Opposition Brief — Whitaker Cable Corp. v. Federal Trade Commission (No. 817)

INDEX

Question presented

Statute involved

CITATIONS

Cases:

Corn Products Refining Co. v. Federal Trade Commis-

ston, 324 U.S. 726

Federal Trade Commission v. Morton Salt Co., 334 U.S.

Moog Industries, Inc. v. Federal Trade Commission,

238 F. 2d 43, certiorari granted March 25, 1957,

No. 750, this Term

Statute:

Clayton Act, 38 Stat. 730, Sec. 2 (a) as amended by the

Robinson-Patman Act, 49 Stat. 1526, 15 U. S. C.

Ynthe Supreme Gourt of the Winited States

Ocroser TERM, 1956

No. 817

WHITAKER CABLE CORPORATION, PETITIONER

v.

FrperaL TRADE CoMMISSION

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF FOR THE FEDERAL TRADE COMMISSION IN OPPOSITION

OPINION BELOW

The opinion of the Court of Appeals for the

Seventh Circuit (Pet. 11-17) is reported at 239 F.

2d 253.

JURISDICTION

The judgment of the Court of Appeals affirming and

enforcing the Commission’s cease and desist order

was entered on January 10, 1957. The petition for a

writ of certiorari was filed on March 6, 1957. The

jurisdiction of this Court is invoked under 28 U. S. C.

_— @). QUESTION PRESENTED

Whether there is substantial evidence to support the

Federal Trade Commission’s finding that the effect of

petitioner’s price discriminations of thirty percent

(1)

2

and more among different purchasers may be substan-

tially to lessen competition or to injure or destroy

competition with persons receiving the benefit of such

discrimination.

STATUTE INVOLVED

Section 2 (a) of the Clayton Act, as amended by

Section 1 of the Robinson-Patman Act, 49 Stat. 1526,

15 U. 8. ©. 13 (a), provides in part:

It shall be unlawful for any person engaged

in commerce, in the course of such commerce,

either directly or indirectly, to discriminate in

price between different purchasers of commodi-

ties of like grade and quality, * * * where the

effect of such discrimination may be substan-

tially to lessen competition or tend to create a

monopoly in any line of commerce, or to injure,

destroy, or prevent competition with any person

who either grants or knowingly receives the

benefit of such discrimination, or with cus-

tomers of either of them: * * *.

STATEMENT

The Commission in December 1949 filed a complaint

charging that petitioner, which manufactures and sells

automotive cable products and related parts (R. 454),

had been discriminating in price among different pur-

chasers of products of like grade and quality, in vio-

lation of Section 2 (a) of the Clayton Act (R. 2-5).

After taking evidence, the heariiz examiner filed an

‘*Tnitial Decision” holding that petitioner had violated

the Act as charged, and proposing a cease-and-desist

order (R. 454-64). On appeal, the Commission af-

firmed the examiner’s findings of fact, conclusions, and

order (R. 465-76).

3

Petitioner sells its products ‘‘on a nationwide scale”’

(R. 470). Its sales im 1949 were approximately

$2,000,000 (R. 476). Petitioner’s customers included

450 ‘‘warehouse jobbers’’ (who purchase directly from

it) (R. 44, 456), 700 ‘‘wholesale distributor jobbers”’

(who purchase through the “warehouse jobbers’’)

(R. 43, 456-57), and at least five ‘‘group purchasing

associations’ of jobbers (R. 456). These customers

comprised about 842% of the 14,000 jobbers in the

market (R. 423). Petitioner also sells to at least four

oil and tire eompanies (‘‘private brand purchasers’’),

which resell petitioner’s products under the purchas-

er’s brand name (R. 457-458, 470).

At the end of each year, petitioner granted a retro-

active rebate (which it termed a ‘‘discount’’) gradu-

ated according to the annual volume of purchases (R.

470). The rebates granted to individual jobbers

ranged from 5% on annual purchases of between $600

and $1,000, to 17144% on purchases of $3,000 or more

(R. 455). Jobbers who were members of group pur-

chasing associations received as much as a 20% rebate

on their purchases (R. 470).’ Discounts granted to

1 In addition to the rebate, petitioner also granted a freight al-

lowance on shipments of a prescribed minimum size, and a 5%

trade discount on purchases of $150 or more (R. 456). Some

“warehouse jobbers” received a 20% discount on large purchases

in lieu of the graduated rebate and the 5% trade discount

(R. 456).

2 Members of group purchasing associations ordered directly

from petitioner or through the group office ; petitioner shipped to

the jobber but billed the group office, with which the jobber made

settlement ; and at the year’s end petitioner paid the group office

the rebate payable on the dollar value of purchases of all members

of the group. The rebate was then divided among the members

| in proportion to their individual purchases. The Commission

———————————EE

4

‘“‘private brand purchasers’? were not graduated ac-

cording to volume, but varied among individual pur-

chasers from 20% (American Oil Co. and Phillips

Petroleum Co.) to 35% (Goodyear Tire and Rubber

Co.) (R. 472).°

The Commission found that all of petitioner’s cus-

tomers, including the “private brand purchasers’’, are

in competition with each other in the resale of peti-

tioner’s products (R. 470, 472; 458, 459, 463), and that

the market for reselling such products is “highly com-

petitive’ (R. 454). Jobber witnesses testified that they

“‘invariably”’ took a 2% cash discount, which they

regarded as essential to the operation of their business

(R. 474, 461; 119, 125, 135, 137). At least two jobbers

testified that their overall net profit was between 3%

and 4% (R. 241, 461), although three others indicated

that their net profit was closer to 2% or even less (R.

135, 222, 306). Among the six purchasers of peti-

tioner’s products in 1949 in the Denver area, discounts

varied from 1.48% (to a “wholesale distributor’) to

35.53% (to a “private brand purchaser”). Discounts

ranged from 4.68% to 40.38% among the seven pur-

chasers in Dallas, Texas ; and in New Orleans, discounts

varied from 5.34% to 35.02% among five purchasers

(R. 459-60, 473).

In upholding the examiner’s finding (R. 462) that

petitioner’s price discriminations “had, and may have,

the effect of substantially lessening competition among

found that this method of buying was a bookkeeping device to

obtain for association members a higher rebate (and consequent

lower price) than that available to non-members (R. 470).

*“Private brand purchasers” also received a 2% or 3% “box-

ing allowance” (R. 472).

5

its customers and of injuring and preventing competi-

tion among them,’’ the Commission stated (R. 474) that

the record “clearly demonstrated”? both the “‘sub-

stantiality” of the discriminations and “the probability

of injury to competition.”’ It pointed out (¢bid) that

the profits of petitioner’s customers were, because of

the “very nature” of their business, “necessarily based

upon an accumulation of small margins of profits on

* * * thousands of different items, some of which sell

for only a few cents”; that ‘the price differences re-

sulting from respondent’s [petitioner’s] pricing prac-

tices must materially affect the business health of re-

spondent’s customers and that purchasers who paid the

higher net prices were at a competitive disadvantage

with the purchasers who paid the lower net prices’’

(R. 474-75) ; and that even though petitioner’s per-

centage of the total automotive parts industry was less

than 1%, its $2,000,000 in annual sales represented a

“snbstantial’’ portion of the market in which it did

business (R. 476).

The Court of Appeals unanimously affirmed the

Commission’s order. The court held (Pet. 16) that

there was ‘‘adequate evidence’’ to sustain the Commis-

sion’s findings that petitioner was ‘‘a major manufac-

turer’’ in the replacement parts industry and that it did

a ‘substantial’? volume of business; that the record

showed price discriminations of ‘‘considerable magni-

tude’’ given to purchasers who operated on “‘small

profit margins” and ‘“‘sold in a market where com-

petition was keen’? (Pet. 14); and that these facts

supported the Commission’s finding of ‘what would

appear to be obvious—that the competitive opportuni-

6

ties of certain purchasers were injured when they had

to pay petitioner substantially more for petitioner’s

products than their competitors had to pay’’ (ibid).

The court rejected the contention that testimony by

petitioner’s purchasers that they had not lost sales as

a result of price cutting by their competitors in peti-

tioner’s products precluded a finding of ‘‘probable

injury to competition,’’ since ‘‘[v]olume of sales does

not constitute the only evidence that reflects the health

of the competitive scene’’ (ibid.).

ARGUMENT

Section 2 (a) of the Clayteun Act makes it unlawful

to discriminate in price between different purchasers

of commodities of like grade and quality where the

effect of such discrimination ‘‘may be’’ substantially

to lessen or injure competition in any line of com-

merce. In order to establish a violation of Section 2

(a), it is not necessary to show that price discrimina-

tion has in fact injured competition, but merely that

there is a ‘‘reasonable probability’? or a ‘“‘reasonable

possibility”’ of such injury. Corn Products Refining

Co. v. Federal Trade Commission, 324 U. S. 726, 738,

742; Federal Trade Commission v. Morton Salt Co.,

334 U. S. 37, 46, 47. The Court of Appeals held that

the Commission properly found ‘“‘what would appear

to be obvious” on the record, namely, that “the com-

petitive opportunities of certain purchasers were in-

jured when they had to pay petitioner substantially

more for petitioner’s products than their competitors

had to pay,”’ and that the effect of petitioner’s price

discriminations therefore ‘“‘may’’ be substantially to

7

injure competition among petitioner’s customers. In

so holding, the Court of Appeals correctly applied the

doctrine of the Morton Salt case, supra, that it is

“self evident” that ‘‘competition may be adversely

affected by a practice under which”’ a manufacturer

charges substantially different prices to competing

purchasers. 334 U.S. at 50.

Petitioner’s annual sales were about two million

dollars (R. 476). Petitioner contends (Pet. 7), how-

ever, that since its sales comprise less than 1% of

the total sales of auto parts its discriminatory pricing

practices cannot be deemed to create the possibility

of any “‘substantial’’ injury to competition. But peti-

tioner is at least the third largest producer of auto-

motive cable and related parts for replacement pur-

poses, with plants in North Kansas City and St. Louis,

Missouri and Philadelphia, Pennsylvania (R. 429-430).

Moreover, the market in which the Commission found

possible injury to competition was that of petitioner’s

customers. As among petitioner’s customers (some

814% of the jobbers) petitioner’s share of their pur-

chases was obviously far in excess of 1%, and pre-

sumably comprised a substantial part of their busi-

ness. Variations in effective price of as much as 30%

or more on purchases from petitioner would thus have

a substantial overall effect on competition among this

group of jobbers.

Petitioner further contends (Pet. 9) that the Com-

mission ignored ‘positive and unrebutted testimony”

that its customers had, in fact, suffered ‘‘no competi-

tive injury” from its discounts. This testimony was

equivocal and inconclusive. Typically, petitioner’s

B.

counsel asked each witness whether his company had

been injured competitively by the spread in petition-

er’s discounts or by a larger discount granted to a

specific competitor, and each witness replied that he

knew of no such-injury (R. 231, 289-90, 319, 324-25,

330-31, 349-51, 354-55, 374, 384). On cross-examina-

tion, however, the witnesses admitted that they would

like to buy as cheaply as possible (R. 247, 248, 292,

309, 325, 372) or would prefer the larger discount

given to a specific competitor (R. 312, 326, 372); and

that lower costs resulting from larger discounts would

help their profits (R. 250, 279, 293, 310, 317-18, 325,

385), permit expansion of business (R. 310, 329), and

therefore help them competitively (R. 279). As the

court of appeals correctly held (Pet. 14), their direct

testimony cannot be deemed to foreclose a finding of

possible injury to competition, since “‘[vJolume of

sales does not constitute the only evidence that re-

flects the health of the competitive scene.”’ See Moog |

Industries, Inc. v. Federal Trade Commission, 238 F.

2d 43, 50-52 (C. A. 8), certiorari denied on this point,

March 25, 1957, No. 750, this Term.

In view of the evidence that there was keen competi-

tion among petitioner’s customers, that many of them

operated on extremely narrow margains, and that peti-

tioner’s discounts were substantial and varied widely

in amount (see supra, pp. 3-4), the Commission did

not err in finding that petitioner’s price discriminations

may substantially injure competition. Moreover, the

correctness of that finding presents no question merit-

ing further review by this Court.

9

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

J. LEE RANKIN,

Solicitor General.

Victor R. Hansen,

Assistant Attorney General.

DantEL M. FRIEDMAN,

Ernest L. Foix ITI,

Attorneys.

Earut W. KINTNER,

General Counsel,

Rosert B. Dawxins,

Assistant General Counsel,

Federal Trade Commisston.

Aprit 1957.

U. S. GOVERNMENT PRINTING OFFICE: 1957

FILED

APR 1 1 1957

JOHN T. FEY, Cle

IN THE

Supreme Court of the United States

Ocroser Term, 1956.

No. 817

WHITAKER CABLE CORPORATION,

Petitioner,

vs.

FEDERAL TRADE COMMISSION,

Respondent.

REPLY TO BRIEF FOR THE FEDERAL TRADE COM-

MISSION IN OPPOSITION TO PETITION FOR WRIT

OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE SEVENTH CIRCUIT.

Epwin 8S. D. Burrerriep,

111 W. Washington Street, :

Suite 1740,

Chicago 2, Illinois,

Attorney for Petitioner.

} IN THE

Supreme Court of the United States

Ocroser Term, 1956.

No. 817.

WHITAKER CABLE CORPORATION,

Petitioner,

vs.

FEDERAL TRADE COMMISSION,

Respondent.

REPLY TO BRIEF FOR THE FEDERAL TRADE COM-

MISSION IN OPPOSITION TO PETITION FOR WRIT

OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE SEVENTH CIRCUIT.

OPINION BELOW.

The opinion of the Court below is reported in 239 Fed.

2d 253.

JURISDICTION.

Jurisdiction is invoked under Section 1254 of the Federal

Judicial Code (Title 28 U. S. C. A. Section 1254; 69 Stat.

928).

QUESTION PRESENTED.

Where the total sales of petitioner do not exceed one

per centum of the sales directly competitive with its own,

does the Federal Trade Commission have jurisdiction to

exercise rule making power within the Robinson-Patman

Act standard of injury to competition?

STATUTE INVOLVED.

Robinson-Patman Act.

“It shall be unlawful for any person engaged in

commerce * * * to discriminate in price between differ-

ent purchasers of commodities of like grade and

quality * * * where the effect of such discrimination

may be substantially to lessen competition or tend to

create a monopoly in any line of commerce or to

injure, destroy or prevent competition with any per-

son who either grants or knowingly receives the benefit

of such discrimination, or with the customers of either

of them; ° * °,””

COUNTER STATEMENT.

Contrary to respondent’s statement on page 5 of its

‘brief in opposition, petitioner’s percentage of the total

automotive parts industry is less than five ten-thousands

thereof. (Rec. 476, 454.) Petitioner’s sales in the after

market replacement parts industry were less than $1,000,-

000 in a market of $3,000,000,000. In the particular seg-

ment of this market, petitioner’s sales were less than 1%

of the products competitive with its own. (Rec. 476.)

Petitioner, a small manufacturer, within the meaning

of the small business act, employs less than 10% of the

number of employees of one of its competitors (Rec. 429)

and has less than 10% of the annual sales volume of an-

other of its competitiors. (Rec. 430.) Petitioner is re-

stricted by competition to less than 10% of its potential

market. (Rec. 428.)

_—

ARGUMENT.

Petitioner contends that, since its sales comprise less

than 1%—not of the total sales of auto parts—but of that

small segment of the market for which it manufactures—

that its competitive impact is so insignificant as to be

beyond the pale and standard of the Robinson-Patman

Act.

During the course of the hearings, respondent was un-

able to produce a single witness to testify to competitive

injury. This was so because 99% of the industry segment

was occupied by competitor’s sales of which at least 25%

was controlled by a single distributor (Rec. 426), all of

whom used the same pricing practices as used by petitioner.

(Ree. 425.)

It is both unjust and unfair that petitioner should be

subject to the competitive disadvantage of a cease and

desist order against differential pricing as against its

gigantic competitors engaged in the same pricing prac-

tices against whom no such action has been taken. (Rec.

425, 426.) It is most unreasonable that the weak be re-

strained against the strong.

The Robinson-Patman Act must be given an interpreta-

tion that recognizes a a delimited standard, otherwise the

act is unconstitutional and in contravention of Article I

of the Constitution of the United States.

The court below, in failing to recognize at least some

limit to the operation of the Act, in effect, abdicated the

function of judicial review of administrative action.

For the reason that the lower court placed no limits on

the exercise of administrative action in the areas com-

prising less than 1% of the economic impact, petitioner

4

prays that this court exercise its power of supervision

herein, and to that end, respectfully proposes the elicita-

tion of this court’s writ of certiorari.

Respectfully submitted,

Epwiy S. D. Burrerrie.p,

111 W. Washington Street,

Suite 1740,

Chicago 2, Illinois,

Attorney for Petitioner.

April 8, 1957.

FILED

APR 29 195

JOHN T. FEY,

Supreme Court of the United States

OcroseR TERM, 1956.

No. 817

WHITAKER CABLE CORPORATION,

Petitioner,

vs.

FEDERAL TRADE COMMISSION,

Respondent.

PETITION FOR REHEARING OF ORDER OF APRIL

22, 1957 DENYING CERTIORARI.

Epwriy 8S. D. ButrerFieEcp,

111 W. Washington Street,

Suite 1740,

Chicago 2, Illinois,

Counsel for Petitioner.

THE GUNTHORP. WARREN PRINTING COMPANY, CHIORED