# Appendix — Federal Trade Commission v. Borden Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386411_0239%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1966 - **Citation:** 383 U.S. 637 ## 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 II 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 mI 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 ....................... 4 Ditistcnasia tecnica wom kaecattewiatendon: ale IV 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 Vv 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 ...................., Ee S & gin Bieu eta IS Re EE RRS NR AAS BR SER INDEX Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No, Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Ccmmission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. VI (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. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. Commission’s Exhibit No. 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 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. 4 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, 21 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- { a ? 4 | ‘ A e | a “2 : i$ ¥ Brews NCC =. peter Se 22 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 23 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 | &: 4 iG a RN eNKS C 24 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.” 25 “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. ae RUNS ec RRR es AS a Sia ela oo est RI 3 26 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 September October October November November November 1957 January January February February February March March March March March April April May May June July $ 6.60 per 6.60 per 6.60 per 27 case case 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 6.30 per 6.30 per 6.30 per 6.30 per $ 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per €.45 per case case case case case case case case case case case case case case case case case case case case case case case case 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 case case case case case case case case case case case case case case case case case case case case case - se = os + Ba ro) “SGC et caeaie a, a, Bears July August September October November December 1958 January February March March 1956 July August September September September October October October November November November December December December 28 6.45 per case 6.45 per case 6.45 per case 6.45 per case 6.45 per case 6.60 per case $ 6.60 per case 6.60 per case 6.60 per case 6.60 per case $ 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per case case case case case case case case case case case case case 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 case case case case case case case case case case case case case case case case case case case case case case case 1957 January January January January March March March March March April April April May May May June June July July July August August September September October October October November November November $ 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6.45 per 6:45 per 29 case case case case case case case case case case case case case case case case case case case case case case case case case case case case case 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 case case case case ‘case case case case case case case case case case case case case case case case case case case case case case case case case es De Re ine an BEER Sa ee A * 30 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’ * * * 31 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 ‘pohusse ee ERE aS RR REALS Ran Batic: 32 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. 33 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. Lae ene Sates Ste SSE aaa | 34 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: 35 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: y 4 5 + ‘ ; 4 2 dap aa ete Oy BAe ¥ ta * 36 ‘““ * * 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 37 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- x 38 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. 39 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 40 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: 41 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 42 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 43 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. | 4 * { x $ | 2 3 4 2 ¢ he. Berd 44 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.”’ 45 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. 46 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. 47 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; 5 49 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- 50 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 51 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 52 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. 53 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. 54 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- 55 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 56 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, 57 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 58 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. r 59 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- } A 4 4 a Bs ere Steel ae 60 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 61 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 -_ 62 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 63 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 64 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 . — 65 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 — 66 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. time been lants. f Re- plant nt of pping South a, on / COST ioned pond- same inois, ‘eight lent’s reater tht on lerit’s d not lysis. c per was other, ship- that. t cus- does 67 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. 68 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, 69 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- 70 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- — 71 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- 72 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. = 73 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 74 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 a 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 76 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 77 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 SPLAT PAA ERE CET ENS ee 6s: ih oR RRS eit SAB id i al ir itny ox Noa, sn Ria Wi Bi rh Sa Le Rte eee? eee agg 78 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. a 79 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 env Se M woae as gua Sept gee ne MR CN CORE RLS rae tinea ti Sgt te Ka PRiittnativeeniwiaas 80 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: 81 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 September October October November November November 1957 January January February February February March Lewisburg, Tennessee, Plant Delivered price, Borden brand milk $ 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per $ 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per 6.30 per case case case case case case case case case case case case case 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 82 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 “ al ass Bete. -a cP iaaet tea Ste Mie — 83 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) RTE $ BS 1 x 4 od P| 3s 3 x 8 fi a4 aid = cd 2 PaO? Sestak eS eR Na es Nee rts Gate Weg NET EN SL Ee Game tisk 84 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. 85 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 86 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: ‘ 4 “H 4 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 Rao Boh, Pa eae Ty Salto Ty Bie ee Me PS ES IN, ee le Ei ON 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 | 87 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 E j 88 4 structure to a significant extent led to Dairyland’s discon- i tinuance. 3 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.” ae 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 | ; } 89 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 pa hie AZ RAE Seas aS ah, NalarasS ‘ sak 90 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 91 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 ) 92 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- 93 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? 94 “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 95 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 96 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. 97 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 98 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. 99 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...” 4 101 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 hi [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386411_0239%3A1. Public record. Not legal advice.