compete directly for the dis-

count trade in the El] Paso area.

Based on previous public bids by Vebco and

Southwest, and on information received from

customers. AMXCO determined that a 25% discount

would be competitive in the market. AMXCO then con-

tacted its old customer, K-mart, and at least one other

discount house, offering the 25% discount. However,

AMXCO salesmen made no sales at the 25% discount,

because. unknown to them, Vebco had verified their

price and had notified its customers that it. too, would

give the 25% discount. Because of the lack of sales at

the 25% discount, and because at least one potential

customer had reported that Vebco was selling atneara

50% discount, AMXCO again lowered its price, offer-

ing a 32.5% discount. Again, Vebco verified and met

this price on March 15, 1971, and AMXCO made no sub-

stantial sales.

During this intense period of competition, AMXCO

delegated price-setting responsibility in the El Paso

market to two of its local employees, Wendell Johnson

and June Morris. Carl Gillespie. AMXCO’s division

manager, continued to make recommendations, and

on March 16, 1971, he prepared a memorandum

suggesting ways to compete with Vebco and

Southwest, which included, as one possible alter-

native, the option of offering prices in El Paso low

enough to insure that Vebco would not profit from

competitive sales. On March 17, Gillespie also wrote

Morris a letter which contained the statement:

[I]f we are committed toa program of stunting the

possible growth of Vebco and keeping our foot in

this quite seizeable cooler pad market, then the

real question we have here is just what price do we

need to determine as our lowest price level.

Vebco had a great deal of difficulty sustaining a

32.5% discount and on March 29. 1971, Vebco an-

nounced to its customers that it would return to the

25% discount. AMXCO subsequently made one sale to

K-mart, its prior customer at a39% discount. After the

1971 season, AMXCO raised its prices, offering dis-

counts from 19 to 25% for the 1972 season.

On May 28, 1971, Vebco initiated this Suit, charging

AMXCO with a violation of Section 2(a) of the Clayton

Act, as amended by the Robinson-Patman Act. (15

U.S.C. § 13(a) ).5 The complaint was amended on July

5 15 U.S.C. § 13(a) provides in relevant Part:

It shall be unlawful for any person engaged in com-

merce, 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 dis-

crimination 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 juris-

diction 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

Walid ele MAIR Cee 4

28, 1972, to charge. additionally, a violation of § 2ofthe

Sherman Act (15 U.S.C. § 2).6 The gravamen of the

complaint is that AMXCO unlawfully discriminated

in price from 1968 through 1971 and attempted to

monopolize the El Paso-Las Cruces cooler pad

market, as well as that of the southwestern United

States, during the same period. Vebco subsequently

supplemented its complaint to include the 1972 cooler

pad season.

Vebco alleged damages totaling over $100,000 for the

years prior to and including 1971 and $42,000 for 1972.

It sought treble damages as provided under the an-

titrust laws, as well as an injunction against AMX-

CO's allegedly unlawful behavior.

The record indicates that the dollar value of Vebco's

cooler pad sales has increased every year sinc 1968.

with the exception of a slight decline in 1972.” Con-

versely, AMXCO’s share of the national cooler pad

market has declined steadily since 1969. Vebco con-

ceded at trial that it claimed only lost profits,

presumably from keen price competition, rather than

lost sales for the years prior to 1971. Indeed, almost all

of the allegedly illegal acts of which Vebco complains

6 15 U.S.C. § 2 (1973) provides:

Every person who shall monopolize, or attempt to mono-

polize, or combine or conspire with any other person or

persons, to monopolize any part of the trade or commerce

among the several States, or with foreign nations, shall be

deemed guilty of a misdemeanor. and, on conviction

thereof, shall be punished by fine not exceeding fifty thou-

sand dollars, or by imprisonment not exceeding one year,

or by both said punishments, in the discretion of the court.

7 Vebco's share of the El Paso cooler pad market also showed a

steady increase from 1968 through 1971, the only years for which

market figure percentages were introduced below.

occurred immediately prior to, or coincidental with.

the 1971 cooler pad season. During this season, some

of the firms with which Vebco previously dealt

purchased pads from AMXCO. Nevertheless, Vebco's

cooler pads sales, measured in dollars. and its percen-

tage of the El Paso cooler pad market increased in

1971;5 indeed, only Vebco’'s markup on pads

decreased.9

With respect to the slight decrease in 1972 cooler pad

sales, Vebco’s president conceded at trial that the

decline could easily have been caused by the firm's ef-

forts to improve its manufacturing operation at the

expense of its sales program. Likewise, the record

reveals that 1972 was a poor season for all cooler pad

manufacturers and distributors because of inclement

weather.

All in all, the record before us reveals that since

1968, the cooler pad market in El Paso has been ex-

tremely competitive. The sales season for cooler pads

is quite short and manufacturers must necessarily

process orders early. On the other hand, the record in-

dicates that customers intentionally quote lower

prices to distributors and manufacturers than have

actually been offered by a competitor in the hopes of

securing a lucrative offer. Vebco. AMXCO, South-

west, and one other manufacturer con tinue to

vigorously compete in the E] Paso market.

8 Vebco kept no separate sales figures for cooler pads; prior tothe

initiation of this law suit. The dollar sales figures cited herein are

their estimates of past sales based on a review of their invoices.

9 Vebco’s markup percentage or “gross margin” (retail price

minus the cost divided by the retail price) for cooler jpads in the

years 1968 through 1972 inclusive. was 12%. 17%. 22%, 138%, and

18% respectively.

10a

Il.

Vebco’s primary argument on appeal is that the dis-

trict court erred in refusing to direct a verdict in Veb-

co’s favor on the Robinson-Patman charge.'° The dis-

trict court should grant a motion fora directed verdict

only if, considering all the evidence and all reasonable

inferences that can be drawn from the evidence in a

light most favorable to the non-mover’s case,

reasonable men could notarrive ata verdict in favor of

the non-mover. Boeing v. Shipman, 411 F.2d 365, 374

(5th Cir. 1969) (en banc). Applying this standard to the

case before us, we find that the trial court was correct

in refusing to direct a verdict in Vebco’s favor.

Section 2(a) prohibits price discrimination 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,

10 Vebco argues on appeal that while the district court erred in

not directing a verdict on the Robinson-Patman claim, its disposi-

tion of the Sherman Act count was correct, for the record would not

support a directed verdict as to the latter. Such an argument sur-

prises us, for we believe that the basic substantive issues raised by

the two statutes (with respect to the primary-line injury in the case

of the Robinson-Patman Act) are identical. Vebco’s counsel ap-

parently feels that the conditional language of the Robinson-

Patman Act (“where the effect of such discrimination may be sub-

stantially to lessen competition” (emphasis supplied) ) implies a

lesser evidentiary burden on the plaintiff than is required under

the Sherman Act. Under the Robinson-Patman Act, of course, itis

not necessary to show actual damage to competition, it is only

necessary to show that there is a reasonable possibility that the

discrimination may have that effect. See Corn Products Refining

Co. v. FTC, 324 U.S. 726, 65 S.Ct. 961, 89 L.Ed. 1320 (1945). However,

since AMXCO's activities cannot reasonably be viewed as a

lessening of competition (see text accompanying notes 21-34 in-

fra), then construing the “may be” language is not necessary, see

Areeda and Turner, Predatory Practices under Section 2 of the

Sherman Act, 88 Harv.L.Rev. 697, 727 (1975); Anheuser-Busch v.

FTC, 289 F.2d 835, 843-44 (7th Cir. 1961).

lla

destroy. or prevent competition.”!! The Act was

primarily aimed at national chains that enter a locali-

ty and crush a more efficient local concern by cutting

prices below cost and subsidizing local losses with ex-

cessive profits gleaned in a non-competitive area. See

F. Rowe. Price Discrimination under the Robinson-

Patman Act 123 (1962). However, Congress did not in-

tend to abolish competition “or so radically to curtail

it that a seller would have no substantial right of self-

defense against a price raid by a competitor.” Stan-

dard Oil Company v. FTC, 340 U.S. 231, 249, 71S.Ct. 240.

‘249. 95 L.Ed. 239 (1951). Thus our goal in applying the

Robinson-Patman Act is to maintain active competi-

tion — including price rivalry — among the members

of the business community.

Encouraging competition while at the same time

forbidding anti-competitive behavior calls for con-

siderable care in this case. The facts before us reveal a

large entrenched firm with a dominant market share

confronted by a fledgling company attempting to

enter the same market. Such a situation necessitates

the greatest scrutiny on our part, for anti-competitive

price cuts by the monopolist could be directed toward

driving the new competitor out of the market or dis-

ciplining it in order to force it to follow the

monopolist’s price leadership. On the other hand. we

believe that neither the Act nor any social value com-

pels the sheltering of an individual competitor. at the

11 The Act is concerned with competitive injury to three groups:

competitors of the price discriminator (“primary line”), cus-

tomers of the price discriminator (“secondary line’), customers of

the price discriminator’s customers (“tertiary line’). Only a

primary line injury is alleged in this case, and our comments and

conclusions therefore pertain only to such injury.

—

Syste Ratt DAE tian

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Besse

12a

expense of the public interest, from the competitive

process. See F. Rowe, supra, at 130.

Vebco claims that AMXCO violated the Act when it

sold cooler pads to El Paso customers at prices lower

than it sold its pads elsewhere. A price discrimination

within the meaning of the Act, of course, is merely a

price difference, FTCv. Anheuser-Busch, Inc., 363 US.

536. 549, 80 S.Ct. 1267, 4 L.Ed.2d 1385 (1960), but price

discrimination is not illegal per se. Continental Bak-

ing Co. v. Old Homestead Bread Co.. 476 F.2d 97. 103

(10th Cir. 1973). In order to meet the requirement of an

adverse effect upon competition, Vebco claimed that

there was considerable diversion of business from

Vebco to AMXCO in 1971, and, additionally, that Vebco

suffered a reduction in its profit margin because ithad

to compete with AMXCO.

It is settled law that a mere diversion of business

from one competitor to another does not signify detri-

ment to competition on the seller level.'?

The Act is really referring to the effect upon

competition and not merely upon competitors. In

12 Anheuser-Busch, Inc. v. FTC, 289 F.2d 835 (7th Cir. 1961):

Minneapolis-Honeywell Regulator Co. v. FTC. 191 F.2d 786, 790

(7th Cir. 1951). See also, Dixon, Practice and Procedure Before the

Federal Trade Commission, 9 N.Y.L.-F. 31, 36 (1963): “Thousands of

firms go into bankruptcy every year without bringing a single tear

to the eye of anyone even remotely connected with antitrust

enforcement. Where a businessman perishes because of his own

inefficiency. i. e.. because of his inability to make as good a prod-

uct. sell it at as low a price, or promote it as effectively as hiscom-

petitors, his passing is noted without a tremor. Indeed, this is nor-

mally a sign that the industry in which he failed is a healthy one in

which competition is vigorous enough to weed out marginal

operators whose talents and resources should be employed else-

where.”

13a

this respect § 2(a) must be read in conformity with

the public policy of preserving competition, but it

is not concerned with mere shifts of business

between competitors. It is concerned with sub-

stantial impairment of the vigor or health of the

contest for business, regardless of which com-

petitor wins or loses. ... Antitrust legislation is

concerned primarily with the health of the com-

petitive process, not with the individual com-

petitor who must sink or swim in competitive

enterprise. Anheuser-Busch, Inc. v. FTC, 289 F.2d

835, 840 (7th Cir. [1961] 1971) (citations omitted).

See Atlas Building Products Co. v. Diamond Block

& Gravel Co., 269 F.2d 950, 954 (10th Cir. 1959) cert.

denied, 363 U.S. 843, [80 S.Ct. 1608, 4 L.Ed.2d 1727]

(1960); F. Rowe, supra, at 122-23.

Mere loss of profits shows no more than that Vebco

was forced to charge a competitive price because it

faced competition. Similarly, the large size of the dis-

criminator and even the fact that its sales increased

during the period of discrimination would not

necessarily make out acase.'!3 Anheuser-Busch, Inc. v.

FTC, 289 F.2d 835, 839, 843 (7th Cir. 1961). It is possible

for damage to a single competitor to meet the statutory

requirements, see Borden Co. v. FTC, 381 F.2d 175 (5th

Cir. 1967), but a showing of more than competitive

pricing and a shift of customers is necessary. Evi-

13 We do not intimate that all of these criteria necessarily apply

to the case before us. For example, the record shows that AMXCO’'s

percentage of the market declined during the relevant period.

LSAT INS cies |

o/b tS

LT ee eas

14a

dence of certain types of predatory conduct, we feel.

would fulfill the requirements."

Coupled with its claims of lost profits and diversion

of business, Vebco introduced evidence purporting to

show AMXCO’s “predatory intent” in order to satisfy

the statutory requirements. Of the actions which Veb-

co alleges evinced AMXCO’s predatory intent, the

only one meriting extensive comment is the Gillespie

memo of March 17, 1971, which Vebco claims was con-

clusive proof of AMXCO’s predatory intent.’

14 Antitrust cases and literature have indicated that the neces-

sary primary line damage to the competition may be found in the

absence of predation if certain none too clearly defined conditions

result from the price discrimination. See Continental Baking Co.

vy. Old Homestead Bread Co., 476 F.2d 97 (10th Cir. 1973): Atlas

Building Products Co. v. Diamond Block & Gravel Co., 269 F.2d 950

(10th Cir. 1959), cert. denied, 363 U.S. 843, 80 S.Ct. 1608, 4 L.Ed.2d

1727 (1960); F. Rowe, supra at 150-161. We find it difficult to discern

the manner by which a firm's legitimately competitive behavior

absent acquisition of monopoly power could cause damage to

competition. However, we need not address that issue. AMXCO's

share of the El Paso cooler pad market declined throughout the

relevant period; the market was far more competitive after the dis-

crimination than before it; and Vebco. Southwestern and one other

manufacturer continue to exist and even grow as large com-

petitors of AMXCO. These facts indicate that even under those

cases finding a violation of the statute in the absence of predation.

the requisite damage to competition is not present. See Con-

tirental Baking Co. v. Old Homestead Bread Co., supra, Borden Co.

v. FTC. 381 F.2d 175 (5th Cir. 1967): F. Rowe supra at 160-161 and

cases cited therein. Consequently. Vebco necessarily rests its case

upon a “predatory intent” argument.

15 Among the other actions which Vebco claims evinced AMX-

CO's predatory intent was AMXCO’s negotiation to purchase Veb-

co. Even if we assumed that negotiation to purchase a less efficient

competitor is in some circumstances anti-competitive, the record

clearly shows that Vebco initiated the negotiations and that AMX-

CO refused to purchase Vebco. Vebco also contends that AMXCO’'s

decision to discontinue supplying Vebco in 1969 was further

evidence of predatory intent. However. at oral argument Vebco’s

counsel conceded that AMXCO hada legitimate right to terminate

its relationship with Vebco because Vebco began to manufacture

its own pads in 1969 and therefore operated as AMXCO’'s com-

petitor

15a

Judicial use of the term “predatory intent” is

troublesome. Several cases hold that from a finding of

certain actions, the trier of fact may infer predatory in-

tent, and from this inference the proscribed inimical

effects upon competition in turn may be inferred.'6

However, application of these principles is par-

ticularly difficult, for predatory intent has never been

clearly defined. Its appearance has been characterized

by phrases such as “putting a crimp” into one’s com-

petitors,'’ punitively or destructively attacking other

firms,'§ and acting vindictively with punitive effect.'9

But any price decrease by a legitimately competitive

firm will necessarily have a non-remunerative effect

upon other firms in the market, if only by decreasing

their profit margins. It is therefore important toclear-

ly indicate the types of business behavior which

violate the Act.

In this appeal Vebco seeks a ruling that no

reasonable man could fail to believe that AMXCO

violated the statute. Vebco’s allegations of predatory

intent were contested at trial by AMXCO. Therefore.

even under the unwieldly “double inference test,” Veb-

co cannot prevail on appeal; the record indicates that

the jury would have been justified in finding an

absence of ‘‘predatory intent,” or, upon finding such

intent, in failing to draw the permissible inference of

damage to competition.

16 See Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 696, n.

12, 87 S.Ct. 1326, 18 L.Ed.2d 406 (1967): Continental Baking Co. v.

Old Homestead Bread Co., 476 F.2d 97, 104 (10th Cir. 1973): Corn-

well Quality Tools Co. v. C. T. S. Co., 446 F.2d 825, 831 (9th Cir.

1971); Lloyd A. Fry Roofing Co. v. FTC, 371 F.2d 277 (7th Cir. 1966).

17 E. B. Muller & Co. v. FTC, 142 F.2d 511, 517 (6th Cir. 1944).

18 F. Rowe supra at 149.

19 Anheuser-Busch, Inc. v. FTC, 289 F.2d 835, 842(7th Cir. 1961).

deat GN RRR SRR AAITIN AT Re ae |

a Mees ke aa

16a

It is possible. of course, for a plaintiff to present

evidence of predation sufficient to warrant a directed

verdict, but quoting out of context segments of inter-

nal company memoranda is simply insufficient.

Gillespie's memorandum reveals that AMXCO acted

as any legitimately competitive and rational firm

would; Gillespie considered Vebco's potential for

growth and enumerated several alternatives which

AMXCO Officials could consider in meeting the new

competitive challenge. In order to require a court to

direct a verdict, Vebco must adduce evidence of what

AMXCO did; at best, it showed only what AMXCO

might have done. See Anheuser-Busch, Inc. v. FTC.

289 F.2d 835, 843 (7th Cir. 1961).

Since the allegedly harmful actions in this case in-

volve pricing, we must examine the relationship

between AMXCO's prices and costs in order to deter-

mine whether their price behavior was predatory.*° By

“predatory” we mean that AMXCO must have at least

sacrificed present revenues for the purpose of driving

Vebco out of the market with the hope of recouping the

losses through subsequent higher prices.

When a firm sets its price equal to its average cost,

its total revenues cover total costs, including normal

returns on investment.?! If a monopolist” is selling at

20 We therefore do not consider other conceivably predatory

behavior such as predatory investment or promotional spending.

21 See Areeda and Turner, supra note 10 at 704; P. Samuelson,

Economics 447-48 (8th ed. 1970). Much of our discussion in the next

few paragraphs is based upon accepted economic analysis. See

e. g.. P. Samuelson, supra at 428-510.

17a

a price at or above average cost, but could earn higher

profits at a higher price, it may be attempting to deter

entry into the field. Likewise a monopolist may

attempt to drive out existing competition by tem-

porarily lowering price to average cost. In either case.

we believe that a price above average cost is a fairly

competitive price for it is profitable to the monopolist

if not to its rivals; in effect, the price excludes only less

efficient firms. Areeda and Turner, supra note 10. at

706-707.

In the case before us, the entry of Vebco and

Southwest created excess manufacturing capacity in

the cooler pad market.23 Therefore, AMXCO's

marginal cost was almost certainly below it average

cost.?4 In such situations we do not believe that the

monopolist’s pricing behavior could be deemed anti-

competitive unless the monopolist set a price below

its own marginal cost — since any sale at or above

22 For the purposes of this discussion a monopolist is one who

has captured a sufficiently large part of a market to be able to

determine market price by varying its output. See, e. g.. Indepen-

dent Iron Works, Inc. v. United States Steel Corp., 322 F.2d 656. 667

(9th Cir. 1963). We do not use the term to indicate that the firm isa

monopolist under the language of the Sherman Act and hence

violating the law by its very existence.

23 The record shows that Vebco and Southwest both built fac-

tories during the years at issue in this suit. The fact that this new

production created excess capacity is also evidenced by an AMX-

CO memorandum which indicated that every sale Vebco made in-

creased AMXCO's unit costs by idling some of its production

facilities.

24 Id. at 710. If AMXCO's production facilities had been produc-

ing beyond the output at which they function most efficiently,

AMXCO's marginal costs, the cost of the last unit produced, would

exceed its average cost. In such a situation, a reduction of price to

marginal cost would still cover all of the company’s expenses (fix-

ed as well as variable), and equally efficient competitors would

make substantial profits by restricting their output to efficient

levels. See Areeda and Turner, supra note 10 at 709-710.

—_—-1

Sle Se BE SES

5 lee 2%

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Wk a

18a

marginal cost does not decrease short-run net

returns.25 It may be theoretically possible for a reduc-

tion of price to marginal cost by a monopolist to drive

out an equally but not more efficient competitor. Id. at

711. However, establishing a price floor above

marginal cost would permit the survival of far less ef-

ficient firms. Certainly. forcing a monopolist to

charge a price higher than marginal cost could reduce

industry output and waste economic resources in the

short-run.*6

It is frequently quite difficult to calculate the in-

cremental cost of making and selling the last unit (i.e.,

marginal cost) from a conventional business account.

Id. at 716. Consequently, the firm’s average variable

cost2? may be effectively substituted for marginal cost

in predatory pricing analysis. Id. at 717-18. Thus, a

firm’s pricing behavior can be considered anti-

competitive when it sells at-a price below its average

variable cost.”®

When price discrimination exists — as in the case

before us — we see no reason to depart from the

25 If AMXCO set its price below average cost yet above mar-

ginal cost, it might not be profit maximizing. However.

prohibiting such behavior could have undesirable effects, for it

may not be possible to make a long run profit in the market anda

price equal to marginal cost would be loss-minimizing.

26 There would also be insurmountable problems in the enforce-

ment of a prohibition against marginal cost pricing. Id.

27 Average variable cost is the costs that vary with changes in

output divided by the output.

28 It is conceivable that marginal cost would exceed average

variable cost when a firm's output nears its optimum. When this is

the case, using the latter asa surrogate for the former enables a

firm to sell below marginal cost. However, this exception is justi-

fied because when the firm's capacity is strained, predation is es-

pecially unlikely. See id. at 718.

19a

average variable cost test for predation unless it can

be shown that there are significant barriers of entry

into the relevant market. Thus, even if amonopolist is

price discriminating, we will not infer damage to com-

petition as a matter of law if the firm is charging a

short-run, profit-maximizing price (above average

variable cost) in the market in which it faces competi-

tion. And, even if its price is below this level, we will

not infer damage to competition if the firm's price dis-

crimination has beneficial effects or insignificant

effects in the competitive market.29 In short, in order to

prevail as a matter of law,°° a plaintiff must at least

show that either (1) a competitor is charging a price

below his average variable cost in the competitive

market or (2) the competitor is charging a price below

its short-run, profit-maximizing price and barriers to

entry are great enough to enable the discriminator to

reap the benefits of predation before new entry is

possible.*!

29 Since AMXCO has considerable market power we need not

deal with various pro-competitive justifications, such as promo-

tional pricing, that a firm with considerably less market power

might reasonably employ when charging a price below average

variable cost.

30 Much of what we say here should be relevant to the requisite

elements of a prima facie Robinson-Patman case. Indeed, in Utah

Fie Co. v. Continental Baking Co., 386 U.S. 685, 696, n. 12, 702. n. 14.

87 S.Ct. 1326, 18 L.Ed.2d 406 (1967) the Supreme Court indicated that

price below “cost” is perhaps, a necessary element of a prima facie

case. However. because the Court repeatedly referred to “‘deter-

iorating price structure,” the opinion may hold that it is not neces-

sary to show a price below marginal cost in order to make out a

prima facie case. To the extent that the opinion stands for the lat-

ter proposition, we limit our discussion to the elements necessary

to sustain a motion for directed verdict.

31 We employ the profit maximizing standard only because of

our deference to a situation in which a monopolist could drive a

slightly less efficient firm out of the market by charging a price

above its own average cost, but then charge a very high price

pe ee ee

20a

it is therefore important to look to the price dis-

criminator’s costs, rather than his competitor's costs.

to determine whether the price discrimination was

anti-competitive. Ifa discriminator’s price in the com-

petitive market increases his net reverues in the short

run. he will have no need to “subsidize” losses in the

competitive market with the profits from his other

markets.**

Evidence of AMXCO’s costs was not cogently

presented at trial. apparently because neither side

considered it important. However, upon exhaustively

searching the record, we find that the judge had much

of the relevant data before him and we conclude from

this data that the court properly denied Vebco’s mo-

tion. The record indicates that AMXCO’'s manufac-

turing division charged its sales division a price for

cooler pads which covered total costs, freight charges,

and a “slight profit.” Its sales division then resold the

goods to distributors at a price based upon the dis-

tributors’ bargaining power and competition in the

area. For example, the manufacturing division sold

AMXCO’'s £ 1 pad in bulk to its sales division for 29

cents in 1971. The sales division then listed this pad for

sale in bulk to distributors at 71 cents. AMXCO’s

largest discount of 39.25% (at which only one sale was

because of the difficulty of new entry. This standard should be

applied only when the barriers to entry are extremely high. The

lower the barriers toentry ina market. the closer to marginalcost

a monopolist would have to set its price in order for a plaintiff to

prevail as a matter of law. for we see no social utility in insuring

the survival of inefficient firms where a new entry 1S possible

32 The absence of aid from other markets is a determinative fac-

tor in evaluating allegedly predatory conduct and, hence. in deter-

mining whether a statutory violation has occurred. See Borden Co.

v. FTC. 381 F.2d 175. 177 (5th Cir. 1967): Anheuser-Busch, Inc. v.

FTC. 289 F.2d 835. 842 (7th Cir. 1961)

2ila

made) produced a profit to the sales division alone of

nearly 15 cents a pad. Thus, not only was the manufac-

turing division operating ata profit, but the sales divi-

sion had a gross margin of around 33%. It would ap-

pear that AMXCO was selling its cooler pad at a price

far above even its average cost.

Moreover, the record indicates that barriers to entry

in the cooler pad market were virtually non-existent.33

Neighborhood hardware store operators could — and

did — purchase excelsior wood and hand make their

own pads for retail sale. Indeed, the total costs of enter-

ing the market on a scale large enough to supply the

entire southwestern and far western United States was

less than $300,000. The condition of the market and

AMXCO’s financial data therefore indicate that the

price rivalry in the cooler pad market could

reasonably be considered pro-competitive and the

judge properly denied Vebco’s motion.34

Finally. we note that, in addition to believing the

evidence rebutting Vebco’s prima facie case, the jury

could reasonably have found that AMXCO established

one of the statute's affirmative defenses. The statute

33 We are considerably oversimplifying the barrier to entry dis-

cussion. See Markovits, Fixed Input (Investment) Competition

and the Variability of Fixed Inputs (Investment): Their Nature.

Determents. and Significance. 24 Stan. L.Rev.507 (1972). However.

all of the relevant data, including alow minimum efficient scale of

operation, significant ability to attract customers of other

manufacturers. availability of raw materials. etc.. suggest a very

low barrier entry in the cooler pad market.

34 In fact. AMXCO’s sales manager testified it was never his

company’s policy to undercut Vebco's price “at all costs.” Rather.

it would appear that AMXCO was profit-maximizing throughout

the entire period. for the sales manager testified that it charged the

highest price it could and still make the sale. Itnever soldata price

at which it could not receive a reasonable profit.

ARM A, Bie Pht PE Bg Sa EES Wet SI 7 4

22a

provides that even where price discrimination occurs,

a discriminator may not be held liable for a violation

of the Actif “his lower price. ..was made in good faith

to meet an equally low price of acompetitor....” 15

U.S.C. § 13(b) (1973). In order to avail itself of this

defense, AMXCO need only have shown that its pric-

ing system was a reasonable method of meeting Veb-

co’s lower price. Callaway Mills Co. v. FTC, 362 F.2d

435, 442 (5th Cir. 1966). AMXCO need not have shown

that its prices were in fact equal to those of Vebco, “but

must only [have shown] facts which would lead a

‘reasonable and prudent person’ to believe that the

granting of the lower prices would in fact meet the

equally low price of a competitor.”

The facts of this case would enable a jury to believe

that AMXCO set its price as 4 reasonable and prudent

firm would, to meet Vebco’s lower price. As the facts

indicate, the cooler pad market was very competitive

and buyers often misinformed a manufacturer of a

competitor's price in order to induce a larger discount.

When AMXCO learned that Vebco had lowered its

price, it responded with a price cut which had no

result. It then cut its price a second time in order to

regain its lost business. Because of the uncertain and

competitive nature of the market, the jury could find

that AMXCO met its burden under the affirmative

defense of meeting competition.

Ill

Vebco next argues that the lower court erroneously

excluded evidence relating to AMXCO'’s “‘specific in-

35 Id. at 443-44. In fact, the Federal Trade Commission has held

that the meeting competition defense is available to aseller which

beats rather than merely meets the price of acompetitor. Matter of

Beatrice Foods Co., No. 8663 (F.T.C. Dec. 1, 1969).

23a

tent” to monopolize the cooler pad market. Vebco’s

principal contentions focus upon the trial judge's ex-

clusion ofa series of internal AMXCO memoranda and

evideace of specific prices AMXCO charged outside

the El Paso area.*6

Between September 24, 1971, and November 19, 1971,

various employees and officers of AMXCO exchanged

36 Vebco also challenges the exclusion of other ev idence. For ex-

ample, the court refused to admit a section of Southwest's

president's deposition in which he indicated that AMXCO had

previously merged with or acquired four companies. All of the

alleged acquisitions occurred before 1960. Vebco admits that this

testimony appears “rather innocuous’ and we agree. The exclud-

ed testimony only indicates that AMXCO did nott manufacture

cooler pads prior to its acquisition of the other companies.

Moreover. the acquisitions are of so little temporal relevance to

the damage to Vebco that we believe their exclusion was proper.

See, United States v. Maryland and Virginia Milk Producers Ass'n,

20 F.R.D. 441 (D.D.C. 1957).

The trial judge also excluded evidence of AMXCO’'s purchase

negotiations with Southwest. Vebco claims that the evidence

would have convinced the jury that AMXCO was attempting to

monopolize when it later negotiated to purchase Viebco. The rec-

ord reveals that AMXCO made only the most superficial! inquiry

into the acquisition of Southwest and. in addition, V’ebco initiated

buy Vebco. In context. then. we do not believe that the: district judge

abused his discretion since the excluded evidence shows little. if

anything. about AMXCO’'s “intent.”

Vebco also takes issue with the district judge's; exclusion of

evidence that AMXCO penetrated the California mar-ket by selling

to California manufacturers more cheaply than the manufacturers

themselves could make cooler pads. We believe thatt this activity

was socially and economically justifiable and deem iit irrelevant to

a showing of “intent.”

Finally. Vebco claims that the trial judge abused this discretion

in failing toadmita hearsay statement allegedly madie by an AMX-

CO employee. Inasmuch as the witness through whiom the state-

ment was to be introduced could not identify the declarant. making

it impossible for AMXCO to rebut the allegation, we believe the

district court committed no error. Moreover, even if error was

committed in the exclusion of this piece of evidencre. we believe

that when considered in light of the admitted evideence. that the

substantial rights of Vebco were not affected and ainy error was

therefore harmless. Fed.R.Civ.P. 61.

24a

internal memoranda regarding a source of wood for

cooler pad production. All of these memoranda were

circulated subsequent to the 1971 cooler pad season

and. hence, after most of the alleged injury Vebco com-

plains of in this case. Indeed, the memoranda were

written after this suit was filed. When Vebco attempted

to introduce the memoranda as evidence of AMXCO's

“predatory intent,” the judge excluded the proffered

evidence on grounds of materiality, saying:

There was nothing in there — they said — if they

don't want the wood we'll buy it. That'sallright...

it was all above board.

Vebco now contends that this exclusion, standing

alone. is reversible error.

A fair reading of the memoranda supports the dis-

trict judge’s conclusion. The second memorandum in-

dicates that Vebco had ordered wood from acontractor

but had refused to take shipment. The memorandum

queried whether AMXCO could purchase the wood in

order to relieve its own shortages. However, the

memorandum noted that AMXCO should proceed

carefully in view of the litigation then pending and

that Vebco should be given every opportunity to

purchase the wood before AMXCO made an offer. The

third memorandum said that Vebco had clear title to

the wood and that AMXCO would be unable to

purchase it, in view of the contractor's business

relationship with Vebco. The memorandum did note

that AMXCO should inquire the following spring as to

the possibility of purchasing the contractor's entire

output for use in AMXCO's Fresno operation. The

25a

final memorandum contains the two sentences upon

which Vebco bases its argument:

With reference to the question raised in your last

Paragraph, I feel that it would be very much in

order for you to make a trip to Luna and discuss

the possibility of obtaining Reynold’s total out-

put of wood for Fresno. This would not only relieve

the pressure on Englewood and Cedar City to sup-

Ply wood to Fresno, but it would also deprive Veb-

co of their present source of wood and possibly

make it rather difficult for them to continue their

operation.

It would appear that the memoranda are of so little

probative value that the district judge's exclusion was

not an abuse of discretion. However, even assuming

an error was committed, we do not believe it was of

such magnitude as to require reversal. On appeal,

errors during the course of a trial which do not affect

the substantial rights of the parties are to be dis-

regarded. Fed. R.Civ.P. 61: see Connolly v. Farmer,

484 F.2d 456 (5th Cir. 1973); United States v. Heyward-

Robinson Co., 430 F.2d 1077, 1083 (2nd Cir. 1970); Bell v.

Swift & Co., 283 F.2d 407 (Sth Cir. 1960). In the context of

the other evidence submitted in this lengthy and com-

plex trial — and particularly when compared with the

other admitted memoranda — the excluded memoran-

da would have been only a minor piece of evidence.

highly unlikely to have changed the result. Therefore.

any error committed in the exclusion of the memoran-

da was harmless. See United States v. Heyward-

Robinson Co., 430 F.2d 1077, 1083 (2nd Cir. 1970).

26a

The trial judge also exlcuded evidence of the specific

prices charged by AMXCO in about two dozen cities

over a three-year period. At trial. AMXCO stipulated

that its prices in the El] Paso area were different from

those charged elsewhere during the relevant period.

Likewise, both Vebco’s and AMXCO’'s witnesses

repeatedly informed the jury that AMXCO’s prices

were higher outside the El Paso area. Nevertheless.

when the trial judge excluded the exact dollar andcent

figures charged elsewhere, Vebco’s counsel appeared

to argue that the jury simply would not believe AMX-

CO's prices were higher elsewhere unless it saw the

exact figures, and, that Vebco’s Robinson-Patman Act

claim would therefore be jeopardized. Vebco now

assigns the trial court's decision as error, claiming

that it affected both the Robinson-Patman Act and

Sherman Act claims. In essence, Vebco argues that

without the exact numerical data, it was impossible to

show that AMXCO was engaged in predation by

supporting its price cuts in E] Paso with higher prices

elsewhere.

We do not agree. Vebco certainly had the right to es-

tablish price differentials between AMXCO’s prices in

El Paso and those elsewhere, Cornwell Quality

Tools Co. v. C. T. S. Co.. 446 F.2d 825 (9th Cir. 1971), an

opportunity of which it availed itself. But we see no

merit in requiring 4 district court to permit the in-

troduction of exact dollar figures, since aid from other

markets, if present 1n this case, could be established

merely by showing that a higher price was charged

elsewhere. Moreover, aS We have explained, a price

differential alone would not show predation, unless

AMXCO was selling below marginal cost, it would

27a

have no need of aid from other markets and the dollar

figures elsewhere would therefore be irrelevant.

IV.

Vebco also contends that the district court erred in

its instructions to the jury, some of which “effectiveiy

increased the plaintiffs burden of proof.” In

evaluating the adequacy of a charge to the jury, we

consider the charge as a whole, and if the instructions

taken together properly express the law applicable to

the case, ‘there is no just ground of complaint, even

though an isolated and detached clause is in itself in-

accurate, ambiguous, incomplete, or otherwise sub-

ject to criticism.” Delancey v. Motichek Towing Serv-

ice, Inc., 427 F.2d 897, 901 (5th Cir. 1970) quoting Nolan

v. Greene, 383 F.2d 814, 816 (6th Cir. 1967).

Only two of the alleged errors in the jury charge

merit extensive discussion.®’ First, Vebco assigns as

37 In addition to the alleged errors discussed in the text. Vebco

complains of other irregularities in the jury charge. Vebcoclaims

that the trial court should have instructed the jury with respect to

the purpose of the antitrust laws. We believe that the districtcourt

was correct in merely explaining the laws to the jury. since the

charge apprised the jury of the meaning of the laws and fairly

presented the issue to them. Vebco also claims that the district

court erred by instructing the jury as to the meaning of

“monopolize” and “attempt to monopolize.” Since Vebco was su-

ing AMXCO under Section 2 of the Sherman Act. which prohibits

attempts to monopolize. we hardly think it error for the judge to

have defined the relevant terms for the jury's benefit.

Lastly. Vebco argues that the district court erred in failing to in-

struct the jury on the proper consideration of the parties’ stipula-

tion. The court instructed the jury that “[s]tipulations are facts

which are stipulated to and agreed to by counsel, that have been

read to you and will be accepted by you as the evidence, and it is

agreed to as being consi * ~ed as facts by you. Of course, you deter-

mine. again, what weight should be given to it.” We believe. in the

context of the entire charge. that the court did noterr in giving this

instruction. See Worden v. Tri-State Ins. Co., 347 F.2d 336, 343 (10th

Cir. 1965). Moreover. the stipulation as read to the jury said, [t]he

following facts ... are to be taken as true by the Members of the

Jury.”

28a

error the trial judge's instruction that the phrase “may

be substantially to lessen competition” means “a

reasonable probability or possibility, not imaginary

or elusive. of lessening competition must exist in

argues that the definition given requires a higher

standard of proof than the proper definition which in-

cludes only the phrase “reasonable possibility” of

lessening competition.

While the Supreme Court has never specifically for-

bidden the ‘probability ™ construction. it has

employed the “reasonable possibility” language. See

FTC v. Morton Salt Co., 334 U.S. 37,68 S.Ct. 822, 92 L.Ed.

1196 (1948). Since that time, a controversy has raged

over the doctrinal formulation of the requisite in-

imical potential. In 1959 the Second Circuit opted in

favor of “substantially probable, see Standard Motor

Products, Inc. v. FTC, 265 F.2d 674, 676 (2nd Cir. 1959).

cert. denied, 361 U.S. 826, 80 S.Ct. 73. 4 L.Ed.2d 69 (1959).

but the Tenth Circuit has approved the ‘reasonable

possibility” formulation, see Atlas Building Products

Co. v. Diamond Block & Gravel Co.. 269 F.2d 950. 952

(10th Cir. 1959), cert. denied, 363 U.S. 843, 80 S.Ct. 1608.

4 L.Ed.2d 1727 (1960). Indeed, courts have frequently

employed “possibility” and “probability” together as

the district court did here. See, e.g.. Anheuser-Busch.

Inc. v. FTC, 289 F.2d 835, 841 (7th Cir. 1961):

Minneapolis-Honeywell Regulator Co. v. FTC. 191

F.2d 786. 792 (7th Cir. 1951). cert. dismissed, 344 U.S.

206. 73 S.Ct. 245. 97 L.Ed. 245 (1952). The vacillation

between the standards has even prompted one com-

mentator to conclude that the verbal distinction

between the two phrases “has become an empty quib-

ble without operational significance.” See F. Rowe.

supra at 136.

29a

We believe that any difference between the two for-

mulations is trivial. At any rate, the use of the disjunc-

tive by the district court (“reasonable probability or

possibility’) would give the plaintiff the benefit of the

arguably lesser standard.

Finally. Vebco claims the district court incon-

sistently defined the relevant geographic market, thus

materially misleading the jury. Vebco contended that

the relevant market was an issue for the jury, while

AMXCO claimed that the relevant market was only

the E] Paso area. In his charge, the district court first

said that the market was a question of fact to be deter-

mined by the jury and repeatedly referred to the rele-

vant market as the area in which the two parties com-

peted. However, later in the charge when discussing

the Sherman Act count, the court appeared to instruct

the jury that the relevant market was the El Paso area

as a matter of law. While such an apparent incon-

sistency could mislead the jury, we do not believe, un-

der the facts of this case, that any error committed

would “affect the substantial rights of the parties.”

Fed.R.Civ.P. 61. As we have indicated, the judge

properly excluded, for various reasons, virtually all

the evidence presented which dealt with AMXCO's ac-

tions outside the E] Paso area. The only evidence rele-

vant to this point which the judge admitted was the

stipulation and testimony to the effect that AMXCO

charged higher prices in other areas than in E] Paso.

In this context, then, it is difficult to ascertain any

damage to Vebco caused by the charge. If Vebco could

not even prove antitrust violation in the El Paso area

to the satisfaction of the jury. it is highly dubious

whether an allegation of monopolizing a greater area

30a

— in the absence of evidence of actions outside of El

Paso — would have improved its position. We

therefore believe any error committed was harmless.

We have carefully reviewed appellant's other

assignments of error and we find them meritless.

Affirmed.

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

EL PASO DIVISION

INTERNATIONAL AIR INDUSTRIES, INC. and

VEBCO, INC..

Plaintiffs.

versus NO. EP-71-CA-91

AMERICAN EXCELSIOR COMPANY.

Defendant.

JUDGMENT

The above captioned action having been tried before

a jury in this Court, the jury having found for the

Defendant American Excelsior Company by its

general verdict, and the jury having further answered

all special questions propounded to it in favor of the

Defendant as follows:

3la

1. Question: Did Defendant American Excelsior

Company unlawfully discriminate in price in the sale

of evaporative cooler pads and therefore violate the

Robinson Patman Act?

Answer: No.

2. Question: Was Plaintiff Vebco. Inc. damagedasa

proximate cause of such violation, if any?

Answer: No.

3. Question: Did Defendant American Excelsior

Company attempt to monopolize the evaporative

cooler pad market and therefore violate the Sherman

Antitrust Act?

Answer: No.

4. Question: Was Plaintiff Vebco, Inc.damagedasa

proximate cause of such violation, if any?

Answer. No.

IT IS ACCORDINGLY ORDERED, ADJUDGED

AND DECREED that Plaintiffs International Air In-

dustries, Inc. and Vebco, Inc. take nothing, that the ac-

tion by Plaintiffs be dismissed on the merits, and that

Defendant recover of Plaintiffs its costs of action.

SIGNED AND ENTERED this 3 day of July. 1973.

/s/ ERNEST GUINN

United States District Judge

32a

APPENDIX C

§ 13. Discrimination in price, services, or facilities

— Price; selection of customers

(a) 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:

Provided, That nothing herein contained shall prevent

differentials which make only due allowance for

differences in the cost of manufacture, sale, or

delivery resulting from the differing methods or quan-

tities in which such commodities are to such

purchasers sold or delivered: Provided, however, That

the Federal Trade Commission may, after due in-

vestigation and hearing to all interested parties. fix

and establish quantity limits, and revise the same as it

finds necessary, as to particular commodities or

classes of commodities, where it finds that available

purchasers in greater quantities are SO few as to

render differentials on account thereof unjustly dis-

criminatory or promotive of monopoly in any line of

33a

commerce; and the foregoing shall then not be con-

strued to permit differentials based on differences in

quantities greater than those so fixed and established:

And provided further, That nothing herein contained

shall prevent persons engaged in selling goods,

wares, or merchandise in commerce from selecting

their own customers in bona fide transactions and not

in restraint of trade: And provided further, That

nothing herein contained shall prevent price changes

from time to time where in response to changing con-

ditions affecting the market for or the marketability of

the goods concerned, such as but not limited to actual

or imminent deterioration of perishable goods, ob-

solescence of seasonal goods, distress sales under

court process, or sales in good faith in discontinuance

of business in the goods concerned.

Burden of rebutting prima-facie case of

discrimination

(b) Upon proof being made, at any hearing on a

complaint under this section, that there has been dis-

crimination in price or services or facilities fur-

nished, 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 ter-

minating 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 acompetitor,

or the services or facilities furnished by acompetitor.

34a

Payment or acceptance of commission,

brokerage or other compensation

commerce, in the course of such commerce, to pay or

grant, or to receive or accept, anything of value as a

commission, broxerage, or Giner compensation, or

any allcwance or discount in lieu thereof, except for

services rendered in connection with the sale or

purchase of goods, wares, or merchandise, either to

the other party to such transaction or to an agent,

representaive, or other intermediary therein where

such intermediary is acting in fact for or in behalf, or

is subject to the direct or indirect control, of any party

to such transaction other than the person by whom

such compensation is so granted or paid.

Payment for services or facilities for

processing or sale

(d) It shall be unlawful for any person engaged in

commerce to pay or contract for the payment of

anything of value to or for the benefit of a customer of

such person in the course of such commerce as com-

pensation or in consideration for any services or

facilities furnished by or through such customer in

connection with the processing, handling, sale, or

offering for sale of any products or commodities

manufactured, sold, or offered for sale by such person,

unless such payment or consideration is available on

proportionally equal terms to all other customers

competing in the distribution of such products or com-

modities.

35a

Furnishing services or facilities for

processing, handling, etc.

(e) It shall be unlawful for any person to dis-

criminate in favor of one purchaser against another

purchaser or purchasers of a commodity bought for

resale, with or without processing, by contracting to

furnish or furnishing, or by contributing to the fur-

nishing of, any services or facilities, connected with

the processing, handling, sale, or offering for sale of

such commodity so purchased upon terms not ac-

corded to all purchasers on proportionally equal

terms.

Knowingly inducing or receiving

discriminatory price

(f) ‘t shall be unlawful for any person, engaged in

commerce, in the course of such commerce, knowing-

ly to induce or receive a discrimination in price which

is prohibited by this section.

§ 15. Suits by Persons injured; amount of recovery

Any person who shall be injured in his business or

property by reason of anything forbidden in the an-

titrust laws may sue therefor in any district court of

the United States in the district in which the defendant

resides or is found or has an agert, without respect to

the amount in controversy, and shall recover threefold

the damages by him sustained, and the cost of suit, in-

cluding a reasonable attorney's fee.

CARS 2 gO DEER ertnmeget

36a

§ 2. Monopolizing trade a misdemeanor; penalty

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other

person or persons, to monopolize any part of the trade

or commerce among the several States, or with

foreign nations, shall be deemed guilty of a mis-

demeanor, and, on conviction thereof, shall be punish-

ed by fine not exceeding fifty thousand dollars, or by

imprisonment not exceeding one year, or by both said

punishments, in the discretion of the court.

§ 26. Injunctive relief for private parties; exception

Any person, firm, corporation, or association shall

be entitled to sue for and have injunctive relief, in any

court of the United States having jurisdiction over the

parties, against threatened loss or damage by a viola-

tion of the antitrust laws, including sections 13, 14, 18,

and 19 of this title, when and under the same con-

ditions and principles as injunctive relief against

threatened conduct that will cause loss or damage is

granted by courts of equity, under the rules govern-

ing such proceedings, and upon the execution of

proper bond against damages for an injunction im-

providently granted and a showing that the danger of

irreparable loss or damage is immediate, a

preliminary injunction may issue: Provided, That

nothing herein contained shall be construed to entitle

any person, firm, corporation, or association, except

the United States, to bring suit in equity for injunctive

relief against any common carrier subject to the

37a

provisions of the Act to regulate commerce, approved

February fourth, eighteen hundred and eighty-seven.

in respect of any matter subject to the regulation.

supervision, or other jurisdiction of the Interstate

Commerce Commission.

AMENDMENT VII — CIVIL TRIALS

In Suits at common law, where the value in con-

troversy shall exceed twenty dollars, the right of trial

by jury shall be preserved, and no fact tried by a jury.

shall be otherwise reexamined in any Court of the

United States, than according to the rules of the com-

mon law.

RL EO ES TE (AT I Te a tanh orn pers 8 ORT he ce RB DO Tame

POOR COPY

EP I. Cer per

St OE OIE pa

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