Federal Trade Commission v. Borden Company/Dissent Stewart

Mr. Justice STEWART, with whom Mr. Justice HARLAN joins, dissenting.

I cannot agree that mere physical or chemical identity between premium and private label brands is, without more, a sufficient basis for a finding of 'like grade and quality' within the meaning of § 2(a) of the Robinson-Patman Act. The conclusion that a product that travels at a premium in the marketplace is of 'like grade and quality' with products of inferior commercial value is not required by the language of the Robinson-Patman Act, by its logic, or by its legislative history.

It is undisputed that the physical attributes and chemical constituents of Borden's premium and private label brands of evaporated milk are identical. It is also undisputed that the premium and private label brands are not competitive at the same price, and that if the private label milk is to be sold at all, it must be sold at prices substantially below the price commanded by Borden's premium brand. This simple market fact no more than reflects the obvious economic reality that consumer preferences can and do create significant commercial distinctions between otherwise similar products. By pursuing product comparison only so far as the result of laboratory analysis, the Court ignores a most relevant aspect of the inquiry into the question of 'like grade and quality' under § 2(a): Whether the products are different in the eyes of the consumer.

There is nothing intrinsic to the concepts of grade and quality that requires exclusion of the commercial attributes of a product from their definition. The product purchased by a consumer includes not only the chemical components that any competent laboratory can itemize, but also a host of commercial intangibles that distinguish the product in the marketplace. The premium paid for Borden brand milk reflects the consumer's awareness, promoted through advertising, that these commercial attributes are part and parcel of the premium product he is purchasing. The record in the present case indicates that wholesale purchasers of Borden's private label brands continued to purchase the premium brand in undiminished quantities. The record also indicates that retail purchasers who bought the premium brand did so with the specific expectation of acquiring a product of premium quality. Contrary to the Courts suggestion ante, p. 644, this consumer expectation cannot accurately be characterized as a misapprehension. Borden took extensive precautions to insure that a flawed product did not reach the consumer. None of these precautions was taken for the private brand milk packed by Borden. An important ingredient of the premium brand inheres in the consumer's belief, measured by past satisfaction and the market reputation established by Borden for its products, that tomorrow's can will contain the same premium product as that purchased today. To say, as the Court does, that these and other intangibles, which comprise an important part of the commercial value of a product, are not sufficient to confer on Borden's premium brand a 'grade' or 'quality' different from that of private label brands is to ignore the obvious market acceptance of that difference. '(C)ommercially the 'advertised' brands had come in the minds of the public to mean a different grade of milk. The public may have been wrong; * *  * it may have been right *  *  *. But right or wrong, that is what it believed, and its belief was the important thing.' Borden's Farm Products Co. v. Ten Eyck, 11 F.Supp. 599, 601 (D.C.S.D.N.Y.) (opinion of L. Hand, J.).

The spare legislative history of the Robinson-Patman Act is in no way inconsistent with a construction of § 2(a) that includes market acceptance in the test of 'like grade and quality.' That history establishes no more than that mere differences in brand or design, unaccompanied by any genuine physical, chemical, or market distinction, are insufficient to negate a finding of 'like grade and quality' under § 2(a). Nothing that I have found in the legislative history speaks with precision to the sole issue before us here, the application of § 2(a) to physically or chemically identical products that are in fact differentiated by substantial market factors.

Neither the remarks of Representative Patman, ante, p. 643, nor the letter of Mr. Teegarden, ante, p. 641, n. 4, supports the Court's conclusion that Congress intended physical and chemical identity to be the sole touchstone of 'like grade and quality.' Aside from the obviously casual nature of Mr. Patman's reply to the question concerning the effect of the Act on private label brands, his remarks go embarrassingly further than the circumspect reading sought to be given them by the Court. On its face, Mr. Patman's statement makes the blanket assertion that all products of the same quality must be sold at the same price. As thus stated, premium brands would have to be sold at the same price as private label brands, regardless of injury to competition, cost justification, or other available defenses under the Act. These undifferentiated remarks are therefore of little assistance in the determination of congressional intent. Far from supporting the Court's interpretation of § 2(a), the final paragraph of the Teegarden letter suggests that Mr. Teegarden considered the bill to have no effect on a premium brand producer's decision to furnish private label brands to purchasers, so long as the private label brands were made available on the same terms to all purchasers. Mr. Teegarden's concern was with the prevention of discrimination between purchasers on the basis of artificial differences in brand. That same concern, and no more, is all that may legitimately be read into the rejection by Congress of the proposal to add 'and brands' to the 'like grade and quality' provision in the bill. By rejecting that proposal, it can be inferred only that Congress contemplated 'no blanket exemption * *  * for 'like' products which differed only in brand *  *  *, leaving open the application of the Act to differentiated products reflecting more than a nominal or superficial variation.' Rowe, Price Discrimination Under the Robinson-Patman Act 65 (1962).

The references in the legislative hearings and the House Committee Report to the Commission's decision in Goodyear Tire & Rubber Co., 22 F.T.C. 232, are equally inconclusive on the relevance of commercial acceptance to the determination of 'like grade and quality.' The striking aspect of that case is that Goodyear conceded that the differently branded tires involved in the proceeding were of like grade and quality, 22 F.T.C., at 290. Moreover, the tires purchased by Sears, Roebuck & Co. from Goodyear and sold under Sears' 'All State' label were advertised by Sears as obtained from 'the leading tire manufacturer' and 'the world's foremost tire manufacturer,' so that the market independence of Sears' private brand was compromised. Id., at 295, 297.

The other administrative precedents relied on by the Court also fail to establish any consistently settled interpretation by the Federal Trade Commission that physical identity is the sole touchstone of 'like grade and quality.' Those decisions singularly fail to focus on the significance of consumer preference as a relevant factor in the test of grade and quality. Moreover, the Commission has itself explicitly resorted to consumer preference or marketability to resolve the issue of 'like grade and quality' in cases where minor physical variations accompany a difference in product brand. The caprice of the Commission's present distinction thus invites Borden to incorporate slight tangible variations in its private label products, in order to bring itself within the Commission's current practice of considering market preferences in such cases.

The Commission's determination of 'like grade and quality' under § 2(a) in this case is seriously inconsistent with the position it has taken under § 2(b) in cases where as seller has presented the defense that he is in good faith meeting the equally low price of a competitor. The Commission decisions are clear that the 'meeting competition' defense is not available to a seller who reduces the price of his premium product to the level of nonpremium products sold by his competitors. The Commission decision under § 2(b) emphasize that market preference must be considered in determining whether a competitor is 'meeting' rather than 'beating' competition. In Standard Oil Co., 49 F.T.C. 923, 952, the Commission put it baldly:

'(I)n the retail distribution of gasoline public acceptance     rather than chemical analysis of the product is the important      competitive factor.'

Could the Commission under § 2(b) now prevent Borden from reducing the price of its premium milk to the level of private label milk? I can see no way that it could, short of maintaining a manifestly unstable equilibrium between § 2(a) and § 2(b). By adopting a keyhole approach to § 2(a), the Court manages to escape resolution of the question, but it does so at the cost of casting grave doubt on what I had regarded as an important bulwark of § 2(b) against a recognized competitive evil.

The Court gives no substantial economic justification for its construction of § 2(a). The principal rationale of the restriction of that section to commodities of 'like grade and quality' is simply that it is not feasible to measure discrimination and injury to competition where different products are involved. That rationale is as valid for economic as for physical variation between products. Once a substantial economic difference between products is found, therefore, the inquiry of the Commission should be ended, just as it is ended when a substantial physical difference is found.

In spite of the assertion of the Attorney General's Report quoted by the Court, it is unlikely that economic differences between premium and private label brands can realistically be taken into account by the Commission under the 'injury to competition' and 'cost justification' provisions of § 2(a). Even if relevant cost data can be agreed upon, the cost ratio between Borden's premium and private label products is hardly the most significant factor in Borden's pricing decision and market return on those products. Moreover, even if price discrimination is found here, its effect on competition may prove even more difficult to determine than in more conventional cases of price discrimination under § 2(a). Cf. FTC v. Morton Salt Co., 334 U.S. 37, 68 S.Ct. 822, 92 L.Ed. 1196; United Biscuit Co. of America v. FTC, 350 F.2d 615 (C.A.7th Cir.).

The threat presented to primary line competition by Borden's distribution of premium and private label brands is unclear. No allegation was made that Borden has used its dominant position in the premium brand market to subsidize predatory price-cutting campaigns in the private label market. Borden packs its private label brands for national distribution, so that this case is essentially different from those in which geographical price discriminations are involved. Further, Borden's private label brands are aimed in part at a different, more price-conscious class of consumer. Because relevant economic factors differ in the premium and private label markets, conventional notions of price discrimination under the Robinson-Patman Act may not be applicable. More important, Borden's extensive distribution of its private label brands has introduced significant low-cost competition for Borden's own premium product. Thus, the large retail chains and cooperative buyer organizations that are Borden's chief private label customers represent a significant source of countervailing power to the oligopoly patten of evaporated milk production. The rise of this sort of competition is well known in other parts of the food industry. In these circumstances, the anticompetitive leverage against primary line competition available to Borden through its private label production is sharply curtailed. There is, therefore, no real resemblance in this case to the serious discriminatory practices that the Robinson-Patman Act was enacted to prevent.

The potential economic impact of Borden's distribution of private label brands on secondary line competition is equally ambiguous. It is true that a market test of 'like grade and quality' would enable Borden, so far as § 2(a) is concerned, to make private label brands selectively available to customers of its premium brand. Not all wholesale and retail dealers who carry Borden's premium brand would be able, as of right, to take advantage of Borden's private label production. But the Commission could still apply § 2(a) with full force against discriminations between private label customers. And the Government could still invoke § 2 of the Sherman Act or § 5 of the Federal Trade Commission Act to deal with other forms of price discrimination by Borden against its customers or competitors.

Under the Court's view of § 2(a), Borden must now make private label milk available to all customers of its premium brand. But that interpretation of § 2(a) is hardly calculated to speed private label brands to the shelves of retailers. To avoid supplying a private label brand to a premium brand customer, Borden need only forgo further sales of its premium brand to that customer. It is, therefore, not unlikely that the Court's decision will foster a discrimination greater than that which it purports to eliminate, since retailers previously able to obtain the premium Borden brand but not a private label brand, may now find their access to the premium brand foreclosed as well.

In Automatic Canteen Co. of America v. FTC, 346 U.S. 61, 63, 73 S.Ct. 1017, 1019, 97 L.Ed. 1454, this Court cautioned against construction of the Robinson-Patman Act in a manner that might 'give rise to a price uniformity and rigidity in open conflict with the purposes of other antitrust legislation.' Today that warning goes unheeded. In the guise of protecting producers and purchasers from discriminatory price competition, the Court ignores legitimate market preferences and endows the Federal Trade Commission with authority to disrupt price relationships between products whose identity has been measured in the laboratory but rejected in the marketplace. I do not believe that any such power was conferred upon the Commission by Congress, and I would, therefore, affirm the judgment of the Court of Appeals.