Appendix — Federal Trade Commission v. Borden Co.

Supreme Court brief1966

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Text

Ne ee oe ee ee ere

Order Providing for the Filing of Objections to

Proposed Order and Reply .....................

Findings as to the Facts, Conclusions and Proposed

ee ce ne Pancha cei ae acess eaten a Sco a

Opinion of the Commission ..........................

Sed Sih Gy Sea ee ne Beis SIERO oor

Witnesses:

Andrew J. Berry, Jr.

Epipect Tmemmiatiom 2... .. 2.66 ee meee eee:

George B. Page

Direct Examination ...............0ccceees-

I Dn. os ces wees sen eees

Redirect Examination ......................

Jack D. Anderson

Direct Examination ........................

W. L. Johnston

Direct Bamination ...................-..:-

Paul W. Gehl

Direct Examination ........................

Crome Micommimetion”..............-.-..ven.-

John E. DeMaster

Direct Examination ........................

Cross Examination ........................

SALI “ > “ BURY a BO gfe POSTE NEY “OZ NORA CARA mee mana a + .

= : ; D SERRE WD ae

INDEX (Continued )

Page

William Diehl

lee Het... wk cece nes 193

ee I ccc seu enerts 199

Redirect Examination ...................... 200

Wilbur Hartley

ee 202

ee 209

Redirect Examination ...................... 217

Recross Examination ............. Pease + oo

Charles D. Blackman

I od cece eee vee weceess 220

eR 226

Woodrow W. Power

Bee OE, «ww ke ieee eceee 233

Crome Boeeiatiom .. wee eee 243

Redirect Examination ...................... 247

Daniel Shumpert

pe IS. wc ee ce cc ee ee eees 248

I ccc ce ececucweeres 257

Hampton Sox Caughman

ee ee 262

ee hie ho Wages #el 274

Neal P. Ponder

Direct Examination ........................ 277

RP I gg ie cece uveeeunswe's 285

Redirect Examination ...................... 289

Recross Examination ...................... 291

INDEX _ (Continued)

Herbert Byrne Drake, Jr.

Direct Examination ........................

Cross Examination ........................

Clyde A. Wrenn

Direct Maemnimetion ......... .- cece ccccees

Crome Mimpmpimetion ......... ccc vccusedeeess

Harold A. McFeely

Divert Meseeiation ..... we ccc ccesene

Cee Se. Sa se a els ewes

Redirect Examination ......................

John C. Cromer

Pees MO. .... . 5 oe cece ee uciuess

ee Do it pear veaeaebebure as

Redirect Examination ......................

Recross Examination ......................

A. T. Charles

ee yates ebdu eee n ss

Henry Grady Coleman

Direct Examination ........................

CE Se es Oe a wcbobscele

Clyde E. Todd

Direct Bwemination ..........ccccccccccvcs:

Robert Hillery Petrie

Direct Examination ...................s---.

Andrew J. Berry, Jr.

Direct Examination .......................

Ditistcnasia tecnica wom kaecattewiatendon:

ale

INDEX (Continued)

Page

Melbourne C. Steele

Cross Examination ........................ 408

Thomas Howard Timberlake

Direct Examination ........................ 423

Cross Examination ........................ 439

Redirect Examination ...................... 468

Recross Examination ...................... 473

James Ralph Blackwell

Direct Examination ........................ 476

Cross Examination ........................ 483

Andrew J. Berry, Jr. (Recalled)

Direct Mremmimetion .......... cc cecceeee™s 487

Cross Examination ........................ 551

Redirect Examination ...................... 569

Edward M. Darcey

Direct Examination ....................... 569

Oliver Doyle Hall

Direct Examination ........................ 573

oo . 585

Redirect Examination Borecne ge yan ar oa 589

George G. Leary

Direct Examination ........................ 591

Cross Examination ........................ 593

Redirect Examination ...................... 595

William Talmadge Crowe

Direct Examination ........................ 596

Cross Examination ................... uct 600

INDEX (Continued )

Edward M. Darcey

Direct Examination (Continued)

oO ae

Redirect Examination. .....................

Recross Examination ......................

Herbert F. Taggart

Direct Examination .......................-

Edward M. Darcey

Direct Examination .......................

Raymond Powers

Direct Examination ........................

Melbourne C. Steele

Direct Examination (Resumed)

Crogs Examination ........................

Redirect Examination ......................

Recross Examination ......................

Further Redirect Examination ..............

Edward M. Darcey

Direct Examination ........................

Herbert F. Taggart

Direct Examination ........................

Cross Examination ........................

Commission’s Exhibit No. 30-A ....................

Commission’s Exhibit No. 30-B ....................

Commission’s Exhibit No. 1085 ....................

Commission’s Exhibit No. 1247 ...................

Commission’s Exhibit No. 1443 ....................,

gin Bieu eta IS Re EE RRS NR AAS BR SER

INDEX

Commission’s Exhibit No.

Commission’s Exhibit No,

Commission’s Exhibit No.

Ccmmission’s Exhibit No.

Commission’s Exhibit No.

(Continued)

Page

ND a Ae oe etel Reha ae 748

ERS ER as eee Ripa! 749

SS re en es Sa 750

es eae Re ree 751

ee Ree ere ape 752

I 9755 ih wed aco phen eG 753

RRR ren eee, Ai 754

| RR Ere eae 755

Bs mere pare ba 756

RS El i Sar etd ee 757

MONE e uss rasishoesiese: 758

| Sele ie Uo ey 759

Dak aa ees oon 760

MSs ties ele enes 761

ME) ie aot. attire wap ere 762

ces ee eee 763

DG Pace fanaa ie vets 764

aR se Var ai amen ted 765

ee RRR i CIN on Ne Ne gee 766

eae aire are qr pre 767

a ed ea 768

Et ea spend a ee 769

INDEX

Commission’s Exhibit No.

Coinmission’s Exhibit No.

VII

(Continued )

Page

Ses Stackaten owes tas 770

sh ee ty cues 771

RR reer eae 772

DE rd os ae ke 773

Er Peer ree 774

EY a Cath ae week aies 775

RE oils we Pants ti eke tee 776

SR ea) Sealand ta taus 777

EE <P Wa wa Nos Wes 778

Mae ein ee cr a awe eave 779

BE srcs kawcas inna vans 780

ESS Ve acn ont cee 782

EES a Rein edpee Rey 784

I a os aes Snes aD 786

Rs cee oc eee 787

|: RE RA AS Oy: 788

MTN sans deus eras 789

BE ooo sate a 790

gala AAA aie spear e ee? 791

apelin ie aeeeoy Semana neal 9s 792

SR NSD eee 793

RE tis eK care 794

Nase ali whch

: pabaRsacceess Wanioacauamrisliete

eaters eet hh eS

INDEX

Commission’s Exhibit No.

VIII

(Continued)

Page

Et ve bares 795

DEE 53% 0 Lv Se Cowal had 796

SR err yy rare 797

Pc tceredaveroueeerel 798

SRE a ene ey (or ae ante 799

ES 55 5's'a ose sees cena 800

RAPER oA soos ser 801

ED asap biota ores edie ea 802

ME Shu can cerereeuanee 803

BE iad hea oe aen se enes 804

NR cc cx cto vances cneuns 805

ous ack tinned 806

aR ee eer nee 807

BE Cea sh yan ecaewaoRens 809

RENEE smarmaras ear Wee 823

EE sacle cickeh Gemeee 825

DE Abs chi her kks cages 826

RR: SEP re er ey et 828

erry eee 829

RE gg ck tins 5 03 Cin bb es 830

REC Peer yay iat © 831

ne Rarer err © 833

INDEX

Commission’s Exhibit No.

(Continued)

Page

SN es Dada tices vies 834

EE ee ope 835

RE ens Sonat «eke he ce 837

SS Ee ree 838

EE ec inayat enen 840

ENS has sign awn 843

rec 845

NE ar Ae un ie wah ip 846

st Us Gohan Snorer 848

Perr ree err 850

rere 852

ee eer 852

NE eek is wee ncay Hoe 854

en ee 857

le hig wy EG ae's 858

or 859

NI os edit hie eee ns 860

I es FEMS eR wee 861

eee 862

es ee eee 863

FEE beeen 864

Se ee eres 865

INDEX

Commission’s Exhibit No.

Respondent’s Exhibit No.

Respondents Exhibit No.

Respondent’s Exhibit No.

(Continued)

Page

SN a cae eres oa ys yas 866

DE Seb as aed ab deeds es 867

EE a ei eA aeeaes 868

SE gin ke P< hae ews eo 869

I ei hs ek is eee les 870

SR Ear ore ares 871

_ EL EEP EE ERO AN EEE EEE Ee 872

et er My Peer ere tie Cues 873

Pe aa cre oe ees 874

ER NS ere 875

Bara We dS wie oe 8 eR 876

hase oass ter cs 877

Eee cue oy os ae oes ae 878

age Ee cnet een ae eg 879

NS Se ie OES os ks es 880

eatin ws tek kes 3 oes 881

De Cee es heh a 882

Deis ir wecan eee ees 883

RES ne eee 884

RT i BR eA ee tole 885

BE ry perch Sete esse 886

I el ey caso oe 887

INDEX adits

Page

Respondent’s Exhibit No. 76-1 ..................05- 888

Respondent’s Exhibit No. 76-2 ..................405. 889

Respondent’s Exhibit No. 76-3 .................---. 890

Respondent’s Exhibit No. 76-4 ..................... 891

Respondent’s Exhibit No. 76-5 ..................... 892

Respondent’s Exhibit No. 76-6 ..................... 893

Respondent’s Exhibit No. 76-7 ..................... 894

Respondent’s Exhibit No. 76-8 .................-... 895

Respondent’s Exhibit No. 76-9 ..................... 896

Respondent’s Exhibit No. 76-10 .................... 897

Respondent’s Exhibit No. 76-11 ........ ........... 898

Respondent’s Exhibit No. 76-12 .................... 899

Respondent’s Exhibit No. 76-13 .................... 900

Respondent’s Exhibit No. 76-14 .................... 901

Respondent’s Exhibit No. 76-15 .................... 902

Respondent’s Exhibit No. 76-16 .................... 903

Respondent’s Exhibit No. 76-17 .................... 905

Respondent’s Exhibit No. 76-18 .................... 905

Respondent’s Exhibit No. 76-19 .................... 906

Respondent’s Exhibit No. 76-20 .................... 907

Respondent’s Exhibit No. 76-21 .................... 908

Respondent’s Exhibit No. 76-22 .................... 909

INDEX

Respondent’s Exhibit No.

Respondent’s Exhibit No. 7

XII

(Continued )

Page

RR AER pee ea 910

a RAR PE em? 911

RS ith atl aN ea ene 912

NOS clus y hes Deets eke 913

Ah dati 6 voa 914

S80 oe eet heii ee 915

| ERE Some e Ar hoy 916

Werte cies aae 917

SE koe ciate wma: 918

BD. oo Fae ta oy wake ona 919

MN oe 5a eaten 920

ME 5392605 ck rks ee 921

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DERG sievd dat tele etna 924

DE i chice oki g se gnsetate acne eat at 925

ME inc rsaeco aoe 926

BE: sek Skee eran ewes 927

ME sty eae a heehee 928

ME tae ke nek eaemeaies 929

Senna an peenetnenir A reeare ss 930

SU sss Sa eee aan 931

XIII

INDEX _— (Continued)

Respondent’s Exhibit No. 79-A ................5.-.

Respondent’s Exhibit No. 79-B ................555.

Respondent’s Exhibit No. 79-C ...........-..-..5:.

Respondent’s Exhibit No. 79-D ................-5-:

Respondent’s Exhibit No, 79-E ...............--+:-

Respondent’s Exhibit No. 79-F ................-45:

Respondent’s Exhibit No. 79-G ...............+----

Respondent’s Exhibit No. 79-H ....................

Respondent’s Exhibit No. 79-I ...............-.44.

Respondent’s Exhibit No. 80 ..................-....

Respondent’s Exhibit No. 81 ......................

Respondent’s Exhibit No. 87 ......................

Respondent’s Exhibit No. 88 ......................

Respondent’s Exhibit No. 89 ......................

Respondent’s Exhibit No. 102-A ...................

Respondent’s Exhibit No. 105-A ...................

Respondent’s Exhibit No. 106-A ...................

Respondent’s Exhibit No. 107-A ...................

Respondent’s Exhibit No. 114 ......................

Respondent’s Exhibit No. 115 ......................

EL ES EOE ARIE NE

XIV

INDEX (Continued)

Page

Proceedings in the United States Court of Appeals for

Se EE 3 Le Pie ee elie i ek ea 975

Minute entry of argument and submission (omitted in °

I oon ee hey ei cane <4 s 4k RRTE eae 975

a ee er re rar 975

Ss a aise Denials a oleh aan aaa eed 986

Clerk’s certificate (omitted in printing).............. 986

Order extending time to file petition for writ of certio-

WE SSN i ie ERE EKO fe OR Oe Se WeLed bpd wakes

: 4 {SSAA 2 oe HS aeRO

COMPLAINT

UNITED STATES OF AMERICA

BEFORE

FEDERAL TRADE COMMISSION

DOCKET NO. 7129

IN THE MATTER OF:

BORDEN COMPANY, A Corporation.

The Federal Trade Commission, having reason to

believe that the party respondent named in the cap-

tion hereof, and hereinafter more particularly desig-

nated and described, has violated the provisions of

subsection (a) of Section 2 of the Clayton Act (U.S.C.A.,

Title 15, Section 13) as amended by the Robinson-Patman

Act, approved June 19, 1936, hereby issues its complaint

stating its charges with respect thereto as follows:

PARAGRAPH ONE: Respondent, The Borden Com-

pany, is a corporation organized, existing and doing

business under and by virtue of the laws of the State

of New Jersey with its offices and principal place of

business located at 350 Madison Avenue, New York 17,

New York.

PARAGRAPH TWO: The Borden Company is pri-

marily an operating company engaged in a variety

of enterprises. These enterprises include extensive

manufacture, processing, distribution and sale of

dairy products throughout the United States. The Bor-

den Company is and has been, at all times referred to

herein, one of the largest concerns in the dairy prod-

ucts industry.

Included among the aforesaid operations of The Bor-

den Company is the manufacture, distribution and sale

of evaporated milk. At all times referred to herein

The Borden Company sold substantial quantities of

evaporated milk to concerns engaged in the purchas-

ing, distributing, wholesaling or retailing of food prod-

ucts. In 1956 its sales of evaporated milk were in ex-

cess of $30,000,000.

PARAGRAPH THREE: In the course and conduct

of its said business, The Borden Company has sold

and distributed its evaporated milk to purchasers

thereof located in states other than the state of origin

of said product, and has caused such product, when

sold, to be shipped and transported from its place of

business in the state of origin to purchasers located in

other states. There is now, and has been, a constant

current of trade in commerce, as ‘‘commerce’’ is de-

fined in the Clayton Act, in said product by respondent

between and among the various States of the United

States and the District of Columbia.

Said product is, and has been, sold and distributed

for use, consumption and resale in the various States

of the United States and the District of Columbia.

PARAGRAPH FOUR: The Borden Company, in the

course and conduct of its said business is now, and at

all times referred to herein has been, in substantial

competition with others engaged in the manufacture,

distribution and sale of evaporated milk in commerce

between and among the various States of the United

States and the District of Columbia. oa

Each and every one of The Borden Company’s pur-

chasers of evaporated milk are, and have been, in sub-

stantial competition with other of its purchasers of

evaporated milk.

PARAGRAPH FIVE: During the period from Jan-

uary 1, 1956, to the present, The Borden Company, in

the course and conduct of its business, has discrimi-

nated in price between different purchasers of its

evaporated milk of like grade and quality by selling it

to some of its purchasers at substantially lower prices

than to other of its purchasers. An example of such

discriminations in price is set out as follows:

Plants of The Borden Company engaged in the man-

ufacture of canned evaporated milk are located at Al-

bany, Oregon; Modesto, California; Ft. Scott, Kan-

sas; Dixon, Illinois; New London, Wisconsin; Per-

rington, Michigan; Wellsboro, Pennsylvania; Lewis-

burg, Tennessee; and Chester, South Carolina. Each

of the aforesaid plants manufactured and canned evapo-

rated milk, some of which was offered and sold generally

as a “Borden”-labeled product to purchasers engaged in

the purchasing, distributing, wholesaling or retailing of

food products, and some of which was offered and sold

as a buyer-labeled product to selected purchasers engaged

in the purchasing, distributing, wholesaling or retailing of

food products.

MEET LIL RAED ROI TT LOT RL OA

The Borden Company’s pricing system for evapor-

ated milk includes two pricing methods. ‘‘Borden’’-

label evaporated milk is priced on a uniform, deliv-

ered, one price basis, which includes the cost of de-

livery from the plant of manufacture to the purchaser.

Buyer-label evaporated milk is priced on an f.o.b.

plant basis. From January 1, 1956, to the present, the

prices of both ‘‘Borden’’-label and buyer-label evap-

crated milk have varied from time to time. Through-

out the aforesaid period, however, buyer-label prices

have been consistently and substantially lower than

‘‘Borden’’-label prices. The aforesaid price differen-

tial is illustrated by prices in effect in July 1957, which

were as follows:

Plant Bordon label Bordon label Price

(per case, (per case, Differ-

tall 48’s) tall 48’s) ential

Albany, Oregon $6.45 $5.59 $ .86

Modesto, California 6.45 5.12 1.33

Ft. Scott, Kansas 6.45 6.45 1.19

Dixon, Illinois 6.45 5.25 1.20

New London, Wisconsin 6.45 5.32 1.13

Perrington, Michigan 6.45 5.42 1.03

Willsboro, Pennsylvania 6.45 5.37 1.08

Lewisburg, Tennessee 6.45 5.01 1.44

Chester, South Carolina 6.45 5.01 1.44

Only a small portion of the price differential herein-

before referred to was attributable to cost of delivery

of ‘“‘Borden’’-label evaporated milk from the plant of

manufacture to the purchaser. From January 1,

1956, to the present, through the use of the sales meth-

od and pricing system hereinbefore described, The

Borden Company made sales of buyer-label evapor-

ated milk to selected customers at prices substantial-

ly less than the prices to other customers of “Borden”-

label evaporated milk.

PARAGRAPH SIX: The effect of respondent’s

aforesaid discriminations in price between different

purchasers of such products sold and purchased in

the manner and method as above described may be

substantially to lessen competition or tend to create

a monopoly in the lines of commerce in which the re-

spondent and the aforesaid favored purchasers are

engaged or to injure, destroy or prevent competit'on

with said respondent, said favored purchasers or with

customers of either of them.

PARAGRAPH SEVEN: The foregoing alleged dis-

criminations in price made by respondent The Bor-

den Company are in violation of subsection (a) of Sec-

tion 2 of the Clayton Act, as amended.

WHEREFORE, THE PREMISES CONSIDERED,

the Federal Trade Commission, on this 22nd day of

April, 1958, issues its complaint against said respond-

ent.

NOTICE

Notice is hereby given to the respondent hereinbe-

fore named that the 7th day of July, A.D., 1958, at 10

o’clock is hereby fixed as the time and Amboy, IIli-

nois as the place when and where a hearing will he

had before a hearing examiner of the Federal Trade

De tas st

Pticitsercsrcetr sac. co RRR RRO

Commission, on the charges set forth in this com-

plaint, at which time and place you will have the

right under said Act to appear and show cause why

an order should not be entered requiring you to cease

and desist from the violations of law charged in this

complaint.

You are notified that .he opportunity is afforded you

to file with the Commission an answer to this com-

plaint on or before the thirtieth (30th) day after serv-

ice of it upon you. Such answer shall contain a con-

cise statement of the facts constituting the ground of

defense and a specific admission, denial or explana-

tion of each fact alleged in the complaint or, if re-

spondent is without knowledge thereof, a statement

to that effect.

If respondent elects not to contest the allegations

of fact set forth in the complaint, the answer shall con-

sist of a statement that respondent admits all mater-

ial allegations to be true. Such an answer shall con-

stitute a waiver of hearing as to facts so alleged, and

an initial decision containing appropriate findirgs

and conclusions and an appropriate order disposing

of the proceeding shall be issued by the hearing ex-

aminer. In such answer respondent may, however,

reserve the right to submit proposed findings and con-

clusions and the right to appeal under Section 3.22

of the Commission’s Rules of Practice for Adjudica-

tive Proceedings.

If any respondent elects to negotiate a consent or-

der, it shall be done in accordance with Section 3.25 of

the Commission’s Rules of Practice.

Failure to file answer within the time above provid-

ed and failure to appear at the time and place fixed

for hearing shall be deemed to authorize a hearing

examiner without further notice to respondent, to find

the facts to be as alleged in the complaint, to conduct

a hearing to determine the form of order, and there-

after, to enter an initial decision containing such

findings and order.

IN WITNESS WHEREOF, the Federal Trade Com-

mission has caused this, its complaint, to be signed

by its Secretary, and its official seal to be hereto af-

fixed, at Washington, D. C., this 22nd day of April,

1958.

By the Commission.

(Signed) ROBERT M. PARRISH

Robert M. Parrish,

Secretary.

EMOTE DSIRE RENT RE PSE Oo I

ie NAN a Ria aR eB a St

2 eae

titi ees, nh

ANSWER

(Number and Title Omitted)

Received: June 23, 1958

Dated June 20, 1957.

CECIL I. CROUSE,

350 Madison Avenue,

New York 17, N. Y.

DEWEY, BALLANTINE,

BUSHBY, PALMER &

WOOD,

40 Wall Street,

New York 5, N. Y.

Attorneys for The Borden

Company

The Borden Company (herein called Borden), for its

Answer to the Complaint herein, respectfully says that:

1. Borden admits the allegations set forth in PARA-

GRAPH ONE of the Complaint.

2. Borden denies the allegations set forth in the first

subparagraph of PARAGRAPH TWO of the Com-

plaint, except that it admits that it is primarily an

operating company engaged in a variety of enter-

prises; that it manufactures, processes, distributes

and sells dairy products in various parts of the United

States; and that it is and has been one of the larger

concerns in the dairy products industry.

Borden admits, as modified by the foregoing sub-

paragraph of this PARAGRAPH TWO, the allegations

set forth in the second subparagraph of PARAGRAPH

TWO of the Complaint.

3. Borden admits the allegations set forth in PARA-

GRAPH THREE of the Complaint, except that

(a) it denies that there is now or has been

a constant current of trade in commerce, as

“‘commerce’”’ is defined in the Clayton Act, in

evaporated milk by it between and among all

the various states of the United States and the

District of Columbia;

(b) it denies that its evaporated milk is or

has been sold by it for use, consumption or

resale in all the various states of the United

States;

a belief as to whether its evaporated milk is

now or has been sold by others for use, con-

sumption, or resale in all the various states of the

United States.

4. Borden denies knowledge or information suffi-

cient to form a belief as to the truth of the allegations

set forth in PARAGRAPH FOUR of the Complaint,

except that it admits that it is now and has been in

competition with others engaged in the manufacture,

distribution and sale of evaporated milk in commerce

between and among various states of the United

States and the District of Columbia.

5. Borden denies the allegations set forth in PARA-

GRAPH FIVE of the Complaint, except that it admits

that

(a) at the locations named in PARAGRAPH

FIVE of the Complaint (other than Perrin-

ton, Michigan, which has been closed), Bor-

den has plants engaged in the production of

(i) Borden’s own advertised brand of canned

evaporated milk (herein called Borden brand

evaporated milk), and (ii) other canned evap-

orated milk, bearing a variety of names, la- ~

bels and other identifications as designated by

tats

Sela EE aa as

intent

H purchasers thereof from time to time (and

4 herein called buyer-labeled evaporated

‘ milk);

(b) the Borden brand evaporated milk and

the buyer-labeled evaporated milk have been

and are offered and sold to purchasers engaged in

the purchasing, distributing, wholesaling and re-

tailing of food products;

Sage eng

Bee Soe ee

a delivered price and the buyer-labeled evaporated

milk is sold at an f.o.b. plant price;

(d) the delivered prices received by Borden for

Borden brand evaporated milk and the f.o.b. plant

prices received by Borden for buyer-labeled evap-

orated milk have varied from time to time since

January 1, 1956, and as compared with the said

prices for Borden brand evaporated milk, the

said prices for buyer-labeled evaporated milk have

during said period been consistently lower (i)

in order in good faith to meet the equally low

prices of competitors, and (ii) by amounts which

did not exceed differences in Borden’s costs;

(e) the delivered list prices for Borden brand

evaporated milk, in effect in July 1957 (which

prices were subject to a discount of 2% for pay-

ment of cash within ten days), were as set forth

in the table in PARAGRAPH FIVE of the Com-

plaint;

(f) the f.o.b. plant prices for buyer-labeled evap-

orated milk, received by Borden in respect of

sales in July 1957, were as set forth in the table

in PARAGRAPH FIVE of the Complaint, at Al-

bany, Oregon; Modesto, California; Fort Scott,

Kansas; New London, Wisconsin; Wellsboro, Penn-

sylvania; Lewisburg, Tennessee and Chester,

South Carolina (which prices included the cost of

labels at all of the locations just named, except

Chester, South Carolina, where the labels were

furnished by the purchaser); and the differences

between Borden’s delivered list prices for Bor-

den brand evaporated milk and Borden’s f.o.b.

plant prices for buyer-labeled evaporated milk, at

the locations just named, in July 1957, were as

set forth in the right-hand column of the table in

PARAGRAPH FIVE of the Complaint.

a ot a a a Ea MAN lai OS 2

—. ts

sata kA gaa apices

Re pe a saa Wise Poe

ities: tire sic: as

6. Borden denies the allegations set forth in PARA-

GRAPH SIX of the Complaint.

7. Borden denies the allegations set forth in PARA-

GRAPH SEVEN of the Complaint.

WHEREFORE, Borden respectfully prays that the

Complaint against it be dismissed.

Dated June 20, 1958.

CECIL I. CROUSE,

350 Madison Avenue,

New York 17, New York.

DEWEY, BALLANTINE,

BUSHBY, PALMER &

WOOD

(Signed) JOHN E. F. WOOD

A Member of the Firm,

40 Wall Street,

New York 5, New York.

Attorneys for The Borden

Company

INITIAL DECISION

(Number and Title Omitted)

Received: Dec. 15, 1961

By Abner E. Lipscomb, Hearing Examiner.

Raymond L. Hays, Theodor P. von Brand, and Rich-

ard B. Smith, for the Commission;

Dewey, Ballantine, Bushby, Palmer & Wood, by Kent

V. Lukingbeal and John E. F. Wood, New York,

N. Y., and Cecil I. Crouse, New York, N. Y., for

the Respondent.

I. The Complaint

1. The complaint herein was issued on April 22,

1958, charging the Respondent with discrimination

in price between different purchasers of its evaporat-

ed milk of like grade and quality during the period

from January 1, 1956, to the date of the complaint, by

selling such milk to some of its purchasers at substan-

tially lower prices than to others of its purchasers,

in violation of § 2(a) of the Clayton Act as amended by

the Robinson-Patman Act. The portions of the Clayton

Act upon which the complaint is based provide as follows:

“Sec. 2(a) That it shall be unlawful for any

person engaged in commerce, in the course

of such commerce, either directly or indirect-

ly, to discriminate in price between different

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purchasers of commodities of like grade and

quality, where either or any of the purchases

involved in such discrimination are in com-

merce, 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 discrimi-

nation may be substantially to lessen compe-

tition or tend to create a monopoly in any

line of commerce, or to injure, destroy, or

prevent competition with any person whe

either grants or knowingly receives the bene-

fit of such discrimination, or with customers

or either of them; Provided, that nothing

herein contained shall prevent differentials

which make only due allowance for differ-

ences in the cost of manufacture, sale, or de-

livery resulting from the differing methods or

quantities in which such commodities are to

such purchasers sold or delivered;

* * *

“(b) Upon proof being made, at any hear-

ing on a complaint under this section, that

there has been discrimination in price or

services or facilities furnished, the burden of

rebutting the prima facie case thus made by

showing justification shall be upon the person

charged with a violation of this section,

* * * ”

2. The complaint alleges that certain of Respond-

ent’s plants manufactured and canned evaporated

milk, some of which was sold as a ‘‘Borden-labeled’’

product to purchasers engaged in the wholesaling or

retailing of food products, and some of which was sold

under the purchaser’s label as a ‘‘buyer-labeled’’

product to certain other ‘‘selected’’ purchasers who

were also engaged in the wholesale or retail distribu-

tion of food products. The amount of such sales in

1956 is alleged to exceed $30,000,000.

3. The complaint alleges further that two different

pricing systerns were employed by the Respondent in

the sale of such evaporated milk. On one hand, the

Borden-labeled evaporated milk was sold throughout

the United States at a uniform delivered price, which

included the cost of the milk and the cost of transpor-

tation thereof from Respondent’s plant to the pur-

chaser. On the other hand, the buyer-labeled evapo-

rated milk was sold on an f.0.b.-plant basis, which did

not include the cost of transportation from the Re-

spondent’s plant to the purchaser. The complairt

further alleges that from January 1, 1956, to April 22,

1958, the date of the complaint, the price of the buyer-

labeled evaporated milk has been consistently anda

substantially lower than the price of the Borden-

labeled evaporated milk, a difference varying during

July, 1957, from 86c to $1.44 per case. The complaint

avers further that only a small portion of such price

differential was attributable to the cost of delivering

the Borden-labeled evaporated milk. The complaint

concludes that the effect of such discrimination in

price may be substantially to lessen competition cr

tend to create a monopoly in the lines of commerce

in which the Respondent and its purchasers are en-

gaged, or to injure, destroy or prevent competition with

Respondent, with Respondent’s favored purchasers, or

with customers of either of them.

II. The Answer

4. The Respondent, although denying in its answer

various particular allegations of the complaint, ad-

mits that it is one of the larger corporations in the

United States engaged in the dairy industry; that it

sells and distributes its products in interstate com-

merce; and that it maintains a different pricing sys-

tem for its Borden Brand Milk, as distinguished from

its buyer-labeled evaporated milk.

5. Respondent particularly declares that its prices

have been consistently low to meet equally low

prices of competitors, and that the prices of its two

lines of evaporated milk did not differ more than the

difference in cost thereof. In conclusion, Respond-

ent denies that its pricing practices in the sale of

evaporated milk have resulted in any injury to com-

petition, or that such practices are in violation of the

provisions of §2(a) of the Clayton Act, as amended.

III. Hearings and Proposed Findings

6. Hearings for the reception of evidence in sup-

port of the case-in-chief, in defense, in rebuttal, and in

surrebuttal were held intermittently from September

22, 1958, to and including July 11, 1961. Consideration

has been given to the entire record herein, including

proposed findings as to the facts, proposed con-

clusions, and written arguments in support thereof.

Each of those proposals which has been accepted has

been, in substance, incorporated into this initial deci-

sion. All proposals not so incorporated are hereby re-

jected.

IV. The Issues

7. The controlling issues herein, arising from the

pleadings, the evidence and the relevant provisions of

the Clayton Act, are as follows:

a. During the period of time contemplated

in the complaint, was the evaporated milk sold

by Respondent under its own label, and that

sold by it under the labels of purchasers, of

“like grade and quality’’?

b. If Respondent did in fact sell evaporated

milk of “like grade and quality” under both its

own label and the labels of its purchasers, did

Respondent discriminate in price between the

purchasers of Borden-labeled milk and pur-

chasers of private-labeled milk?

c. If Respondent did so discriminate in

price between purchasers of its evaporated

milk “of like grade and quality”, is there a reason-

able probability that the result of “ * * * such dis-

crimination may be substantially to lessen competi-

tion, or tend to create a monopoly in any line of

commerce”’?

d. If the record shows, prima facie, that

the Respondent has discriminated in price in

its sales of evaporated milk of like grade and

quality, and by such discrimination has tend-

ed to injure competition or create a monopoly,

has Respondent successfully sustained its

“ * * burden of rebutting the prima facie case

thus made” by justifying its price discrimination

by proving that such difference in price was con-

sequent to “only due allowance for differences

in the cost of manufacture, sale or delivery result-

ing from the differing methods or quantities in

which such [evaporated milk] was to such pur-

chasers sold or delivered”?

V. Identity of the Respondent

8. The Respondent, The Borden Company, is a

corporation organized, existing and doing business un-

der the jaws of the State of New Jersey, with its princi-

pal office and place of busiiess located at 350 Madi-

son Avenue, New York 17, N. Y.

VI. Respondent’s Business in General, And Its

Evaporated Miik Business in Particular

9. The Respondent is engaged in the manufacture,

processing, distribution and sale of an extensive va-

riety of food, dairy and chemical products in the Unit-

ed States and abroad. Its total sales in 1957 amounted

to $931,220,662.00. The only product with which we are

here concerned is evaporated milk. Substantial quan-

tities of this product have been shipped from Respond-

ent’s various plants to purchasers thereof located in states

other than the states of manufacture. In 1956 Respondent’s

sales of evaporated milk exceeded $30,000,000.00.

10. Evaporated milk has been produced by the Re-

spondent by evaporating whole milk to approximate-

ly one-half its original volume; adding Vitamin D and

certain minerals as a stabilizing agent to prevent

curdling; putting such mixture in cans, and sterilizing

it. This product has most frequently been packed by the

Respondent in 14-1/2 ounce cans, 48 cans to a case. These

cases are Called “tall 48s”. Respondent also packs evap-

orated milk in 6-ounce cans, 96 cans to the case, re-

ferred to as “small 96s”. When these 6-ounce cans are

packed 48 to a case, it is referred to as “small 48s”. Other

sizes of canned evaporated milk are also produced for

the confectionery industry.

VII. Respondent’s “Borden Brand” Prices and Sales

11. Respondent has been producing Borden Brand

evaporated milk since 1892, and selling it, in competi-

tion with Pet and Carnation, the other two large pro-

ducers of evaporated milk in this country, on a deliv-

ered-price basis, with the same prices prevailing

throughout the United States. The Respondent, like its

two chief competitors, has continued selling its Bor-

den Brand evapd@gted milk in the same manner, with-

out change, rn, eth the period of time included in

the complaint. The Respondent’s carload and pool-car

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delivered prices for Borden Brand evaporated milk during

this time were as follows:

January 1, 1956, to May 14, 1956 ........ $6.05 per case,

tall 48s;

May 15, 1956, ‘> March 29, 1957 .......... 6.30 Ditto;

March 30, 1957, to November 18, 1957 .... 6.45 Ditto;

November 19, 1957, to March 31, 1958 ... 6.60 Ditto.

12. The less-than-carload prices throughout this pe-

riod of time were 5c higher per case of tall 48s. The

terms of sale have included a cash discount of 2% if

paid within 10 days after sale, and a swell allowance

of 1/10 of 1% to cover damaged goods sold to retail

buyers. Such sales of Borden Brand evaporated milk

were made principally to wholesalers or jobbers, and

to chain stores.

VIII. Respondent’s Private-Brand Prices and Sales

13. In about 1938, the Respondent began packing

its evaporated milk under the private labels of the pur-

chasers as well as under its own Borden Brand. Dur-

ing the period of time with which we are concerned,

January 1, 1956, to March 31, 1958, the prices of such

milk were determined by a pricing formula applicable

to all of Respondent’s private-label customers. This

{formula included the cost of the buyer’s label, the cost

of hauling the milk from the dairy farm to Respond-

ent’s plant, the average monthly cost of the milk, and,

finally, a factor referred to as “COTM”, or “Cost Oth-

er Than Milk’’, which included the cost of additives

such as Vitamin D, the cost of cans, the plant process-

ing, overhead cost, and a gross margin or profit fac-

tor. The Respondent’s private-label prices determined

in accordance with the foregoing formula, sometimes

referred to as the ‘‘Cost plus pricing formula’’, were

net f.o.b. plant. No cash or other discount was allowed

the purchaser of private-label milk, and all purchas-

ers buying from the same plant at or about the same

time paid the same price. These prices, however, var-

ied from one to another of Respondent’s plants, and

from month to month in conformance with the chang-

ing price of milk paid to the farmers. A further factor

of variation was Respondent’s periodic revision of its

gross margin of profit, which was reviewed approxi-

mately every six months, and adjusted to the changing

conditions of Respondent’s general operation.

IX. Commodities of Like Grade and Quality

14. Counsel supporting the complaint contends that

all of Respondent’s evaporated milk, whether sold un-

der private labels or under the Borden label, is of like

grade and quality. The Respondent insists, however,

that because the uncontroverted evidence shows that

Borden Brand evaporated milk commanded a substantial-

ly higher market price than its private-label evaporated

milk, such variously-labeled milk is not of “like grade

and quality”.

15. The evidence shows that there was no differ-

ence in the physical composition or quality of the evap-

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orated milk sold and delivered by the Borden Com-

pany under its own label, and that sold f.o.b. plant un-

der the private labels of its customers. In both in-

stances the milk was processed in the same manner

to meet both Federal standards and Borden’s own

quality standards. Milk which was qualitatively the

same was placed in cans which were qualitatively the

same. The method of processing the raw milk fixed

both its quality and its grade, which could not there-

after be changed, either by attaching to the various

cans labels bearing different brand names, or by sell-

ing the variously-labeled cans at different prices.

16. Of necessity, all of Respondent’s milk retained

the same physical composition when it was labeled

and sold, as when it was canned, and no magic of the

market-place thereafter changed that simple fact. Fi-

delity to the record, in our opinion, compels the con-

clusion that Respondent’s evaporated milk, regardless

of how it was labeled or at what price it may have been

sold, either at Respondent’s plant or in the market-

place, was milk of ‘‘like grade and quality’’ within the

meaning of 2(a) of the Clayton Act as amended. This

conclusion accords, we think, with the Commission’s

past interpretation of the phrase “‘like grade and qual-

ity’’. See: Goodyear Tire & Rubber Company, 22 FTC

232 (1936), reversed on other grounds, 101 F.2d 120 (1939).

X. Survey of Consumer Selection

of Evaporated Milk Brands

17. There was received in evidence as Respond-

ent’s Exhibit 89 the results of a house-to-house survey

conducted for the Respondent by National Analysts,

Inc., entitled “‘Study of Consumer Selection of Evap-

orated Milk Brands’’. The survey was conducted in

those geographical areas where the bulk of Borden

Brand evaporated milk had been sold during the pre-

vious years. The purpose of the survey, as stated in

the report thereof, was to determine (1) the propor-

tion of consumers using evaporated milk who would

buy Borden Brand evaporated milk in preference to

an unknown private-label brand, even though the pri-

vate-label brand sold for from lc to 5c per can less

than the Borden Brand; and (2) to ascertain each con-

sumer’s reasons for buying the particular brand pur-

chased.

18. Of the 3,952 housewives interviewed, 2,200 were

deemed eligible for the survey in the sense of having

purchased evaporated milk within the past two

months. Of the 2,220 interviewed, 1,951, or 87.9%, were

represented to have purchased from the interviewer

either a can of Borden Brand evaporated milk, or a

can of an unknown private-label brand. Of the 1,951

housewives who purchased milk from the interview-

er, 1,403, or 72%, purchased Borden Brand, and 548, or

28%, purchased a private-label brand. Prior to the pur-

chase, however, each housewife was presented with a

set of kitchen cutlery as compensation for her cooper-

ation in granting the interview. She was then asked to

select and purchase her preference of the Borden

Brand milk and the unknown private-label brand milk,

which latter brand was priced from Ic to 5c less per

can than the Borden Brand. After the purchase was

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completed, the interviewer returned the purchase

money to the housewife, and the milk became a gift.

19. Each housewife was then asked the reason for

her selection. Typical of the answers received were:

“t Borden Brand] seems to be a lot creamier than

other evaporated milks.”

“Borden Brand] doesn’t have a can taste.”

“T have never had any [Borden Brand] sour like

I have other kinds.”

‘Well, we’ve used other brands and we like

Borden’s the best. We like the flavor better.”’

“(Borden Brand] is a heavier milk and you could

tell in your coffee when the milk is cheaper

because it’s too thin. * * [Borden Brand] has a good

thick texture.”

“(Borden Brand] is more flavorsome than some

other brands — that have an unpleasant taste.”

‘* * * T like Borden’s because I feel they are

more sanitary in the handling and preparing

of their milk.”’

“T don’t think [Borden Brand] has that thickness

that some canned milks have — that canny taste.”

“The cheaper ones are watery. Borden’s is the

best evaporated milk to whip that I know of.”’

‘‘My mother used to use Borden’s and she

liked it.”’

“T like Borden’s powder milk better than any

kind of powdered milk so I am sure the evap-

orated would be good.”’

“T’ve heard the name Borden’s a _ long

oe?"

“ * * {Borden Brand] has been on the mar-

ket for forty years so it must be good.”’

20. To the extent that the reasons given by the

housewives for their preference involve a comparison,

expressed or implied, of Borden Brand with an un-

known brand, we regard their reasons as worthless. A

valid comparison cannot, of course, be made between

the known and the unknown. Furthermore, the survey

does not prove, nor tend to prove, that Borden Brand

and Borden’s private-label brands are of a different

grade or quality of evaporated milk.

21. The survey does tend to prove, however, that

Borden Brand evaporated milk is a well-known and

widely-distributed product, which is preferred to un-

known brands by a substantial number of housewives,

even though the Borden Brand costs lc to 5c per can

more. This conclusion is supported in substance by

the testimony of the retail merchants in North Caro-

lina who testified in this proceeding.

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XI. Differences in Price Between Borden Brand

and Private-Label Brand Evaporated Milk

22. Numerous invoices in the record show that dur-

ing the period of time included in the complaint, the

f.o.b. price of Respondent’s private-label evaporated

milk at its various plants was consistently and sub-

stantially lower than the delivered price of Respond-

ent’s Borden Brand evaporated milk. The transactions

evidenced by these invoices occurred at one or anoth-

er of Respondent’s nine plants, located, respectively,

at Fort Scott, Kansas; Wellsboro, Pennsylvania; Mo-

desto, California; Albany, Oregon; Dixon, Illinois;

New London, Wisconsin; Perrinton, Michigan; Lewis-

burg, Tennessee; and Chester, South Carolina. The

prices of Borden Brand and private-label brand evap-

orated milk prevailing at three of Respondent’s plants

during the time involved illustrate the differences in

price, as follows:

Chester, South Carolina, Plant

Delivered price, F.0.b, price,

1957 Borden Brand milk private-label milk

June $ 6.45 per case $ 4.8942 per case

July 6.45 per case 4.9051 per case

August 6.45 per case 4.9210 per case

September 6.45 per case 4.8660 per case

October 6.45 per case 4.8166 per case

November 6.45 per case 4.9361 per case

December 6.60 per case 4.9741 per case

1958

January

February

March

1956

August

September

October

November

1957

January

February

March

April

May

June

July

$ 6.60 per

6.60 per

case

$ 5.0227 per case

5.0289 per case

4.9436 per

Lewisburg, Tennessee, Plant

$ 6.30 per

6.30 per

$ 6.30 per

6.30 per

6.45 per

€.45 per

case

$ 4.7363 per case

4.81988 per case

4.8321 per

4.7718 per

4.8418 per

4.7411 per

4.8211 per

4.8311 per

$ 4.9837 per

5.0737 per

5.0478 per

4.9628 per

5.0578 per

4.9766 per

4.8966 per

4.9666 per

4.9866 per

5.0566 per

4.8742 per

4.9542 per

4.8389 per

4.9189 per

4.8749 per

4.9232 per

case

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July

August

September

October

November

December

1958

January

February

March

1956

July

August

September

October

November

December

6.45 per case

6.60 per case

$ 6.60 per case

6.60 per case

$ 6.30 per

6.30 per

case

4.8332 per

4.8327 per

4.8744 per

4.9738 per

4.966 per

4.999 per

$ 5.0273 per

5.0072 per

4.9436 per

4.9188 per

Fort Scott, Kansas, Plant

$ 5.0625 per

5.0606 per

4.9749 per

5.0241 per

5.0037 per

5.0567 per

5.0877 per

5.1146 per

5.1716 per

5.1986 per

5.1258 per

5.1828 per

5.2098 per

case

1957

January

March

April

May

June

July

August

September

October

November

$ 6.30 per

6.30 per

6.45 per

6:45 per

case

$ 5.2431 per

5.3001 per

5.2759 per

5.3271 per

5.0874 per

5.1444 per

5.2244 per

5.1714 per

5.2514 per

5.1512 per

5.2082 per

5.2352 per

5.1295 per

5.1865 per

5.2135 per

5.1256 per

5.1966 per

5.1822 per

5.1832 per

5.1122 per

5.2077 per

5.2757 per

5.2229 per

5.2959 per

5.2737 per

5.3455 per

5.2725 per

5.3245 per

5.3995 per

4.966 per

case

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1958

February $ 6.60 per case | $ 5.2509 per case

February 6.60 per case 5.3249 per case

23. Respondent contends that the differences in

price cited above are not comparable because they do

not include such factors as the delivery cost of the

Borden Brand milk, as well as many other factors

which they contend are included in the price of that

brand, and which are not included in the price of Bor-

den’s private-label evaporated milk. Counsel support-

ing the complaint contend, however, that it is not nec-

essary to adjust the price of the private-label milk and

the Borden-label delivered price, in order to make

them comparable for the purpose of showing a price

differential under the Clayton Act. Counsel quoted

from the opinion of the Supreme Court in Federal

Trade Commission v. Anheuser-Busch, Inc., 363 U. S.

536 (1960), as follows:

‘““* * * it is only by equating price discrim-

ination with price differentiation that Section 2(a)

can be administered as Congress intended. As

we read that provision, it proscribes price dif-

ferences, subject to certain defined defenses,

where the effect of the differences ‘may be

substantially to lessen competition...’ ...In

other words, the statute itself spells out the

conditions which make a price difference il-

legal or legal, and we would derange this inte-

grated statutory scheme were we to read oth-

er conditions into the law by means of the non-

directive phrase ‘discriminate in _ price’

* * *

24. Although counsel admits that the Supreme

Court was not therein adjudicating the same problem

of determining whether prices had to be adjusted to

make them comparable prior to determining price dif-

ferential or discrimination within the meaning of the

Clayton Act, they nevertheless contend that the above

language clearly indicates that price discrimination

means mathematical difference between the two

prices, without considering those factors which may

be offered in a cost-justification defense by Respond-

ent. We believe that counsel supporting the complaint

are correct in their contention; and, accordingly, we

find that the differences in price, as herein shown, are

prima facie price discrimination within the intent and

meaning of the Clayton Act.

25. It remains to be determined, however, whether

such price differences resulted in a substantial lessen-

ing of competition, thus violating the law, or whether

such differences in price between Respondent’s Bor-

den Brand evaporated milk and Respondent’s private-

label evaporated milk have been justified by Respond-

ent, as due allowances for differences in the cost of

manufacture, sale or delivery of such milk.

XII. Business Lost and Gained by Respondent

26. As previously stated, Respondent has been sell-

ing private-labeled evaporated milk since about 1938,

using its f.o.b.-plant pricing formula. In the eighteen

months preceding the period of time covered by the

complaint, Respondent lost the business of Safeway in

the Northwestern and Rocky Mountain states, in the

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amount of approximately 200,000 cases a year. Accord-

ing to Respondent’s representative, this business was

acquired by Pet and Carnation, who, because they had

plants in that area while Respondent did not, were able

to offer Safeway a better price.

27. In the first few months of 1956, the Respondent

also lost additional business, amounting to 33,000 to

35,000 cases of evaporated milk, to Pet in the El Paso,

Texas, area, which that representative of Respondent

again attributed to a lower price resulting from the

more convenient location of Pet’s plants in that area.

During the remainder of the period covered by the

complaint, Respondent lost additional private-label

business in the amount of about 20,000 cases, based

upon its sales for the preceding twelve months, to un-

known competitors in the Midwest area.

28. About July of 1955, Producers Creamery of

Springfield, Missouri, discontinued the sale of private-

label evaporated milk. Three of its customers, name-

ly, Topco Associates, Central Retailer-Owned Groc-

ers, and Hill Stores Company (hereinafter referred to

as Topco, CROG and Hillco) asked the Respondent to

supply them with private-label milk. In the negotia-

tions which followed, Respondent agreed not only to

supply these ‘‘orphaned’’ customers of Producers

Creamery with evaporated milk for their Southwest

area, but to supply CROG and Topco in a number of

other areas. Respondent also agreed to supply Hillco

from Respondent’s plant in Birmingham, Alabama.

29. Thereafter, Respondent commenced the pack-

ing of evaporated milk at four additional plants, at

which it had formerly packed only Borden Brand milk:

Dixon, Illinois; New London, Wisconsin; Perrinton,

Michigan; and Lewisburg, Tennessee. In 1957, Re-

spondent received additional requests from other new

customers to pack milk under their private labels, and

as a result, in May, 1957, it began canning private-lab-

el evaporated milk at its Chester, South Carolina,

plant.

30. The evidence shows that all of these new pri-

vate-label purchasers came to the Respondent of their

own accord, and were not solicited by the Respondent:

that Respondent dealt with them in the same manner

in which it had dealt with its previous private-label

customers; and that Respondent made no distinction

between large and small accounts. Respondent’s pri-

vate-label prices were in each instance determined by

the use of its cost-plus pricing formula.

31. In determining the amount of the gross margin to

be included in the price of private-label evaporated

milk, Witness Barry, production merchandising man-

ager for the Borden Company, testified that the Re-

spondent followed the same practice which it had fol-

lowed in the past, of selling at the highest possible

price, so as to obtain the maximum amount of profit,

and yet not at a price so high as to create an undue risk

of losing the business to other private-label canners.

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XIII. Midwest Competitors of The Borden Company

32. Representatives of seven relatively small can-

ners of evaporated milk located in the Midwest, in-

cluding Ohio, Indiana, Illinois, Michigan, Iowa, Mis-

souri and Kansas, testified in support of the complaint.

Although each of these seven milk canners sold evap-

orated milk both under their own labels and under pri-

vate labels, by far the larger percentage of their evap-

orated-milk business consisted of the sale of private-

label milk. None of them advertised or sold their prod-

uct on a national level, and all of them sold their pri-

vate-label evaporated milk, with minor exceptions, on

a delivered-price basis. None of these canners had

plants east or south of the Ohio River or south of the

Missouri-Arkansas state line. In fact, no evaporated-

milk producers at all had plants in the eastern or south-

ern areas, other than the Respondent and its two larg-

est competitors, Pet and Carnation.

a. Page Milk Company

33. The testimony of Mr. George B. Page, president

of the Page Milk Company, shows that his company

canned evaporated milk at plants located in Merrill,

Wisconsin, and Coffeyville, Kansas. The milk pro-

duced at the Wisconsin plant was shipped principally

to customers in the metropolitan east, whereas the

Kansas plant served the area west of the Mississippi

River. The annual sales volume of the Page Milk Com-

pany from 1950 through 1957 was:

SE oy cova wibine Conee aes 701,100 cases;

ME cs ss aoa a re he ee 647,705 cases;

SEs cco y hans oct ence 687,858 cases;

WE Se eee ee 761,168 cases;

ME ck cuiedie Seas ey eee 714,318 cases;

BE sco voccie hatte eee .. 720,884 cases;

Reet aR, Ae RAR TORRY: _... 726,443 cases; and

) ait Re tt to 23. Ser 735,803 cases.

34. During the period covered by the complaint, the

Page Milk Company lost to the Respondent sales of

about 3,650 cases of evaporated milk, based upon the

volume of sales for the previous twelve months. The

purchaser was the Kimbell Grocery Company, Fort

Worth, Texas, with six locations in Texas and New

Mexico. The date of Kimbell’s last order to Page was

February 3, 1958, and the purchase price on that order

was $6.03 per case of tall 48s, including delivery, with a

2% cash discount. Kimbell’s first order from Respond-

ent was dated March 14, 1958, and shows a price of

$5.44 per case of tall 48s, f.o.b. Respondent’s plant, with

a label charge of 9c per case, and a swell allowance of

1%.

35. The record does not show specifically what pri-

vate-label business was gained by Page during the pe-

riod covered by the complaint, but it does show a

gain of 9,360 cases of tall 48s evaporated milk in 1957

over 1956. This gain more than balances the loss to

Borden that the Page Milk Company sustained during

that same period. Mr. Page testified, however, as fol-

lows:

‘

;

dap aa ete Oy BAe

‘““ * * The entry of the Borden Company into

the private-label business and the manner in

which they have been operating has placed a

severe competitive pressure on the entire un-

advertised brand of private-label milk struc-

ture and that has, in my opinion, largely been

felt in the way of a lowered market price with

which we must contend.’’

b. United Dairy Company

36. Mr. Jack D. Anderson, vice president and gen-

eral manager of the United Dairy Company (herein-

after referred to as United Dairy), testified that his

company had evaporated-milk plants located at

Barnesville, Lodi and Waterford, Ohio, and that its

principal! sales territory consisted of the Northeastern

states east of Ohio, and extending as far south as Vir-

ginia and West Virginia. United Dairy’s annual do-

mestic sales volume of evaporated milk during the

years 1950 to 1957, inclusive, was:

1950 rio id _.......754,666 cases;

1951 Fhe _.. 610,171 cases;

1952 seperate ........., 641,862 cases;

1953 meray amen See, Sts eae NN 636,945 cases;

1954 .... 738,315 cases;

1955 Petree. ...... 887,651 cases;

1956 etna _.... 1,041,041 cases;

1957 Sie i. §

37. During 1956 United Dairy lost two accounts,

Penn Fruit Company, Philadelphia, Pennsylvania,

eee

and Brockton Public Markets, Brockton, Massachu-

setts, which had totaled 8,990 cases of evaporated milk

over the previous twelve months, to Topco, which was

purchasing from the Respondent. During 1957 United

Dairy lost the Central Retailer-Owned Grocers ac-

count, with an annual volume of 3,425 cases, to the Re-

spondent. United Dairy’s total 1957 sales of 958,373

cases, although less than its 1956 sales of 1,041,041

cases, still constituted its second-highest annual vol-

ume for the eight-year period from 1950 through 1957;

and the 3,425 cases lost to the Respondent were only a

small portion of its total drop of 82,668 cases in sales

during 1957. The record does not disclose the reason

for all of this decrease in sales. Three of the four ac-

counts lost by United Dairy to the Respondent or cus-

tomers of the Respondent were, however, located con-

siderably closer to the Respondent’s plants than to

United Dairy’s plants.

38. Witness Anderson complains particularly of the

competition of Respondent since 1956, as follows:

‘‘The competition has forced our prices down

from the level we had previous to that and

some of the competition has been selling on a

different basis. On an f.o.b. basis and it is

made highly competitive because of those fac-

tors.”’

c. Westerville Creamery Company

39. Mr. William L. Johnson, president and general

manager of Westerville Creamery Company (herein-

after referred to as Westerville), testified that his com-

pany produced evaporated milk, fluid milk, powdered

milk, cottage cheese and ice cream, and that it had an

evaporated-milk plant -located in Covington, Ohio,

from which it sold products in the eastern section of

the United States, from Maine to Florida. The com-

pany’s annual sales of evaporated milk for the years

1950 through 1957 were:

1950 _.. 641,981 cases;

1951 _.... §97,171 cases;

1952 ay _....... 455,127 cases;

1953 a 571,574 cases;

Nah RR ane a i an hans, oo 656,745 cases;

1955 _.. 701,847 cases;

1956 593,739 cases; and

1957 _. 589,242 cases.

40. The vecord shows that Westerville lost five ac-

counts in 1955, with an annual volume aggregating

102,931 cases, approximately the amount by which that

company’s 1956 sales volume declined as compared

with its 1955 volume, as shown by the table above. None

of those accounts were lost ic the Respondent. In fact, Mr.

Johnson testified that Westerville was not in competition

with the Respondent until the following year, 1957. In that

year, however, Westerville lost six accounts, which subse-

quently began purchasing from Respondent's customer

Biddle. This loss involved a volume of approximately

38,462 cases per year. Mr. Johnson blamed this down-

ward trend in his company’s sales of evaporated milk

upon the Respondent’s competition.

41. In fairness, however, it must be observed that

such a trend started before the Respondent gained any

of Westerville’s customers, and that Westerville’s loss

of business in 1956, which was not attributable to Respond-

ent or its customers, was nearly three times as much as the

volume of the business lost to Respondent’s customer in

1957. Examination of the above table shows that Wester-

ville’s annual volume of sales has fluctuated considerably

from year to year since 1950.

d. Gehl’s Guernsey Farms

42. Mr. Paul Gehl, vice president of Gehl’s Guern-

sey Farms (hereinafter referred to as Gehl’s), testi-

fied that his company produced fluid milk, ice cream,

condensed milk of various kinds, and powdered milk,

as well as evaporated milk, at its plant located at Ger-

mantown, Wisconsin, with a sales territory principally

in the eastern United States, consisting of an area east

of the Mississippi and north of the Ohio River. Gehl’s

annual sales volume of evaporated milk for the years

1950 through 1957 was:

ANA Lae eed aetna .. 155,417 cases;

Re Arnie a) tae ee eae 154,293 cases;

SE etre ee ee _... 138,124 cases;

A 372 bby ica. Wate add weeeea _... 84,735 cases;

ER ets isp aa ack eee 119,395 cases;

Re it co ee BU es 108,924 cases;

SR ae an Spann PRE et Pr, o.28 168,479 cases; and

EN oo tas eee eee 285,544 cases.

43. In 1956, Gehl’s lost to the Respondent business

amounting to 4,077 cases of evaporated milk. During

eee

the same year, however, Gehl’s had:a 55% increase in

its sales volume, from 108,924 cases in 1955 to 168,479

cases in 1956. During 1957 Gehl lost to the Respondent

an account amounting to 21,357 cases a year. Despite

that loss, Gehl had gained in volume of sales from 168,-

479 cases in 1956 to 285,544 cases in 1957.

44. With respect to all the business lost by Gehl to

the Respondent, it should be observed that the

Respondent’s plants were substantially closer to the

location of the accounts lost by Gehl than was Gehl’s

plant at Germantown, Wisconsin. Dixie Home Stores

in Greenville, South Carolina, which accounted for 80%

of the volume involved in this loss by Gehl to the Re-

spondent’s customer, was at least 600 miles from

Gehl’s plant in Wisconsin, but only seventy miles from

Respondent’s plant at Chester, South Carolina.

e. Dairyland Cooperative Association

45. Mr. John E. DeMaster, a sales official of Dairy-

land Cooperative Association (hereinafter referred to

as Dairyland), testified that his organization had one

evaporated-milk plant located at Juneau, Wisconsin.

Dairyland was described as a cooperative engaged in

the processing of raw milk into butter, powdered milk,

and cheese, as well as evaporated milk. He defined

its sales area rather vaguely as ‘‘the central states

east of the Mississippi’’. Dairyland’s sales of evapo-

rated milk from 1950 through 1956 were:

EIS ice ae Ra ae f 38,754 cases;

1951 | Fed Phe De aetas _.. 334,131 cases;

ET 6 ons yy oo ele eee 173,346 cases;

ES esr se Ue a, ak 17,423 cases;

AE pa Bal rer a ari gee a 28,799 cases;

ae aR ren _ 25,766 cases; and

A Oa al oy ater 7 . 49,404 cases;

46. In 1956, Dairyland lost to the Respondent eight

accounts amounting to approximately 22,320 cases of

evaporated milk. As to seven of these accounts, the

Respondent’s plant was substantially closer to the cus-

tomer’s location than was Dairyland’s plant in Wis-

consin. There was one exception, Kline’s Supply Mar-

kets, St. Paul, Minnesota, which was approximately

the same distance from both suppliers’ plants.

Mr. DeMaster stated, with reference to the lost busi-

ness of Dairyland, that ‘‘ * * * we paid practically

the same price for milk that they did, and naturally it

is Pittsburgh and to the east where they would have

a freight advantage, which was okay. It was one of

those things; that is the way it was; it could not be

helped.”’

47. When asked specifically how he accounted for

the loss to his company of sales of evaporated milk

from 1950 through 1957, Witness DeMaster again

placed primary responsibility for the decrease upon

his geographical location relative to the competitors

and buyers located in the East. He specifically named

the Westerville and Defiance milk-producing organiza-

tions as competitors in the Ohio area; and he did not

blame the Respondent for the loss to his own company

wrt

wae

i SAAR aS Rs

‘Shemettien tee

Soa a

of this evaporated milk business, or for its going out of

business in 1957.

f. Defiance Milk Products Company

48. Mr. William A. Diehl, president of Defiance

Milk Products Company (hereinafter referred to as

Defiance), testified that his company produced evap-

orated milk at its plant at Defiance, Ohio, and sold it

principally in the eastern part of the U nited States

north of Norfolk, Virginia. His company’s annual sales

of evaporated milk for the years 1951 through 1957

were:

oe ae hie ee a a 623,248 cases;

ME atc se Be wk Cee 646,869 cases;

1953 ae Pre ........ 692,978 cases;

ERE PREP TARO ett. nd ee 738,880 cases;

SSH eee ea | eee 739,886 cases;

ee een Nt ead ee 699,952 cases; and

ea caiar ada ee cay 694,166 cases.

49. The record shows that Defiance lost the sale of

2,400 cases of evaporated milk to the Respondent in

1956. That loss was, however, only a small percentage

of Defiance’s total loss of such sales during 1956, at

which time, Mr. Diehl stated, Respondent had not yet

become a factor in the private-label evaporated milk

field.

50. In 1957 Defiance lost the sale of 70,406 cases of

evaporated milk to customers of the Respondent, in-

cluding two Colonial Stores located, respectively,

ona

at Norfolk, Virginia, and Raleigh, North Carolina; but

in the same year Defiance gained from some unknown

source or sources a larger volume of sales than it lost

to these customers. The two Colonial Store accounts,

which represented approximately two-thirds of that

loss of business, were located hundreds of miles closer

to the Respondent’s supplying plant at Chester, South

Carolina, than to Defiance’s plant at Defiance, Ohio.

Mr. Diehl’s testimony reveals that he was thoroughly

aware of the importance of plant location in relation

to the plant’s market, and that he was considering ac-

guiring equipment for packing evaporated milk at a

newly-acquired plant at Jonesboro, Tennessee.

g. Nashville Milk Company

51. Mr. Diehl further testified that he was also pres-

ident of the Nashville Milk Company (hereinafter re-

ferred to as Nashville), a wholly-owned subsidiary of

Defiance. He explained that Nashville’s plant which

produced evaporated milk was at Nashville, Illinois,

and that it sold that product in the southeastern part

of the United States, in the area south of Norfolk, Vir-

ginia, and east of Knoxville, Tennessee. Nashville’s

annual sales volume for the years 1951 through 1957

was:

i961 ... Pie _.. §6,070 cases;

1952 er id . 87,283 cases;

1953 .. | er: * 99,204 cases;

1954 _... 125,489 cases;

|. . ; ........ 132,863 cases;

1956... b . _. 150,645 cases; and

ae _. 158,811 cases.

{

he.

Berd

52. During 1956 Nashville lost the sale of 2,100 cases

of evaporated milk to the Respondent, and during 1957

that loss was increased by 62,940 cases. From the fact,

however, that Nashville’s sales volume increased by

13% in 1956 over 1955, and by another 5-1/2% in 1957

over 1956 despite its losses of sales to the Respondent,

it is apparent that Nashville gained from some source

a volume of sales more than equal to that lost to cus-

tomers of the Respondent. Its sales volume in 1957 was

the highest in its entire history.

XIV. Relationship Between Respondent’s

Prices of Evaporated Milk and

Competitors’ Loss of Business

53. Counsel supporting the cornplaint has requested

a finding which emphasizes the Respondent’s size and

the favorable geographical locations of its plants as

compared to its Midwest competitors, as follows:

“An important factor leading to the competi-

tive disparity between Borden and the small-

er independent evaporated milk packer was

that in the period January 1956 through March

1958, Borden had nine evaporated milk plants

in contrast to its smaller competitors with one,

two or three plants. This gave Borden great-

er flexibility to take advantage of favorable

freight rates and thus to compete on more fa-

vorable terms than its smaller competitors in

a wider area.”’

54. The record warrants the requested finding of

fact, which we here adopt. In fact, the record shows

that of the 241,815 cases of evaporated milk, the sale

of which was gained by the Respondent from its Mid-

west competitors during the period covered by the

complaint, as to at least 208,170 cases, or approximate-

ly 86%, the Respondent had a clear freight advantage

over its Midwest competitors. This advantage was, of

course, due to Respondent’s more convenient lo-

cations. In considering this factor, it should be remem-

bered that a similar geographical advantage on the

part of other competitors caused the Respondent to

lose sales of evaporated milk in the Northwest area of

the United States during the eighteen months’ period

preceding the period covered by the complaint.

55. Four of Respondent’s Midwest competitors,

namely, Page, United, Gehl’s and Nashville, had in-

creased volumes of sales both in 1956 and in 1957, as

compared with their sales in 1955. The only two of the

seven competitors who, in 1957, had a smaller volume

of sales than in 1955 had, in fact, suffered their major

decline in sales in 1956, at a time when the Respondent

was not regarded by them as a competitor.

56. The market share data of evaporated milk for

the entire United States, as compiled by the Depart-

ment of Agriculture in pounds and converted by the De-

partment’s recommended formula into cases of

‘‘talls’’, shows the individual sales of evaporated milk

by Respondent and its Midwest competitors, for the

years 1955 through 1957, as follows:

a pia eRe As

tart Si Se

Pe aks can

JRE RNRER Sty.

Market Share Data (Tall Case Basis)

1955 1956 1957

Sales Market Sales Market Sales Market

Volume Share Volume Share Volume Share

Total Industry _ .. 52,804,598 160% 51,862,069 100% 50,666,667 100%

Packers on whom

evidence was

introduced:

Page Milk Co.

United Dairy Co.

Westerville

Creamery Co, _.

Gehl Guernsey

I scenic:

Dairyland

Cooperative

Defiance

Milk Co.

Nashville

Milk Co.

Total

The Borden

Company

*Discontinued

1957.

720,884 1.4% 726,443 1.4% 735,803 1.5%

887,651 1.7% 1,041,041 2.0% 958,373 1.9%

701,847 1.3% 593,739 1.1% 589,242 1.2%

108,924 .2% 168,479 .3% 285,544 .6%

25,766 .05% 49,404 1% None* None*

739,886 1.4% 699,593 1.4% 694,166 1.4%

132,863 .3% 150,645 .3% 158,811 .3%

3,317,821 6.3% 3,429,704 6.6% 3,421,939 6.8%

5,235,852 9.9% 5,010,205 9.7% 5,419,108 10.7%

evaporated-milk production in April,

57. The above chart shows that Respondent’s mar-

ket-share increase during the years in question was

less than 1%, and that the market-share changes of its

Midwest competitors were also slight.

58. The evidence shows that Respondent’s private-

label prices during the period in question were com-

puted in accordance with its former practice, includ-

ing a gross-margin-of-profit factor which was never

less than 15c per case, and ranged as high as 35c per

case. The lowest profit margin, 15c per case, was at

its Modesto plant, and there is no evidence that Re-

spondent obtained any private-label business from oth-

er packers at that plant. The Respondent’s plants to

which m ost of such business came were located at

Lewisburg, Tennessee; Chester, South Carolina; and

Wellsboro, Pennsylvania. It was at those plants that

the Respondent set the highest gross margin during

the complaint period. Moreover, there is no evidence,

and no basis for any inference, that the Respondent

acted, at any time during the period covered by the

complaint, with any purpose of harming or eliminat-

ing any competitor, or with any vindictive or preda-

tory motive.

59. It appears to us that the present controversy,

as interpreted by counsel supporting the complaint.

has arisen because of three competitive advantages

which have been acquired by the Respondent during

its many years in business, namely: its size, the loca-

tion of its plants, and its consequent ability to sell pri-

vate-label evaporated milk profitably on an f.o.b. ba-

sis. Counsel supporting the complaint contends:

“Even if the testifying competitors had not

lost any business to the Respondent, actual

substantial injury to competition would have

to be inferred from the fact that Respondent’s

a 48

discriminatory pricing, coupled with the com-

petitive advantages stemming from its size*

and advantageously located evaporated milk

plants, has effectively foreclosed the _ inde-

pendent packer group from selling to certain

of the most desirable private label accounts

with great potential volume; for Respondent

has been able to negotiate agreements cover-

ing the sale of private label milk to certain

large buying organizations on a permanent

basis for periods of indefinite duration covering

all or most of the private label requirements

of such customers.

“*The testimony of Mr. Page at R. 264-5 doc-

uments the difficulty with which the small

packer is faced in selling to large scale ac-

counts, for this testimony indicates that Page

in early 1956 could supply only a portion of the

Winn-Dixie business when this account ex-

pressed its interest in purchasing private label

from Page for its entire operation.”’

60. From the above statement, it appears that

counsel supporting the complaint would have us find

injury 10 competition because of three factors, name-

ly:

a. The “competitive advantage [of the Respond-

ent] from its size”, resulting in Respondent’s abili-

ty to supply a larger demand for evaporated milk

from a single customer than could its competitors;

b. The advantage of lower transportation

cost inherent in the geographical location of

Respondent’s plants nearer to the Eastern

markets than those of its Midwestern compet-

itors; and

c. Respondent’s use of a pricing formula in

selling private-label evaporated milk f.o.b.

plant instead of at a delivered price, which

was advantageous to Respondent’s customers

as well as to Respondent because of the loca-

tion of its plants.

61. These competitive advantages which counsel

supporting the complaint would have us condemn as

unlawful are the accumulated benefits of that private

initiative, industry and business acumen w hich our

system of free enterprise is designed to foster and re-

ward.

62. If a supplier is to be penalized because its size

enables it to negotiate and fulfill contracts for a prod-

uct in larger amounts than its competitors can pro-

duce, then the efficient conduct of a business, and its

resultant growth, have become legal detriments.

63. If a supplier be forbidden to pass on to its cus-

tomers a saving in transportation costs, made possi-

ble by the fact that its plant is more advantageously

located than those of its competitors, then the supplier

is, in effect, required to add to its selling price a ‘‘phan-

tom freight” — a charge equal to the difference be-

tween its cost of transportation and that of its less con-

veniently located competitor.

64. Furthermore, if a supplier is to be penalized

for selling its product at a lower price f.o.b. its plant,

instead of adding thereto the cost of transportation to

the customer’s plant and selling at a higher delivered

price, the supplier’s right to conduct its business in

the manner it deems most practical is abrogated, and

its customers are thereby deprived of the legitimate

Saving in cost which they might otherwise obtain by

electing to take delivery at the supplier’s plant. Such

an edict would injure both the Respondent and its cus-

tomers, by depriving them of what would appear to

be a basic right of free business enterprise.

65. We conclude that the above-described conten-

tions are beyond both the allegations of the complaint

and the theory upon which it is predicated. We con-

clude further that all the above factors, whether con-

sidered separately or collectively, constitute lawful

commercial advantages of the corporate Respondent.

Furthermore, we conclude that Respondent has made only

lawful use of such lawful advantages, and that the result-

ing effect upon the sales of its Midwest competitors has

been only that of the normal give-and-take of healthy com-

petition inherent in the free-enterprise system. Such com-

petition is not unlawful.

XV. Possible Injury to Competition Between

Wholesaler Customers of The Respondent

66. The record contains evidence of only ten transac-

tions wherein a purchaser of Respondent’s private-label

evaporated milk was shown to have paid a lower price than

that paid by a competing customer purchasing Respondent’s

Borden Brand evaporated milk.

67. Counsel supporting the complaint questioned a small

group of wholesaler purchasers, who were all from North

or South Carolina, relative to their interest in buying pri-

vate-label evaporated milk in addition to their purchases

of Borden Brand evaporated milk. In his interrogation of

these witnesses, he did not ascertain whether they knew

of the business requirements involved in the purchase of

Respondent’s private-label milk, which were rather com-

plicated, as distinguished from the simple purchase of Bor-

den Brand evaporated milk. These witnesses were asked

hypothetical questions, of which the following is typical:

“Q. Well, Mr. McFeely, in February as in March

you were paying $6.60 a case for Borden

Brand evaporated milk. Using the month of

March, 1958, as a basis, would you have been

interested in buying out of Spartanburg,

with a shipment from Chester, South Caro-

lina, private-label evaporated milk packed

by the Borden Company at a price of $5.00

to $5.25 per case for talls?”

68. We believe that the phrasing of this question im-

plied to the witness that the conditions of the purchase of

Borden Brand evaporated milk at $6.60 per case, or of pri-

vate-label evaporated milk packed by the same company

at $5.00 or $5.25 per case, were otherwise substantially the

same. In each case, the witness gave an affirmative re-

sponse. The record shows that the terms and conditions

wht Sa RCRA Ss

upon which Respondent sold its private-label evaporated

inilk differed materially from the simpler purchase of Bor-

den Brand milk. Those differing terms and conditions may

be summarized as follows:

Private-label

evaporated milk

No cash discount.

All orders sent to Respondent’s headquarters in New

York and filled through Respondent’s plant nearest the

purchaser.

Price f.o.b. Respondent’s plant.

Variable increase in cost of transportation on less-than-

carload shipments.

Varying cost of designing and printing private labels.

Must be arranged for well in advance; purchaser obligated

to pay for all milk packed under his private label.

No advertising or services furnished by Borden on private-

label milk.

Borden Brand

evaporated milk

2% cash discount.

Orders handled locally and iilled from nearest plant or

from Respondent’s warehouse.

Price delivered to customer.

5¢ per case additional on less-than-carload shipments.

No charge for labels.

Can be bought in any quantity at any time without pre-

arrangement.

Purchaser benefited by Respondent’s advertising and serv-

ices,

69. Since the record does not show that the witnesses

who answered the hypothetical question in the affirmative

were aware of all of the above conditions, we cannot as-

sume, without further evidence, that they understood all

the considerations involved in contracting for Respondent’s

private-label evaporated milk. Accordingly, their response

to the hypothetical question proves no more than that each

of the witnesses was interested in paying less for evaporat-

ed milk.

70. Wholesaler McFeely, under cross-examination, ad-

mitted that in order for him to be interested in the pur-

chase of private-label evaporated milk, he would have to

be able to buy it for $1.50 to $2.00 per case less than he

was paying for Borden Brand. It should be observed in

this connection that Respondent was not offering its pri-

vate-label milk for that much less than its Borden Brand

milk.

71. One purchaser talked with a broker concerning the

possible purchase of a private-label brand from the Re-

spondent, and was told by the broker that he did not know

the requirements for such a purchase. There is, however,

no evidence that any purchaser was, for any reason, denied

the right to buy private-label evaporated milk from the

Respondent.

72. We musi conclude thai there has been no substantial

injury to competition affecting Respondent’s wholesaler

customers purchasing Borden Brand evaporated milk, in

their competition with Respondent’s wholesaler customers

who also purchased Respondent’s private-label evaporated

milk.

XVI. Possible Injury to Competition Between

Retailer Customers of The Respondent

73. Seven retailers in South Carolina were called as

witnesses by counsel supporting the complaint. Each testi-

fied that he carried Borden Brand evaporated milk in his

usual course of business, as well as Pet and Carnation.

Each recognized that there existed a strong consumer de-

mand for Borden Brand evaporated milk, and that it com-

manded a higher price than unadvertised brands, All re-

garded the handling of evaporated milk as an unprofitable

part of their retail grocery business, but necessary because

of the continuing consumer demand therefor. One witness

stated:

“Well, [Borden Brand evaporated milk] is a

must item * * * Well, you have got to handle

[Borden Brand] to satisfy the customers.”

Another witness testified, similarly:

“Well, [Borden Brand evaporated milk] is es-

sential in the grocery business and it’s one of

the items that we feel like we handle more or

less just to have something the housewife

needs. Several other items in that same cate-

gory, you know.”’

74. They described their mark-up on Borden Brand

evaporated milk as ranging from 23c to 84c per case.

They did not, in general, regard this as sufficient to

cover overhead expenses. The testifying retailers pur-

chased Borden Brand evaporated milk from a whole-

saler who had, in 1957, offered them the Miss Virginia

Brand, a private-label evaporated milk produced by

the Respondent. Witness Shumpert testified that he

commenced purchasing Miss Virginia evaporated

milk about a month after it had been offered him.

Witness Power’s testimony shows that he waited ap-

proximately eighteen months after such offer, or until

about two weeks prior to the time of his testimony,

before commencing to purchase the Miss Virginia

Brand evaporated milk. Retailer witness Caughman

testified that he waited until about a year after the

first offer before commencing to purchase. Witness

Cromer testified that he waited almost a year before

buying Miss Virginia milk. Witnesses Charles and

Coleman, at the time of their testimony, had not pur-

chased Miss Virginia evaporated milk. Witness Wrenn,

who operated both as a wholesaler and as a retailer,

at various times carried evaporated milk packed un-

der various private labels, which he purchased from

railroad salvage. He never requested the Respondent

or any other packer to produce a private label for him.

75. On one hand, the retailers described some cus-

tomers as ‘“‘price conscious,’’ who were ‘‘shopping

around for cheap milk”. On the other hand, they de-

scribed other customers as being ‘‘name-conscious”’

and demanding the advertised brands, without parti-

cular regard for the differences in price. A typical

example of such testimony is:

“A. Some people say they want [Borden’s]

Siiver Cow milk. In other words, for may-

be a coupon on the side of the can or be-

cause they have been educated to want

that brand. Some of them won’t have any-

thing but that. Some of them won’t have

anything except Carnation, and some of

them don’t want anything except Pet.

“Q. They don’t care what price —

“A. If the doctor tells the woman to put the

baby on Pet milk, that is all she wants,

you couldn’t interest her in something

else.”

From such testimony we must conclude that there was

in the South Carolina area a persistent demand among

a substantial number of purchasers for Borden Brand

evaporated milk, without particular regard to price.

XVII. Conclusion as to Effect of Price

Differences Upon Competition

76. We must conclude that the differences in price

between Respondent’s Borden Brand evaporated milk

and its private-label evaporated milk have not sub-

stantially lessened competition, nor is there any rea-

sonable probability of such danger to competition in

the future. The complaint herein should, therefore, be

dismissed.

XVIII. Cost Justification

a. Purpose and Preparation

77. After counsel supporting the complaint had

rested his case-in-chief, counsel for the Respondent

offered in evidence an analysis based upon the rec-

ords of the Borden Company for the calendar year

1957, pertaining to the production, distribution and

sale of Borden Brand evaporated milk and Borden’s

private-label evaporated milk. The purpose of that

analysis was to determine the difference between the

price received by the Respondent for its product under

each type of label, and the relative difference in cost

of manufacture, sale and delivery thereof resulting

from the different methods or quantities involved in

the sale or delivery of the product under the different

labels.

78. The analysis was prepared in 1959 by Edward

M. Darcey of the accounting firm of Haskins & Sells

of New York City. Mr. Darcey, who had supervised

the regular audits of the Respondent’s accounts since

1953, was shown to have a detailed familiarity with

Respondent's accounting system. Mr. Darcey was ad-

vised both in the preparation of his analysis and in

its execution by Dr. Herbert F. Taggart, professor of

accounting of the University of Michigan, and Chair-

man of the Advisory Committee on Cost Justification

which was appointed by the Federal Trade Commis-

sion in 1953 to review and analyze all aspects of the

cost proviso of the Clayton Act.

79. All the documentary materials underlying the

analysis were made available to the Commission’s

staff, and Mr. Melvin Steele, Assistant Chief Account-

ant of the Accounting Division, Bureau of Investiga-

tion, of the Federal Trade Commission, and another

of the Commission’s accountants examined them in

New York during five weeks in February and March,

1960. At the end of their study, and as a result of con-

ferences between Mr. Steele and Mr. Darcey, three

minor changes were made in the report, the effect of

which was reduce the difference in cost between Bor-

den Brand and Borden’s private-label brands by about

lc per case. As so modified, the cost analysis was re-

ceived in evidence as Respondent’s Exhibit 76.

b. Production Methods

80. Before examining a summary of that exhibit

and the cost analysis which it contains, we should re-

view certain important factors. In 1957 Respondent

produced evaporated milk at nine plants variously lo-

cated in California, Oregon, Wisconsin, Michigan, ll-

linois, Kansas, Tennessee, South Carolina and Penn-

sylvania. Each of those plants packed private-label

as well as Borden Brand evaporated milk, with no

difference in the manufacturing process up to the

point of affixing labels. Thereafter, Borden Brand and

the private-label brands were handled differently. Bor-

den Brand evaporated milk was packed in printed car-

tons bearing the Borden name, whereas private-label

milk was packed either in printed cartons bearing a

private label, or in plain cartons on which a private-

label identification was stenciled.

c. Marketing Methods — Borden Brand

81. In 1957 Borden Brand evaporated milk was sold

in various states across the country at a uniform de-

livered price. Substantial inventories of Borden Brand

evaporated milk were carried in three types of stor-

age facilities: (1) at the plants which produced the

milk; (2) at about fifteen reserve warehouses located

between the plants and the places where it was ex-

pected that the evaporated mi!k would be sold: and

(3) at about one hundred local consignment ware-

houses. Carload shipments were made from the plants

and reserve warehouses direct to customers, and also

to consignment warehouses. Orders for less-than-car-

}

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load quantities were generally filled from the consign-

ment warehouses. All customers were offered a 2%

cash discount for payment within ten days, and retail cus-

tomers were offered a 1/10-of-1%% “swell allowance” in lieu

of credit for or replacement of goods found to be in

unsalable condition. Orders for Borden Brand evapo-

rated milk were solicited by brokers, and, in some

of the larger cities, by Respondent’s jobbing salesmen.

Both brokers and jobbing salesmen handled, in addi-

tion to Borden Brand evaporated milk, all of the other

Borden Brand food products manufactured and sold

through Respondent’s Food Products Division, includ-

ing Starlac, Eagle Brand condensed milk and instant

coffee. Orders for the delivery of Borden Brand evap-

orated milk direct from a producing plant or reserve

warehouse were generally forwarded to the Respond-

ent’s New York office of its Food Products Division,

which in turn forwarded them to the appropriate ship-

ping point; while orders for delivery from a consign-

ment warehouse were processed in the field.

82. Respondent’s Food Products Division main-

tained a staff of field representatives, whose primary

duty was to call upon retailers to assist them in pro-

moting sales of Borden products to consumers. These

field representatives operated in all areas, regardless

of whether orders were solicited by brokers or by Re-

spondent’s jobber salesmen. The work of the field rep-

resentatives included such activities as arranging dis-

plays and display space, and inspecting code-datings

on Borden Brand evaporated milk to insure that the

older milk was sold first in order to prevent its re-

maining too long on the retailer’s shelves. This service

was not performed in every store carrying Borden

Brand evaporated milk. The field representatives

were furnished sales-promotion material designed to

direct consumers’ attention to Borden Brand products,

and to encourage the retailer to devote additional or

special effort to the promotion of those products. While

the sales representatives were responsible for the pro-

motion of all Borden Brand food products, they de-

voted special attention to Borden Brand evaporated

milk, which was the leading product of the Food

Products Division.

83. Advertising of the Borden name and of the Bor-

den Brand products was financed through a budget

administered at the Borden Company level, and, as

to particular food products, at the level of the Food

Products Division, which maintained a separate budg-

et account for each individual product. The Borden

Brand evaporated milk also carried on the label

coupons which were redeemable by consumers for

merchandise, in the manner of trade stamps.

d. Marketing Methods — Private-Label Brands

84. In 1957, private-label evaporated milk was sold

from the Borden Company’s plants, and inventories

of such milk were maintained only at those plants.

Orders for private-label milk were sent direct to the

New York office of Respondent’s Food Products Divi-

sion, which thereafter forwarded them to the plant

nearest the customer. Prices were f.o.b. plant, and

were determined each month for each plant. Respond-

ent did not advertise its private-label milk, and such

peaibae -_

milk carried no reference to the Borden name. Fur-

thermore, the purchasers of such private-label milk

were forbidden by Respondent to use the Borden

name, in any way, in the distribution and sale of the

product. No field services were performed by Re-

spondent in connection with private-label evaporated

milk.

e. Cost Analysis Prepared on a Nation-Wide Basis

85. In the opinion of Mr. Darcey and Dr. Taggart,

the cost analysis which they prepared was necessarily

predicated upon Respondent’s production and sales of

evaporated milk throughout the United States. In their

opinion, the relative costs of Borden Brand evaporated

milk, and of private-label evaporated milk, could be

correctly determined only by considering the over-all

expenses incurred by Respondent in producing and

selling such milk at all the various locations in which

Respondent sold its milk. As previously stated, Re-

sponden. s cost of producing its Borden Brand and

private-label! brand evaporated milk was the same un-

til the labels were applied. Each item of expense

thereafter, such as labels and cartons, freight, stor-

age, advertising, and so on, for all Respondent’s plants

was averaged, both for Borden Brand milk and for private-

label milk, on a nation wide basis, and that average com-

pared with the average selling price of the respective prod-

ucts,

86. On that basis, Respondent determined that the

difference between its selling price per case of Borden

Brand evaporated milk and its average selling price

per case of private-label evaporated milk had been

more than justified by an excess of $.1780 per case in

the average cost thereof.

f. Summary of Cost Analysis

87. Respondent’s summary of the cost analysis con-

tained in Respondent’s Exhibit 76 varies from that

exhibit in several respects so infinitestimal that they have

been disregarded. That summary is as follows:

Respondent’s Cost Analysis

1957

Average Per Case

Borden Private

Brand Label Difference

Gross Gales ............. _. $6.4046 $5.1743 $1.2303

Less Sales Deductions:

Damaged Goods .......... 0112 .0027 0085

Cash Discount Offered ..__. 1279 — 1279

Net Sales . _ $6.2655 $5.1716 $1.0939

Costs: .

Labels and Cartons... $ .1789 $ 1376 $ .0413

Primary Freight.......... 3684 .0188 3496

Secondary Freight ..... 0112 — 0112

Reserve Storage ......... .0690 — .0690

Consignment Storage .... .0305 —- .0305

Investment Cost.......... .0972 .0568 .0404

Premium Label Re-

WE. 5324) «out aas .2316 — .2316

ie 1247 — 1247

Sales Department ........ 3163 .0009 3154

Brokers’ Commissions .... 0427 — 0427

Promotion Department. ... .0189 0123 .0066

Eo te Sy eee 0151 .0062 .0089

» aa tele REE ALAM $1.5045 $ .2326 $1.2719

Difference in Cost .............. $1.2719

Difference in Price ........ 1.0939

Excess of cost difference

over price difference = $ .1780

XIX. Cost Study Prepared, and Presented in

Rebuttal, by Mr. Melvin C. Steele

a. Cost Failure of $.4025 Per Case

88. Counsel supporting the complaint recalled Mr.

Melvin C. Steele, who testified that he had prepared

a memorandum reviewing Respondent’s cost analysis

as presented in Respondent’s Exhibit 76, and a cost

study of his own, which he described as follows:

“ * * A summary has been prepared of the

price differences and the cost difference be-

tween the sale and distribution of Borden

brand and private label evaporated milk by

the respondent during the year 1957. The sales

were limited to shipments from the respond-

ent’s Chester, S. C. and Lewisburg, Tenn.

processing plants. The summary shows a net

price difference, after deducting damaged

. —

goods and cash discount, of $1.4181 per case

while the total cost difference was $1.0156

which indicated a cost failure of $.4025 per

case. The respondent’s cost study showed a

cost difference over price difference of $.1891

per case.”’

Mr. Steele’s memorandum containing the above sum-

marization was received in evidence as Commission’s

Exhibit 5479.

b. Choice of Two Plants as Basis for Cost Study

89. Mr. Steele’s testimony revealed that he was di-

rected by counsel supporting the complaint to make

this cost study, and to limit it to the cost data per-

taining to Respondent’s Chester, South Carolina, and

Lewisburg, Tennessee, plants only, the two plants at

which Respondent’s private-label evaporated milk had

been sold in 1957 at the lowest prices. Although Mr.

Steele testified that the basing of his study upon two

plants only was a proper method under ‘“‘the circum-

stances”, the exact nature of the “the circumstances”

was never satisfactorily explained. He also testified

that the Respondent’s nation-wide cost analysis was

not proper cost accounting, but the reason for that

conclusion was likewise never made clear.

90. We must observe that during the pre-complaint

investigation of Respondent’s price structure, prior to

this proceeding, Mr. Steele, in a memorandum based

upon data furnished him by the Respondent on a na-

tional basis, expressed the opinion that Respondent’s

on —

price difference was justified by its costs. At that time

he made no suggestion that a study should have been

made on the basis of only two of Respondent’s plants.

rather than upon a national basis including all of Re-

spondent’s nine plants.

91. Mr. Steele, in his computation of the two-plant

analysis, took into account a particular amount of

freight cost incurred by the Respondent in shipping

1,200 cases of Borden Brand milk from Chester, South

Carolia, to Coioniai Siores in Norfolk, Virginia, on

November 18, 1957. The amount of that freight cost

was 2ic per case. None of the accountants questioned

these facis. On the same day, however, the Respond-

ent also shipped to the same customer in the same

city, from the Respondent’s plant in Dixon, Illinois,

800 cases of Borden Brand milk, on which the freight

cust, also readily ascertainable from the Respondent’s

records, was 47c per case, or 26c per case greater

than, and more than twice as much as, the freight on

the above-mentioned shipment from the Respondernt’s

plant in Chester, South Carolina. Mr. Steele did not

take the latter freight cost into account in his analvsis.

While the figure which Mr. Steele did use, the 21c per

case on the shipment from the Chester plant, was

mathematically accurate, his exclusion of the other,

and muciu higher, figure of freight cost on the ship-

ment from the Dixon plent necessarily means that.

as to business done by the Respondent with that cus-

tomer in Norfolk, Virginia, Mr. Steele’s analysis does

not reflect the Respondent’s full cost.

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92. Counsel supporting the complaint contend that

they did not offer Mr. Steele’s cost study in evidence

‘to show a correct cost-justification defense, but mere-

ly to show the distortion resulting from the Respond-

ent’s broad over-all averaging in Respondent’s Ex-

hibit 76 by the contrast with a two-plant average.”’

The two-plant study presented by counsel supporting

the complaint does, as they suggest, show a distortion,

but we believe that the distortion is in the two-plant

study itself.

c. Corrected Cost Failure Reduced to $.2673

93. During cross-examination Mr. Steele discov-

ered several errors in his cost study, all of which were

adverse to the Respondent, and, when corrected by

Mr. Steele, showed the cost failure indicated by his

two-plant study to be only $.2673 per case, instead of

$.4025 as originally stated. This correction reduced the

unjustified remainder of the difference in price by

$.1352 per case. Mr. Steele’s corrected summarization

was received in evidence as Respondent’s Exhibit 114.

d. Conclusion as to Two-Plant Cost Study

94. We believe that, in a greater or lesser degree,

every accounting datum, no matter how precisely de-

terminable in isolation, is meaningful in this proceed-

ing only if considered in relation to all of the other

cost and price data. So believing, we conclude that the

two-plant cost study in question does not constitute an

edequate basis for a cost-justification study, nor an effec-

tive rebuttal of Respondent’s cost-justification defense.

XX. Items of Cost in Respondent’s Analysis

in Dispute Between Accountants

a. Investment Cost of $.0404 per case

95. As we have previously observed, Respondent,

in order to have its Borden Brand evaporated milk

available for immediate delivery throughout the

country, maintained a substantial inventory thereof

in all its plants, reserve warehouses and consignment

warehouses. As to private-label evaporated milk, how-

ever, Respondent maintained in storage at the plant

of its production only a supply sufficient to fill the or-

ders of its private-label customers which it had al-

ready received. This difference in the method of stor-

age in the process of sale and delivery of the Borden

Brand and private-label milk resulted in a substan-

tially higher investment by the Respondent in its Bor-

den Brand milk than in its private-label milk.

96. Respondent, in its cost-justification analysis,

concludes that the money invested in both Borden

Brand and private-label evaporated milk during the

time it was held in storage, valued at the rate of 8%,

resulted in an average cost of $.0835 per case for the

storage of Borden Brand milk, and an average cost

of $.0257 per case for private-label milk.

97. Mr. Steele did not question the Respondent’s

figures as to the money invested, nor that this con-

stituted a rea! cost to the Respondent; nor did he ques-

tion the soundness of the aforesaid 8% rate of interest

adopted for purposes of the calculation. He did state,

however, that it was not “acceptable as an element

of cost for the reason that it is considered to be a pay-

ment for the use of capital and not a cost of produc-

tion and distribution.’’ In his oral testimony, Mr.

Steele cited the Thompson's Products case, 55 FTC

1252 (1959), in support of his position. In that case, the

issue in question involved a claim of a ‘‘cost item”’

computed on the basis of profit, which is an issue quite

different from that herein raised. The Commission,

in its opinion in the Thompson’s Products case, stated

that ‘“‘the return rate factor or element here claimed

is thus entirely outside the sphere of actual cost dif-

ferences.’’ In our present case, however, the cost fac-

tor is not based upon profit, but is a legitimate ele-

ment of actual expense which must be borne by Re-

spondent in distributing and selling its product. The

Respondent, in the regular course of its business, con-

tinually incurs this real cost, which must be taken

into account if its cost figures are to reflect its actual

expenses.

98. Accordingly, we conclude that the difference of

$.0404 per case in investment cost between Respond-

ent’s Borden Brand milk and its private-label milk

was properly included by Respondent in its cost analy-

sis as one element of the difference in price between

Borden Brand and private-label milk.

b. Premium Label Redemption Cost of $.0069 Per

Case

99. Contained in the label of Borden Brand evapo-

ratea milk was a premium coupon which was redeem-

able for merchandise. The premiums were redeem-

able by Premium Associates, Inc., a corporation in

which Respondent held 25% of the stock. This corpora-

tion served not only the Respondent, but other corpo-

rate stockholders, and also non-stockholders, who

wished to avail themselves of such premium-redemp-

tion coupons and service. The redemption cost of the

Respondent’s Borden Brand coupons consisted of reg-

ular monthly payments by Respondent to Premium

Associates, Inc., based upon the number of coupons

redeemed during the preceding month, and a payment

for special offers. In addition, the Respondent also al-

located to its coupon redemption account the amount

of an adjustment which was made at the end of the

year to the reserve fund maintained to provide for re-

demption in future years of premium coupons issued

in 1957.

100. The facts show that Premium Associates, Inc.

has never paid any dividends to its stockholders; that

it endeavors to operate on a break-even policy: and

that its net income of $71,757.99 earned in 1957 was not

distributed to its stockholders, but retained by the

corporation as a reserve fund. Respondent had nothing

to credit to its coupon-redemption account from the

earnings of Premium Associates, Inc. in 1957. Mr.

Steele contends, however, that the total amount of the

premium cost, as shown in Respondent’s cost analy-

sis, should be reduced by Respondent’s 25% share of

the net income of Premium Associates, Inc. for 1957.

101. We believe that because the Respondent did

not technically, legally or actually receive any in-

—

come from its investment in Premium Associates,

Inc. in 1957, it would be improper to reduce the cost

of the premium-label redemption, as shown in Re-

spondent’s cost analysis, by any such amount as sug-

gested by Mr. Steele.

c. Advertising Cost of $.0059 Per Case

102. The Respondent’s costs in respect to Borden

Brand advertising, as determined by its accountants,

were $.1247 per case. This amount was determined on

the basis of an estimate made administratively at Re-

spondent’s top-management level. Mr. Steele chal-

lenged the soundness of that determination as arbi-

trary. In lieu thereof, he would make the determina-

tion by computing a percentage of Respondent’s total

sales dollars chargeable to Borden Brand milk for the

year 1957. In our opinion, Mr. Steele’s method of cal-

culating the advertising cost of Borden Brand milk is

sounder than Respondent’s method. Accordingly, the

amount of Respondent’s advertising cost charged to

Borden Brand evaporated milk will be reduced by

$.0059 per case, resulting in an advertising cost for

Borden Brand milk of $.1188 per case instead of $.1250,

as shown in Respondent’s cost analysis.

d. Broker’s Commission Cost of $.0159 Per Case

103. As stated in Respondent’s cost analysis, “ * * *

Brokers performed the function of selling the Divi-

sion’s |Borden’s Food Products Division] advertised

products to wholesalers and chains in those areas

where the Division did not have its own jobbing sales-

men”, The brokers were paid a commission of 5c per

case on the sale by them of Borden Brand evaporated

milk. The total brokerage paid in 1957 for the sale of

Borden Brand evaporated milk was $170,151.48. This

amount represents an average of $.0394 per case of

Borden Brand evaporated milk sold in that year. In

addition the Respondent paid brokers at the rate of

2-1/2c per case on some sales of private-label evapo-

rated milk, although the facts show that no substantial

service was rendered by them to Respondent in pro-

moting such sales. Respondent contends that this

brokerage payment constituted, in effect, an addition-

al brokerage cost chargeable to Borden Brand evapo-

rated milk. Mr. Steele contends, however, that because

the brokerage was not paid on all private-label milk

sales, and because the amount of the brokerage varied

directly with the sale of private-label evaporated

milk, the brokerage so paid should be considered as

an additional cost applicable to private-label evapo-

rated milk.

104. We believe that Mr. Steele’s analysis of this

problem is correct, and, accordingly, we conclude that

the brokerage cost charged by the Respondent entire-

ly to Borden Brand milk should be charged in part to

private-label milk, and that the brokers’ commission

cost of Borden Brand milk in Respondent’s cost analy-

sis should therefore be reduced by $.0159 per case, the

cost of brokerage paid on private-label milk, chang-

ing the Borden Brand brokerage cost from $.0427 per

case to $.0189 per case.

e. Sales Department Cost of $.0247 Per Case

105. Mr. Steele did not question the accuracy of the

Respondent's determination of the amount spent by

it to maintain its sales department. He did not ques-

tion the necessity or soundness of making an alloca-

tion thereof between Borden Brand evaporated milk

on the one hand, and the other Borden food products

on the other hand. The dispute between the account-

ants relates solely to the formula which should be used

in determining that allocation. The Respondent’s ac-

countants used as a basis for their calculation a’! dol-

lar sales, allocating to Borden Brand evaporated + ilk

that proportion of the total unallocated Sales Depart-

ment expense which the dollar sales of Borden Brand

evaporated milk bore to the total sales of all Borden’s

food products. That proportion was 44.0206%. Mr.

Steele contends, however, that this calculation should

be based upon the gross profits on Borden Brand

evaporated-milk sales compared with the sales of oth-

er Borden Brand food products, with the result that

he claims the percentage of sales expense to be

charged to Borden Brand evaporated milk should be

40.10%.

106. The managing officials showed by their testi-

mony that the touchstone by which they were guided

in allocating their sales-department expense consist-

ed of cases sold and sales dollars received. In our

opinion, this method of calculation is correct, because

cost is properly an element in the calculation of profit,

not profit in the calculation of cost. Accordingly, we

conclude that the correct amount of sales-department

cost to be properly charged to Borden Brand evaporat-

ed milk is $.3163 per case.

XXI. Conclusion as to Cost Justification

107. In our opinion, the Respondent’s cost analysis,

as hereinabove modified, constitutes full justification

for the differences in price between Borden Brand

evaporated milk and Respondent’s private-label evap-

orated milk, within the intent and meaning of §2 (a)

of the Clayton Act. It is therefore accepted as an ade-

quate cost-justification defense against the allegations

of the complaint herein.

XXII. Summary Conclusion

108. The acts and practices of the Respondent, as

herein found, are not in viclation of §2 (a) of the Clay-

ton Act as amended.

Accordingly,

IT IS ORDERED that the complaint herein be, and

the same hereby is, dismissed.

(Signed) ABNER E. LIPSCOMB

Abner E. Lipscomb

Hearing Examiner.

December 14, 1961.

ee er _

75 ;

ORDER PROVIDING FOR THE FILING OF

OBJECTIONS TO PROPOSED ORDER AND REPLY

(Number and Title Omitted )

COMMISSIONERS:

Paul Rand Dixon, Chairman

Sigurd Anderson

Philip Elman

Everette MacIntyre

A. Leon Higginbotham, Jr.

ee a eS Se ee

The Commission having rendered its decision in this pro-

ceeding, denying the respondent’s appeal, granting the ap-

peal of counsel supporting the complaint, vacating and

| setting aside the initial decision and making its own find-

| ings as to the facts, conclusions and proposed order in lieu

of findings as to the facts, conclusions and order contained

in the initial decision; and

The Commission having determined that the aforesaid

proposed order is subject to § 4.22(c) of the Commission’s

Rules of Practice:

IT IS ORDERED that respondent may, within twenty

(20) days after service upon it of this order, which has

attached thereto the said Commission’s decision, and find-

ings as to the facts, conclusions and proposed order, file

with the Commission its objections to any of the provisions

of the proposed order, a statement of its reasons in support

thereof, and a proposed alternative form of order appropri-

ate to the Commission’s decision

Hig oR Seg SN ane as ats ge aE

a ae SSL We aE Sra te ris Se ne

IT IS FURTHER ORDERED that counsel supporting the

complaint may, within ten (10) days after service of such

objections upon them, file a statement in reply thereto, sup-

porting the proposed order.

By the Commission.

(Signed) JOSEPH W. SHEA

Joseph W. Shea,

Secretary.

ISSUED: November 28, 1962

(SEAL)

FINDINGS AS TO THE FACTS, CONCLUSIONS

AND PROPOSED ORDER

(Number and Title Omitted)

COMMISSIONERS:

Paul Rand Dixon, Chairman

Sigurd Anderson

Philip Elman

Everette MacIntyre

A. Leon Higginbotham, Jr.

Pursuant to the provisions of an Act of Congress, en-

titled “An Act to supplement existing laws against un-

lawful restraints and monopolies, and for other purposes”,

approved October 15, 1914 (the Clayton Act), as amended

gat

Bee

by the Robinson-Patman Act, approved June 19, 1936 (15

US.C., Sec. 13), the Federal Trade Commission on April

22, 1958, issued and subsequently served upon respondent

its complaint in this proceeding, charging said respondent

with violation of subsection ( a) of Section 2 of the Clay-

ton Act, as amended. Respondent’s answer to the com-

plaint was filed June 23, 1958. Hearings were held before

a hearing examiner of the Commission and testimony and

other evidence in support of and in opposition to the al-

legations of the complaint were received into the record.

The hearing examiner, in his initial decision filed Decem-

ber 15, 1961, held that the acts and practices of the re-

spondent, as found in his initial decision, were not in vio-

lation of the law as charged and he accordingly ordered

the complaint dismissed, Counsel supporting the complaint

and respondent have filed cross-appeals.

The Commission having considered said appeals and

the briefs and oral argument in support thereof and in op-

position thereto, and the entire record herein, and having

granted the appeal of counsel supporting the complaint and

denied the respondent’s appeal, and having vacated and set

aside the initial decision, now makes this its findings as

to the facts, conclusions drawn therefrom and proposed

order, which, together with the accompanying opinion,

shall be in lieu of the findings, conclusions and order con-

tained in the said initial decision.

FINDINGS AS TO THE FACTS

1. Respondent, The Borden Company, is a corporation

organized, existing and doing business under the laws of

the State of New Jersey, with its principal office and

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place of business located at 350 Madison Avenue, New

York 17, New York.

2. The respondent is engaged in the manufacture, proc-

essing, distribution and sale of an extensive variety of food,

dairy and chemical products in the United States and

abroad. Its total sales in 1957 amounted to $931,220,662.00.

The only product with which we are here concerned is

evaporated milk. Substantial quantities of this product have

been shipped from respondent’s various plants to purchasers

thereof located in states other than the states of manu-

facture. In 1956, respondent’s sales of evaporated milk ex-

ceeded $30,000,000.00.

3. Respondent has been producing and selling Borden

brand evaporated milk since 1892. The respondent’s car-

load and pool-car delivered prices for Borden brand evapo-

rated milk during the period of time included in the com-

plaint were as follows:

January 1, 1956, to May 14,1956.......... $6.05 per case,

tall 48s;

May 15, 1956, to March 29, 1957 .......... 6.30 Ditto;

March 30, 1957, to November 18, 1957 .... 6.45 Ditto;

November 19, 1957, to March 31, 1958 ... 6.60 Ditto.

The less-than-carload prices throughout this period of

time were 5c higher per case of tall 48s. The terms of sale

have included a cash discount of 2% if paid within 10 days

after sale, and a swell allowance of 1/10 of 1% to cover

damaged goods sold to retail buyers. Such sales of Borden

brand evaporated milk were made principally to whole-

salers or jobbers, and to chain stores.

4. In about 1938, the respondent began packing its evap-

orated milk under the private labels of the purchasers as

well as under its own Borden brand. During the period

of time with which we are concerned, January 1, 1956, to

March 31, 1958, the prices of such milk were determined by

a pricing formula applicable to all of respondent’s private

label customers. This formula included the cost of the

buyer’s label, the cost of hauling the milk from the dairy

farm to respondent’s plant, the average monthly cost of the

milk, and, finally, a factor referred to as “COTM”, or “Cost

Other Than Milk”, which included the cost of additives such

as Vitamin D, the cost of cans, the plant processing, over-

head cost, and a gross margin or profit factor. The re-

spondent’s private label prices determined in accordance

with the foregoing formula, sometimes referred to as the

“Cost plus pricing formula”, were net f.o.b. plant. No cash

or other discount was allowed the purchaser of private label

milk, and all purchasers buying from the sale plant at or

about the same time paid the same price. These prices,

however, varied from one to another of respondent’s plants,

and from month to month in conformance with the chang-

ing price of milk paid to the farmers. A further factor of

variation was respondent’s periodic revision of its gross

margin of profit, which was reviewed approximately every

six months, and adjusted to the changing conditions of re-

spondent’s general operation.

5. In the course and conduct of its aforesaid business,

respondent has been and is now engaged in commerce, as

“commerce” is defined in the Clayton Act, as amended.

6. The evidence shows that there was no difference in

the physical composition or quality of the evaporated milk

OE ae lat i tN EE EN ga

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sold and delivered by the Borden Company under its own

label, and that sold f.o.b. plant under the private labels of

its customers. In both instances the milk was processed in

the same manner to meet both Federal standards and Bor-

den’s own quality standards. Milk which was qualitatively

the same was placed in cans which were qualitatively the

same. The method of processing the raw milk fixed both

its quality and its grade, which could not thereafter be

changed, either by attaching to the various cans labels

bearing different brand names, or by selling the variously

labeled cans at different prices. Respondent’s evaporated

milk, regardless of how it was labeled or at what price it

may have been sold, either at respondent’s plant or in the

market place, was milk of “like grade and quality” within

the meaning of Section 2(a) of the Clayton Act, as amend-

ed.

7. Numerous invoices in the record showing sales to dif-

ferent customers disclose that during the period of time

included in the complaint, the f.o.b. price of respondent’s

private label evaporated milk at its various plants was con-

sistently and substantially lower than the delivered price

of respondent’s Borden brand evaporated milk. The trans-

actions evidenced by these invoices occurred at one or an-

other of respondent’s nine plants, located, respectively, at

Fort Scott, Kansas; Wellsboro, Pennsylvania; Modesto,

California; Albany, Oregcn; Dixon, Illinois; New London,

Wisconsin; Perrinton, Michigan; Lewisburg, Tennessee;

and Chester, South Carolina. The prices of Borden brand

and private label brand evaporated milk prevailing at two

of respondent’s plants during the time involved illustrate

the differences in price, as follows:

Chester, South Carolina, Plant

Delivered price, F.o.b. price,

1957 Borden brand milk private-label milk

June $ 6.45 per case $ 4.8942 per case

July 6.45 per case 4.9051 per case

August 6.45 per case 4.9210 per case

September 6.45 per case 4.8660 per case

October 6.45 per case 4.8166 per case

November 6.45 per case 4.9361 per case

December 6.60 per case 4.9741 per case

1958

January $ 6.60 per case $ 5.0227 per case

February 6.60 per case 5.0289 per case

March 6.60 per case 4.9436 per case

1956

August

September

October

November

1957

January

February

March

Lewisburg, Tennessee, Plant

Delivered price,

Borden brand milk

$ 6.30 per

6.30 per

$ 6.30 per

6.30 per

case

F.o.b. price,

private-label milk

$ 4.7363 per case

4.81988 per case

4.8321 per case

4.7718 per case

4.8418 per case

4.7411 per case

4.8211 per case

4.8311 per case

$ 4.9837 per case

5.0737 per case

5.0478 per case

4.9628 per case

5.0578 per case

4.9766 per case

eee ee oy Sree

March 6.30 per case 4.8966 per case

March 6.30 per case 4.9666 per case

: March 6.30 per case 4.9866 per case

P March 6.30 per case 5.0566 per case

: April 6.45 per case 4.8742 per case

; April 6.45 per case 4.9542 per case

May 6.45 per case 4.8389 per case

May 6.45 per case 4.9189 per case

4 June 6.45 per case 4.8749 per case

bs July 6.45 per case 4.9232 per case

4 July 6.45 per case 4.8332 per case

4 August 6.45 per case 4.8327 per case

2 September 6.45 per case 4.8744 per case

: October 6.45 per case 4.9738 per case

3 November 6.45 per case 4.966 per case

3 December 6.60 per case 4.999 per case

A 19538

¢ January $ 6.60 per case $ 5.0273 per case

H February 6.60 per case 5.0072 per case

: March 6.60 per case 4.9436 per case

: March 6.60 per case 4.9188 per case

The record shows that these differentials are not account-

ed for by differences in the cost of transportation arising

from the f.o.b. deliveries and the destination deliveries.

PO IL AIIM ict

8. It is found that respondent, while engaged in com-

merce and in the course of such commerce, discriminated

in price between different purchasers of commodities of

like grade and quality.

9. Representatives of seven relatively small canners of

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—

evaporated milk located in the Midwest testified in sup-

port of the complaint. Although each of these seven milk

canners sold evaporated milk both under their own labels

and under private labels, by far the larger percentage of

their evaporated milk business consisted of the sale of pri-

vate label milk. None of them advertised or sold their prod-

uct on a national level, and all of them sold their private

label evaporated milk, with minor exceptions, on a deliv-

ered-price basis. These companies all competed with re-

spondent in the sale of evaporated milk. These and other

Midwestern competitors will sometimes hereinafter be re-

ferred to as the Midwest competitors.

10. These testifying Midwest competitors and their

plant locations are as follows:

Company and Plant Locations

Page Milk Company, Merrell, Wisconsin, and

Coffeyville, Kansas (Page)

United Dairy Company, Barnesville, Lodi and

Waterford, Ohio (United)

Westerville Creamery Company, Covington, Ohio

(Westerville)

Gehl Guernsey Farms, Germantown, Wisconsin

(Gehl)

Dairyland Cooperative Association, Juneau, Wis-

consin (Dairyland)

Defiance Milk Products Company, Defiance, Ohio

(Defiance)

Nashville Milk Company, N ashville, Ohio, a wholly

owned subsidiary of Defiance (Nashville)

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tisk

11. Sales volumes on a tall can basis for the testifying

_Midwest competitors individually and for the respondent

for the years 1955-1957 were as follows:

Packer 1955 1956 1957

Page 720,884 726,443 735,803

United 887,651 1,041,041 958,373

Westerville 701,847 593,739 589,242

Gehl 108,924 168,479 285,544

Dairyland 25,766 49 404 None*

Defiance 739,886 699,953 694,166

Nashville 132,863 150,645 . 158,811

Respondent 5,235,852 5,010,205 5,419,108

*Discontinued evaporated-milk production in April 1957.

United States Department of Agriculture Dairy Statis-

tics in the record show supply and distribution (which ap-

proximates total commercial sales) of canned evaporated

milk in the Unted States as follows:

(In Millions of Pounds)

1950 — 2,720 1954 — 2,362

1951 — 2,456 1955 — 2,297

1952 — 2,406 1956 — 2,257

1953 — 2,407 1957 — 2,204

On the basis of 43 1/2 pounds to the tall case, the total sales

volumes in tall cases for the most recent three years of

those mentioned were: 1955 — 52,804,598; 1956 — 51,-

862,069; 1957 — 50,666,667.

12. The record also reveals that in recent years a num-

ber of companies have gone out of the evaporated milk

business. The concerns which have discontinued the pro-

duction of evaporated milk since 1950 include the follow-

ing:

Dairyland Cooperative Association (Dairyland

Cooperative), Juneau, Wisconsin (discontin-

ued April 1957).

Amboy Milk Company, Amboy, Illinois (discontin-

ued early in 1958). |

Dean Milk Company (discontinued 1955 or 1956).

Fort Dodge Creamery Company.

Rochester Dairy Company, Rochester, Minnesota

(discontinued 1954 or 1955).

Hillpoint Creamery Company, Reedsburg, Wiscon-

sin.

Dairyland Distributors Cooperative, Watertown,

Wisconsin.

Producers Creamery, Springfield, Missouri (dis-

continued in 1956).

Reich McJunkin, Meadville, Pennsylvania.

Wilson Milk Company, Indianapolis, Indiana.

Also, between 1956 and 1958, Consolidated Badger Coopera-

tive restricted its evaporated milk operation to Wisconsin

and the upper part of Michigan. There have been no new

concerns going into the evaporated milk business.

13. When respondent expanded its operations and sales

in the private label evaporated milk field beginning about

1956, Midwest competitors began to lose customers and

sales to respondent. In certain instances, sales were lost to

respondent indirectly. Some of the lost customers switch-

ing to respondent’s private label evaporated milk made

their purchases of the product through Biddle Purchasing

Company, New York City, an organization which performs

a buying service for wholesale grocers. A partial list of

specific accounts lost includes:

‘

“H

Competitors Account Lost

Page Kembell Grocery Co., Fort Worth, Tex-

as.

United The Penn Fruit Co., Philadelphia, Penn-

sylvania; Brockton Public Markets,

Brockton, Massachusetts.

Westerville Colonial Stores, Thomasville, Georgia;

Thomas & Howard Co., Columbia, South

Carolina.

Gehl General Retailer Owned Grocers, Chi-

cago, Illincis; Dixie Home Stores, Green-

ville, South Carolina.

Dairyland The Penn Fruit Co., Philadelphia, Penn-

piss

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Boh,

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4 syivania; Klein’s Supermarket, St. Paul,

z Minnesota.

x Defiance Central Retailer Owned Grocers, Chi-

% cago, Illinois; Colonial Stores, Raleigh,

3 North Carolina.

z Nashville Central Retailer Owned Grocers, Chi-

% cago, Illinois; Colonial Stores, Thomas-

‘ ville, Georgia; Winn Dixie, Tampa, Flor-

ida, and others for various of the above

competitors.

14. The full amounts of the losses by Midwest competi.

tors to respondent can only be estimated based on the prio!

i Sa cs Sap tego a it 1 Sta

a a

purchases of each last account. By so doing, the estimated

loss was at least 241,815 cases, and the actual loss may well

have been higher. The sales losses were as follows for each

testifying Midwest competitor:

Cases Lost

Competitor to Respondent

Page 3,650

United 14,168

Westerville 38,397

Gehl 25,434

Dairyland 22,320

Defiance 72,806

Nashville 65,040

Total 241,815

15. The loss of business was substantial, particularly

for some of the competitors. For instance, Dairyland Co-

operative, which subsequently discontinued evaporated

milk production, lost the Topco Associates’ account in 1956

to respondent. The total purchases through this account in

1956 were $22,320. Dairyland Cooperative’s total evaporated

milk sales in 1956 were only 49,404 cases. The loss was about

one-half its sales for the period. Witness DeMaster testi-

fied that Dairyland Cooperative’s decline in sales and even-

tual discontinuance of business was due to the freight rate

edvantage of plants to the East. However, it was not until

the time that respondent expanded in the private label

field, applied its discriminatory prices and took a substan-

tial share of the firm’s business that it finally discontinued

production of the product. Although other factors appar-

ently were involved, the finding is that respondent’s price

3 SACRA PARE ONS OPS

j 88

4 structure to a significant extent led to Dairyland’s discon-

i tinuance.

3 16. The entry and expansion of respondent in the pri-

¢ vate label field and its pricing methods has put severe

pressure on its Midwest competitors. Mr. Page, of Page

: Dairy Company, testified:

“_.. The entry of the Borden Company into the

private label business and the manner in which

4 they have been operating has placed a severe com-

petitive pressure on the entire unadvertised brand

of private label milk structure and that has, in my

opinion, largely been felt in the way, as far as we

are concerned, has largely been felt in the way of

a lowered market price with which we must con-

tend.”

Mr. Anderson, of United Dairy Company, referred to the

same situation in his testimony as follows:

“The competition has forced our prices down from

the level we had previous to that and some of the

competition has been selling on a different basis,

on an f.o.b. basis and it is made highly competitive

because of those factors.”

Pi ey CSR PO

17. Certain of the testifying competitors gained in sales

volume in the period covered by the complaint. At least

part of these increases, however, was obtained from other

; Midwest companies which had ceased operations. Witness

Page, of Page Dairy Company, testified that he attributed

the increase of his company principally to trade that had

Pisses Ste ats ROL ROS ec

;

}

previously been handled by Producers Creamery of Cabool,

Missouri, which company went out of business. Witness An-

derson, of United Dairy Company, testified that the increase

of that company was accounted for by additional business

received from former customers of Wilson Milk Company

obtained when that company sold its evaporated milk busi-

ness to Dean Milk Company, of Chicago. Witness Diehl, of

Defiance Milk Products Co., testified that increases for

both Defiance and Nashville Milk Company (a subsidiary )

were in part due to business gained from evaporated milk

plants that had gone out of business. To a considerable ex-

tent, therefore, the increases were mere windfalls and can-

not be expected to reoccur on a regular basis. Sooner or

later the full effect of respondent’s discriminatory price

structure can be expected to take its full toll.

18. It undoubtedly is a factor to be considered in this

matter, although not a crucial one, that plants in the Mid-

west were disadvantaged as to the Eastern and Southeast-

ern markets over plants located in the East and Southeast

because of increased freight costs. Indicative of this is the

difficulty which Dairyland Cooperative had in competing

for markets in the East. However, there is no clear over-

all picture in the record as to the extent or the significance

of possible freight advantages which respondent might

have had over competitors. It is clear from the record,

based on facts shown and the reasonable inferences to be

drawn therefrom, that plant location advantage, if an ele-

ment in the switching of customers to respondent, was only

one of several considerations, and that another important

element was the lower (discriminatory) prices on the pri-

vate label product compared to Borden brand.

pr er a ee eT

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19. This record does not show a complete market pic-

ture for the evaporated milk industry, but it does develop

the competitive situation as between respondent and the

Midwest competitors. Respondent by comparison to these

competitors is a large and powerful concern. It has broad

resources in that it sells a wide variety of food products

both at home and abroad. Moreover, its sales of evaporated

milk are principally under Borden brand, whereas the

testifying competitors generally indicated that their evapo-

rated milk sales were mostly private label. In other words,

the testifying competitors were considerably more depend-

ent upon private label evaporated milk sales than the re-

spondent.

20. Respondent’s prestige and power in the market is

illustrated by the fact that private label customers came

to respondent seeking a source of supply. On the other

hand, the Midwest competitors are small companies with

relatively small sales volumes of evaporated milk com-

pared to the sales of respondent. They maintain a rather

precarious hold in the market place. As we have seen, sales

for evaporated milk diminished in the period disclosed by

the record. Since 1950, at least ten concerns, mostly in the

Midwest, have discontinued production of evaporated milk.

There are no new concerns coming into the business. Un-

der such circumstances, little is needed to shift the com-

petitive balance. Respondent came into the market using

a discriminatory pricing structure. This has put a severe

strain on the smaller competitors as some of them testi-

fied. In fact, the discontinuance of Dairyland Cooperative

is tied to respondent’s expansion in the field and its use of

discriminatory prices, The testifying Midwest competitors

all lost accounts to the respondent and it appears that the

shift of business has been permanent.

21. In this market setting, respondent’s price discrimina-

tion is a clear threat to the entire competition provided by

the Midwest concerns. If the price discrimination is con-

tinued, the elimination or the serious impairment of compe-

tition from small competitors in the industry is likely. This

is enough to satisfy the injury requirement of the Act. We

find and conclude that the effect of respondent’s discrim.

inatory pricing may be substantially to lessen or to injure,

destroy or prevent competition with respondent, i.e., there

is a likelihood or a reasonable probability of substantial

competitive injury in the primary line.

22. There is also a showing in the record that the effect

of the discrimination may be substantially to lessen or to

injure, destroy or prevent competition with customers of

the person who granted the discrimination. This would be

competition with respondent’s wholesale customers and

with its retail customers, The differences in prices to cus-

tomers, including competing customers, is well documented

by the evidence. The following are examples:

Borden Private

Brand Label

Delivered f.o.b.

Customer Date Price Price*

Hartley Grocery 7/18/57 6.45

Columbia, S. C.

(wholesaler )

Biddle Purchasing Co. 7/18/57 4.9051 **

at Thomas & Howard

Columbia, S. C.

(wholesaler)

Rawl Distributing Co. 7/ 8/57 6.45

Columbia, S. C.

(wholesaler )

Raw! Distributing Co. 3/ 4/58 6.60

Columbia, S. C.

Biddle Purchasing Co. 2/ 4/58 5.0289

at Thomas & Howard

Columbia, S. C.

Piggly Wiggly 1/10/58 5.0227

Carolina Co., Inc. 3/ 7/58 4.9436

Columbia, S. C. me

(chain retailer)

* Prices do not include cost of labels.

**The purchase in this instance was made by Thomas & Howard,

Chester, South Carolina, for Chester & Howard at Columbia,

South Carolina, through the Biddle Purchasing Company. Biddle

was paid $5.04 per case and Thomas & Howard, Columbia, South

Carolina, was billed by its affiliate at a $.17 per case markup to

cover cost of labels and handling for a total of $5.21 per case.

23. The testimony from wholesalers as well as retailers

disclosed the extremely low or nonexistent profit margins

on evaporated milk. In most instances, wholesalers and re-

tailers testified that evaporated milk was handled for ac-

commodation to customers and not for profit, In fact, evap-

orated milk is used as a loss leader which indicates that dis-

criminatory prices made it difficult for the unfavored cus-

tomers to compete not only because of higher prices on that

item but because it would tend to draw away customers

for other products as well. Wholesale and retail witnesses

testified to the effect that a lower price from the producer,

such as the price on respondent’s private label goods, would

have been of great value in improving profit margins and

assisting in meeting the competition on this item. The fol-

towing is illustrative of pertinent testimony on the sub-

ject:

Woodrow W. Power, Power Food Stores, Inc., Columbia,

South Carolina (retailer) (R. 454):

“Q. Now, you mentioned a short while ago, Mr.

Power, you are in competition with various

other stores in your vicinity like Piggly

Wiggly, A&P, Colonial and the like. Now, I

assume that you follow their sales advertis-

ing policies and their merchandising policies?

“A. Yes.

“Q. Have you found them advertising private

label milk at a price less than that charged

by you for brand label?

“A. Yes.

“Q. Or for any evaporated milk which you han-

dle?

“A. Yes.

“Q. Have you found that you could meet that

price that is charged by them?

“A. No, sir, I can’t buy it that cheap.

“Q. Well, if you were able to obtain the private

label evaporated milk from Hartley or Mer-

chants at a price say of $5.25, $5.30, would you

be interested in it?

“A. Yes.”

Daniel Shumpert, Shumpert Food Sales, West Columbia,

South Carolina (retailer) (R. 473):

“Q. Why do you say a nickel or a dime would

have been of help? In other words, any dif-

ferential of a cost of a nickel or a dime for

private label.

“A. It puts me in a position to meet competition

prices more. The lower I can buy the cheaper

I can sell it.”

Harold A. McFeely, R. P. Turney & Company, Greer,

South Carolina (wholesale grocery) (R. 563, 564):

“Q. Well, is the explanation you have just made,

does it apply to the reason or the reason why

you would have been interested in the private

label evaporated milk? Just exactly why

would the private label have been important

to you?

“A. I sell government agencies, state and local

county quite a bit of merchandise for their

chain gang camps and prisons and I have

never been able to get that business due to the

fact that I had only advertised brands to

quote on and in checking at the offices I find

that this milk under this label in one parti-

cular case has been getting the business for

a year or so.

“Q. Do you remember the name on the label?

“A. I couldn’t touch it. Yes, Red and White, put

out by Thomas & Howard is a brand I see in

Greenville now in the County Home and var-

ious different institutions and it is sold to

them on the basis of what you said a few

minutes ago, $5.25 or $5.30, this milk is sold

at 25 to 30 cents a case profit and when I

quoted $6.60 I did not receive any business

and I was out of line over a dollar per case. So

if I had secured the business at $6.60 it

wouldn’t have meant anything, but if I had

had the private label milk I could have com-

peted in the market and would have been able

to get the business with that price.”

24. It has been shown, in short, that some purchasers

‘have paid less than their competitors for purchases of

like goods from respondent and that the difference is, in

the circumstances, substantial. We find and conclude, there-

fore, that the effect of respondent’s price discrimination

may be substantially to lessen or to injure, destroy or pre-

vent competition with respondent’s customers.

25. Respondent has submitted a cost study in an at-

tempt to cost justify the price discrimination case shown

pursuant to the cost proviso in Section 2(a). The finding is

that respondent’s cost study is inadequate and unaccept-

able primarily because of the broad averaging employed.

It is also found that the alleged items of expense appear-

Se SE SR aromaien bs

USCS Ae SEMPRE Oc Te OMT eee ER eT Gee eT ee DT ee ee

DiS at SancaieS ail Hie at

A le 2? GRINS antes aks

ing as “Investment Cost” and “Brokers’ Commissions” were

improperly listed as costs for the purpose of cost justifica-

tion under the amended Clayton Act.

CONCLUSIONS

The Federal Trade Commission has jurisdiction of the

subject matter of this proceeding and of the respondent.

The acts and practices of the respondent, as herein found,

violate subsection (a) of Section 2 of the Clayton Act, as

amended.

PROPOSED ORDER

IT IS ORDERED that respondent The Borden Company,

a corporation, its officers, representatives, agents and em-

ployees, directly or through any corporate or other device

in, or in connection with, the sale of food products in com-

merce, as “commerce” is defined in the amended Clayton

Act, do forthwith cease and desist from discriminating in

the price of such products of like grade and quality by

selling to any purchaser at a price higher than the price

charged any other purchaser who, in fact, competes with

the purchaser paying the higher price or with a customer

of the purchaser paying the higher price.

The term “price” as used in this order means the net

price after all discounts, including cash discount, rebates

or other allowances, including damaged goods allowance,

have been deducted.

IT IS FURTHER ORDERED that respondent The Bor-

den Company, shall, within sixty (60) days after service

upon it of this order, file with the Commission a report,

in writing, setting forth in detail] the manner and form in

which it has complied with the order to cease and desist.

By the Commission, Commissioner Elman dissenting and

Commissioners Anderson and Higginbotham not participat-

ing.

(Signed) JOSEPH W. SHEA

Joseph W. Shea,

Secretary.

ISSUED: November 28, 1962

ROSS a ora ep agar

OPINION OF THE COMMISSION

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS:

Paul Rand Dixon, Chairman

Sigurd Anderson

Philip Elman

Everette MacIntyre

A. Leon Higginbotham, Jr.

In the Matter of

THE BORDEN COMPANY,

a corporation.

DOCKET NO. 7129

By Dixon, Commissioner:

Respondent has been charged with violating Section 2(a)

of the Clayton Act, as amended, by discriminating in price

between its customers buying evaporated milk under the

Borden label and those buying such product under private

label. The hearing examiner, in his initial decision filed

December 15, 1961, held that no price discrimination in

violation of the Act was established because there was nc

showing of substantially lessened competition or a rea-

sonable probability of such danger to competition in the

future. He further held that respondent had fully cost

justified the price differences shown. The examiner dis.

missed the complaint.

Both parties have appealed. Counsel supporting the com-

plaint challenges the holding that there was a failure to

prove competitive injury as prescribed in the Act and from

the holding that respondent had successfully cost justified

the price differences. They request that respondent be

found to be in violation of Section 2(a) and that an ap-

propriate order to cease and desist be issued. Respondent,

in its appeal, mainly contests the examiner’s finding and

conclusion that evaporated milk under its Borden’s brand

and private label are commodities “of like grade and

quality”.

The Borden Company is engaged in the manufacture and

sale of a wide variety of food, dairy and chemical products

in the United States and abroad. Its total sales in 1957

were $931,220,662. The commodity involved in this pro-

ceeding is evaporated milk, a product made from whole

fresh milk by processing, which includes evaporation,

homogenization, and the addition of vitamins and certain

minerals. Respondent manufactures and sells evaporated

milk in commerce in substantial quantities. In 1954, its sales

of the product exceeded $30,000,000. Respondent’s plants

for producing evaporated milk during the period covered by

the complaint were located at Fort Scott, Kansas; Wells-

boro, Pennsylvania; Modesto, California; Albany, Oregon;

Dixon, Illinois; New London, Wisconsin; Perrinton, Michi-

gan; Lewisbury, Tennessee; and Chester, South Carolina.

Packers of evaporated milk consist of those who sell

under nationally advertised brands, i.e., respondent, Pe.

Milk Company, and the Carnation Company; chain stores

and their subsidiaries which pack only for their respective

organizations under their own brands, e.g., The Kroger

RE EET Ay LAM ORAS RG ADRES SE ES

100

Company; and the smaller packers who produce main!

under labels owned and controlled by their customer

Packers in this latter category in the Midwest, some of ther

testified in the proceeding, include:

Page Milk Company, Merrill, Wisconsin;

United Dairy Company, Barnesville, Ohio;

United Milk Company, Cleveland, Ohio;

Defiance Milk Products Company, Defiance, Ohio;

Westerville Creamery Company, Westerville, Ohio;

Gehl Guernsey Farms, Milwaukee, Wisconsin;

Edwardsville Milk Company, Edwardsville, Illinois;

Consolidated Badger Cooperative, Shawano, Wisconsi

These concerns were all in competition with Borden |

the sale of evaporated milk in the period covered by tl

complaint. These and other packers in the Midwest wi

hereinafter sometimes be referred to as the Midwest con

petitors.

I. “Like Grade and Qutlity”

As an essential element in a Section 2(a) matter, the

must be a showing that the commodities involved in tl

price discrimination are “of like grade and quality”.' R

spondent concedes in its brief that physically, at the poi

of manufacture, the two products (the Borden brand ar

1Section 2(a) reeds in pertinent part:

“That it shall be unlawful for any person engaged

in commerce, in the course of such commerce, either

directly or indirectly, to discriminate in price be-

tween different purchasers of commodities of like

grade and quaiity...”

101

the private label) were alike. It argues, however, that in

the market place they were unlike, i.e., the one (Borden

brand) could command a higher price than the other (pri-

vate label), and, therefore, they were not of like grade and

quality within the meaning of the statute.

The Commission in a number of prior proceedings has

held that goods which are the same in all respects except

labels are comparable goods for the purpose of Section 2,

or goods of like grade and quality. In The Goodyear Tire

& Rubber Company, 22 F.T.C. 232 (1936), reversed on other

grounds 101 F. 2d 620 (6th Cir. 1939), a pre-Robinson-Pat-

inan Act proceeding, the Commission held, in effect, that

corresponding grades.of Sears, Roebuck & Co. private label

tires and Goodyear’s own brands of tires were comparable

in grade and quality. Under the Clayton Act, as amended

by the Robinson-Patman Act, the Commission in United

States Rubber Co., et al., 28 F.T.C. 1489 (1939), a matter in-

volving tires, and United States Rubber Co., 46 F.T.C. 998

(1950), a matter involving canvas shoes, prohibited dis-

criminatory price differentials between sellers’ brands

and customers’ private Mem, Fo ae the Commission

disregarded brand differences andfound the products to be

of like grade an quality. Similarly, in Page Dairy Co., 50

F.T.C. 395 (1953), different label markings were held to

be without significance. See also, the Trade Practice

Rules for the Steel Bobby Pin and Steel Hair Pin Manu-

facturing Industry (1957) (Rule 11, Section II, Example

2Under old Clayton Act Section 2, the provision for price differen-

tials reflecting differences in “grade” or “quality” wes a de-

fensive proviso. In the Act as amended, the provision “like

grade and quality” was placed in the definitional text of the

statute.

ERLE IP NE AID,

102

No. 4) in which, under the example, brand differences ar

disregarded.

There have been some court decisions as to the meanin

of the phrase “like grade and quality”, but these do nc

ceal with the precise issue now before us, i.e., whethe

the label difference alone renders the goods unlike an

outside the scope of the Act. The court cases include Bruce’

Juices, Inc. v. American Can Co., 87 F. Supp. 985, 987 (S.I

Fla. 1949), aff'd 187 F.2d 919, 924 (5th Cir. 1951), modifie

190 F.2d 73 (5th Cir. 1951) (District Court upheld on holc

ing the different sized cans were of like grade and quality)

Atalanta Trading Corp. v. Federal Trade Commission, 25

F. 2d 365 (2nd Cir. 1958) (rejection of a broad “relevan

market” test for determining “like grade and quality”)

Moog Industries, Inc. v. Federal Trade Commission, 23

F.2c 43 (8th Cir. 1956), reviewed on other grounds 355 U.S

411 (1958) (noninterchangeable items in a line or automc

tive parts sufficiently comparable for price regulation).

The legislative history leaves little doubt that Congres

intended that brand distinctions be disregarded under th

“like grade and quality” requirement. The Commission

The Goodyear Tire & Rubber Company case, supra, wa

noied in a Committee report.? At one point in the cor

3H. Nev. No. 2287, 74th Cong., 2nd Sess. 4. The Report refers t

the case as support for the view that the granting of prefer

ences was net confined to any cone line of indusiry or distr

bution. The Report states that the Commission found in th

Goodtear case thet “... vt no time did it [Goodyear Tire ¢

Rubber Co.] offer its own dealers prices on Goodyear brand

of tives which were comparable to prices st which responder

was selling tires of equal and comparable quality to Sear:

Roebuck & Co.”

103

sideration of the legislation, there was a move to amend

the bill by inserting “and brands” after the words “com-

modities of like grade and quality.” This proposal was

branded by the draftsman of the Patman bill, as “a specious

suggestion that would destroy entirely the efficacy of the

bill against large buyers.”4 Congress could have re-

quired a distinction for brands. It did not.

Respondent, interestingly, does not contend in its argu-

ment, that all brand differences result in goods of unlike

or different grade and quality. Clearly, the basic aims of the

Act could be too easily thwarted if merely changing a label

would nullify the application of the statute. Respondent

argues, instead, that a distinction should be made between

differing situations, as follows:

(a) the situation where the brand name is not

shown to represent any significant added value be-

ing sold by the manufacturer, and

(b) the situation where, as is asserted in the

present case, the manufacturer’s well-known brand

name has a very substantial and thoroughly demon-

strated commercial significance.

Respondent has cited no controlling authority or persuasive

support of any nature for such interpretation. We believe

it to be more reasonable, considering the objectives of the

legislation, to interpret the phrase so as not to exclude the

application of the Act in cases where the only distinction

4Hearings Before a Subcommittee of the House Committee on the

Judiciary, on Bills to Amend the Clayton Act, 74th Cong., 2nd

Sess. 421, 469 (1936).

Fe]

‘

Predicate este oie

104

is in the label. In this connection, the Attorney General’s

Report had this to say in part:

“The majority of this Committee, however, rec-

ommends that the economic factors inherent in

brand names and national advertising should not

be considered in the jurisdictional inquiry under

the statutory ‘like grade and quality’ test ... [T]he

Committee majority believes that abandonment of

a physical test of grade and quality in favor of a

marketing comparison of intrinsically identical

goods might not only enmesh the administrators of

the statute in complex economic investigations for

every price discrimination charge, but also could

encourage easy evasion of the statute through arti-

ficial variations in the packaging, advertising or de-

sign of goods which the seller wishes to distribute

at differential prices .. .” (Report of the Attorney

General’s National Committee to Study the Anti-

trust Laws, 158 (1955).5

This we believe is a sound analysis. In our view, the

discriminatory price transactions should first be subject

to scrutiny under the statute; the market factors which

may dictate that there will be different prices between the

seller’s brand and private label can then be considered in

connection with the provisions of Section 2. For example,

8In Moog Industries, Inc. v. Federal Trade Commission, 238 F. 2d

43, 49 (8th Cir. 1956), the court adopted the statement in the

Attorney General’s Report at page 157 that “The like grade

and quality concept ... was designed to serve as one of the

necessary rough guides for separating out those commercial

transactions insufficiently comparable for price regulation by

the statute.”

105

if cost savings are involved, these can be raised in con-

nection with a cost defense. Thus, economic factors may

be considered, but the price relationship between different

brands of intrinsically like goods remains subject to the

terms of the statute.

We believe the examiner correctly decided this issue.

The Borden brand and the private label evaporated milk are

commodities of like grade and quality. Respondent’s con-

tention that the examiner erred in his holding on the ques-

tion is rejected.

II. Price Discrimination

A price discrimination under Section 2 is merely a price

difference, Federal Trade Commission v. Anheuser-Busch,

Inc., 363 U.S. 536, 549 (1960). The examiner found a price

discrimin

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