Federal Trade Commission v. Cement Institute

Mr. Justice Burton,

dissenting.

While this dissent is written with special reference to case No. 23 against The Cement Institute, et al., its conclusions apply to cases Nos. 23-34, all of which were considered together.

It is important to note that this Court has disagreed with the conclusions of the court below as to the material facts constituting the premise on which that court and this have based their respective conclusions. Accordingly, this Court has neither reversed nor directly passed upon the principal conclusion of law reached by the court below. The court below concluded that there was not sufficient evidence to support a finding by the Federal Trade Commission of the existence of that combination among the Respondents to restrain the competition in price that was charged in both counts of the complaint.1 *731The court below even doubted that the Commission had clearly stated that it found such a combination existed. However, rather than send the case back to the Commission for clarification of the Commission’s findings of fact, the Court of Appeals assumed that those findings did state that such a combination existed. The court then concluded that, even if the Commission had so found, there was not sufficient evidence to support the finding.2 Accordingly, the court below applied the law of the case to a set of facts that did not include such a combination. On that basis, it held that the Commission’s order to cease and desist should be set aside. I agree with the court below in both of these conclusions.3 On the other hand, this Court today has held not only *732that the Commission found the existence of the combination as charged, but that such finding is sufficiently supported by evidence in the record. This Court accordingly has applied the law of the case to a set of facts which includes a combination among the respondents to restrain competition in price as alleged in the complaint. The resulting effect is that, while the court below has held that without such a combination there was not the alleged violation either of § 5 of the Federal Trade Commission Act4 or of § 2 of the amended Clayton Act,5 yet on the other hand, this Court has held that, in-*733eluding such a combination, there was a violation of each of those Sections to the extent charged in the several cases. This Court, therefore, has not here determined the relation, if any, of either of the foregoing statutes to the absorption of freight charges by individuals when not participating in a combination of the kind charged by the Commission.6

*734The Commission based its conclusion upon its finding of the existence of the combination charged in its com*735plaint.7 The court below was in a position to, and did, judicially examine the record at length, hear extended argument upon it and pass upon the many inferences to be drawn from the evidence it contained. In the light of that court’s recent experience with many cases in this particular field of the law, and of what it has described as its “long and careful study of the situation,” it concluded that the evidence was not sufficient to support a finding of the combination charged. Its opinion reviewed the evidence and pointed out many weaknesses in the inferences upon which the Commission had based its *736finding of the existence of the alleged unlawful combination.8

The absence of sufficient evidence to support the conclusions of the Commission was especially impressive in the cases concerning the central California group, the southern California group, the Washington-Oregon group9 and the Huron Portland Cement Company. The *737decision of the Commission and of this Court even in those cases was made dependent upon the conclusion of the existence of a combination, however attenuated the basis for that conclusion might be.10 The cease and desist orders in all of these cases are therefore to be regarded as based upon the unique and extended record presented in this case, including what this Court refers to as “abundant evidence as to common practices of these respondents and the others on the basis of which the Commission was justified in finding cooperative conduct among all to achieve delivered price uniformity.”

On the view of the evidence taken by the court below and by me, that evidence does not support the Commission’s finding of the combination as charged. Unlike the Commission and the majority of this Court, the lower court and I, therefore, have faced the further issue presented by the Commission’s charges unsupported by a finding of the alleged combination. This has led us to consider an issue quite different from that decided by this Court today. That issue lies within the long-established and widespread practice by individuals of bona fide competition by freight absorption with which practice Congress has declined to interfere, although asked *738to do so.11 This is the field where a producer, for his own purposes and without collusion, often ships his product to a customer who, in terms of freight charges, is *739located nearer to one or more of the producer’s competitors than to the producer himself. In selling to such a customer, this producer is at an obvious freight disadvantage. To meet the lower delivered-price of his competitor, the producer, therefore, reduces his delivered-price in that area by a sum sufficient to absorb his freight disadvantage. He might do this for many reasons. For example, this customer might be such a large customer that the volume of his orders would yield such a return to the producer that the producer, by distributing his fixed charges over the resultingly increased volume of business, could absorb the freight differential without loss of profit to his business as a whole and without raising any charges to his other customers. The securing of this particular business might even enable the producer to reduce his own basic factory price to all his customers. It might make the difference between a profitable and a losing business, resulting in the producer’s solvency or bankruptcy. If the advantage to be derived from this customer’s business were not sufficient, in itself, thus completely to absorb the freight differential, the producer might absorb all or part of such differential by a reduction in his net earnings without affecting his other customers. Whether or not he would be justified in absorbing any or all of this freight differential by increasing his charges to other customers, in his own freight-advantage area, raises a separate question as to the validity of such an increase. The Commission and the majority of this Court did not reach the question of individual and independent absorptions of freight charges by one or more producers to meet lower prices of competitors in such competitors’ respective areas of freight advantage.

*740I conclude, therefore, that the judgment of the Court of Appeals setting aside the order of the Federal Trade Commission should have been affirmed, but I emphasize what I regard as equally important — that this Court, in sustaining the order of the Commission, has done so on such a different premise that it has not passed upon the validity of freight absorptions made in sales by one or more producers in the course of bona fide competition, where such producers have not acted as part of a combination to hinder, lessen, restrain or suppress competition in the sale or distribution of the products so sold.

“. . . For more than eight years last past, respondents have maintained and now have in effect a combination among themselves to hinder, lessen, restrict and restrain competition in price, among producing respondents in the course of their aforesaid commerce among the states. The said combination is made effective by mutual understanding or agreement to employ, and by the actual employment of, the methods and practices set forth in Paragraphs Five to Seven inclusive, of this Count.” Count I, Paragraph Four, of complaint.

. .As Paragraphs One to Five, inclusive, of Count II of this complaint the Commission hereby incorporates Paragraphs One to Five, inclusive, of Count I to precisely the same extent as if each and all of them were set forth in full and repeated verbatim in this Count.” Count II, Paragraphs One to Five, inclusive, of complaint. 37 F. T. C. at pp. 102, 117.

The Court of Appeals considered it a “highly controverted issue” as to whether the findings as made by the Commission, even if supported by sufficient evidence in the record, would “sustain the charge of combination alleged in the complaint.” 157 F. 2d 533, 543. That court then said that if—

“this were an ordinary proceeding we would return it to the Commission for the purpose of revising its findings if it could and so desired in the light of what we have said. However, we are confronted with what might be termed an extraordinary situation. As already observed, it will soon be ten years since this proceeding was initiated. . . . We think the case should be on its way up and not down. For this reason we shall not return it to the Commission but shall proceed to decide the legal issues involved.” Id. at p. 553.

The law of the case represents a development of the law in relation to delivered-price systems. See especially, Federal Trade Comm’n v. Staley Mfg. Co., 324 U. S. 746; Corn Products Refining Co. v. Federal Trade Comm’n, 324 U. S. 726; Sugar Institute, Inc. v. United States, 297 U. S. 553; Fairmont Creamery Co. v. Minnesota, 274 U. S. 1; Cement Mfrs. Protective Assn. v. United States, 268 U. S. 588; Maple Flooring Manufacturers Assn. v. United States, 268 U. S. 563; United States v. American Linseed Oil Co., 262 U. S. 371; Aetna Portland Cement Co. v. Federal Trade Comm’n, 157 F. 2d 533 (C. C. A. 7th) (this case below); Fort Howard Paper Co. v. Federal Trade Comm’n, 156 F. 2d 899 (C. C. A. 7th); United States Maltsters Assn. v. Federal Trade Comm’n, 152 F. 2d 161 (C. C. A. 7th).

“Sec. 5. (a) Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are hereby declared unlawful.

“The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, . . . from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.
“(b) Whenever the Commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition or unfair or deceptive act or practice in commerce, and if it shall appear to the Commission that a proceeding by it in respect thereof would be to the interest of the public, it shall issue and serve upon such person, partnership, or corporation a complaint stating its charges in that respect and containing a notice of a hearing upon a day and at a place therein fixed .... If upon such hearing the Commission shall be of the opinion that the method of competition or the act or practice in question is prohibited by this Act, it shall make a report in writing in which it shall state its findings as to the facts and shall issue and cause to be served on such person, partnership, or corporation an order requiring such person, partnership, or corporation to cease and desist from using such method of competition or such act or practice. . . .”

52 Stat. 111-112,15 U. S. C. § 45.

Sec. 2. (a) . . . it shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, . . . where the effect of such dis*733crimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, That nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered: . . . .

“(b) Upon proof being made, at any hearing on a complaint under this section, that there has been discrimination in price or services or facilities furnished, the burden of rebutting the prima-facie case thus made by showing justification shall be upon the person charged with a violation of this section, and unless justification shall be affirmatively shown, the Commission is authorized to issue an order terminating the discrimination: Provided, however, That nothing herein contained shall prevent a seller rebutting the prima-facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor.”

49 Stat. 1526,15 U. S. C. § 13.

The final section of the opinion of the Court makes appropriate disclaimers as to the breadth of the Commission’s order and of its own decision sustaining that order. Among these is the statement that “the order by its terms is directed solely at concerted, not individual activity on the part of the respondents.” These disclaimers are further supported by such statements as the following in the brief filed for the Commission in this Court:

“It is plain that under this order there is a violation of its provisions only in the event that there is a 'planned common course of *734action, understanding, agreement, combination, or conspiracy’ to which a respondent is a party to do something specified in the numbered paragraphs of the order. This is an essential qualification of the prohibitions of these paragraphs. The order therefore leaves each respondent free — provided he acts individually and with that variability in action respecting particular competitive situations which is characteristic of genuine competitive endeavor and a free market — to absorb freight in order to meet a competitor’s low price or to sell at a delivered price.
“What the order does is to bar acting in concert in adopting, continuing, or implementing the multiple basing-point delivered-price system or any similar system which necessarily operates to suppress price competition. The order is aimed at uprooting the pricing system which has flourished by virtue of the agreement among respondents, charged and found, to stifle price competition by selling cement at identical prices.
“The error of the court below is epitomized in its statement that ‘this court is now urged to hold that the [multiple basing-point delivered-price] system is illegal per se, and to require that cement be sold on an f. o. b. plant basis’ .... The system as such was not attacked; what was attacked was agreement to maintain and implement the system and to eliminate price competition.
“. . . Had the Commission inferred agreement from the system alone, it might loosely be said that the system itself was attacked as illegal per se. But this is not what the Commission did. Its searching inquiry disclosed in specific detail the collective action which had been taken to implement and continue the system. And from all these facts, as well as the existence of the system itself, the Commission found combination among respondents to suppress price competition.”
The statement by this Court, in its note 19, to the effect that the Court does not hold “that existence of a ‘combination’ is an indispensable ingredient of an ‘unfair method of competition’ under the Trade Commission Act” is accompanied by a citation which shows that that statement is one of general application and that it is not intended as a denial that the combination found by the Commission in this case is not a highly material and possibly decisive factor in this particular case.

See Paragraph Twenty-six of the Commission’s “Findings as to Facts and Conclusion”:

. . The Commission concludes from the evidence of record and therefore finds that the capacity, tendency, and effect of the combination maintained by the respondents herein in the manner aforesaid and the acts and practices performed thereunder and in connection therewith by said respondents, as set out herein, has been and is to hinder, lessen, restrain, and suppress competition in the sale and distribution of cement in, among, and between the several States of the United States; to deprive purchasers of cement, both private and governmental, of the benefits of competition in price; to systematically maintain artificial and monopolistic methods and prices in the sale and distribution of cement, including common rate factors used and useful in the pricing of cement; . . . .” 37 F. T. C. at p. 257.

The Commission followed this Paragraph Twenty-six immediately with the following conclusion of law:

“The aforesaid combination and acts and practices of respondents pursuant thereto and in connection therewith, as hereinabove found, under the conditions and circumstances set forth, constitute unfair methods of competition in commerce within the intent and meaning of the Federal Trade Commission Act; and the discriminations in price by respondents, as hereinabove set out, constitute violations of subsection (a) of Section 2 of an act of Congress entitled ‘An act to supplement existing laws against unlawful restraints and monopolies, and for other purposes,’ approved October 15,1914 (the Clayton Act), as amended by act approved June 19, 1936 (the Robinson-Patman Act).” Id. at p. 258.

A further review of the insufficiently supported inferences would be of little value here. By way of illustration, however, it may be noted that the Commission and this Court, in its note 15, have emphasized the fact that secret sealed bids for 6,000 barrels of cement were received by a public agency from ten or more of the respondent companies and that the bid of each company was precisely $3.286854 a barrel. Such a fractional identity of price would, on its face, create an inference of collusion. However, the Commission failed to explain, as has the court below, that the highly fractional figure merely reflected the freight charge. The bid, apart from the freight charge, was $2.10 per barrel while “the land grant freight rate to which the government was entitled from the nearest mill of the eleven bidders was $1.1865854 [$1.186854] per barrel.” Aetna Portland Cement Co. v. Federal Trade Comm’n, 157 F. 2d 533, 567.

The central California group refers to the following respondents:

Calaveras Cement Company,
Pacific Portland Cement Company,
Santa Cruz Portland Cement Company,
Yosemite Portland Cement Corporation.

The southern California group to:

California Portland Cement Company,
Monolith Portland Cement Company,
Riverside Cement Company,
Southwestern Portland Cement Company (Victorville, California, plant).

The Washington-Oregon group to:

Beaver Portland Cement Company,
Lehigh Portland Cement Company (Metaline Falls, Washington, plant),
Northwestern Portland Cement Company,
Oregon Portland Cement Company,
Spokane Portland Cement Company,
Superior Portland Cement, Inc.

In a general finding the Commission indicated that the evidence concerning certain of the respondent companies was less conclusive than that relating to some of the other respondents.

“Some of the respondents have been parties to substantially all of these activities; other respondents have participated in a lesser degree, or fully or partially for shorter periods of time; other respondents have been mere followers, adopting and supporting the practices of their more active associates; and a few respondents have from time to time, for various reasons, participated only reluctantly in some of the practices, and have occasionally opposed for a time particular instances of group action.” Commission’s “Findings as to Facts and Conclusion,” Paragraph Six (a). 37 F. T. C. at p. 144.

“Furthermore, the basing point price system has been in use by industry for almost a half century. There has been and is a marked diversity of opinion among economists, lawmakers and people generally as to whether it is good or bad. Numerous bills have been introduced in Congress seeking to outlaw its use. Countless time has been spent in hearings by Congressional committees, before whom it has been assailed and defended. The pages of the Congressional Record bear mute but indisputable proof of the fact that Congress has repeatedly refused to declare its use illegal. There is no occasion to relate this Congressional history. It is a matter of common and general knowledge. In the Corn Products case, the court in commenting upon some of this legislative history stated (324 U. S. at page 737, 65 S. Ct. at page 967, 89 L. Ed. 1320): 'We think this legislative history indicates only that Congress was unwilling to require f. o. b. factory pricing, and thus to make all uniform delivered price systems and all basing point systems illegal per se.’ Notwithstanding this Congressional attitude as recognized by the Supreme Court, this court is now urged to hold that the system is illegal per se, and to require that cement be sold on an f. o. b. plant basis.

“In our judgment, the question as to whether the basing point price system should be declared illegal rests clearly within the legislative domain. We know of no criticism so often and so forcibly directed at courts, particularly Federal courts, as their propensity for usurping the functions of Congress. If this pricing system which Congress has over the years steadfastly refused to declare illegal, although vigorously urged to do so, is now to be outlawed by the courts, it will mark the high tide in judicial usurpation.” Aetna Portland Cement Co. v. Federal Trade Comm’n, supra, at p. 573.

See §§ 1 and 2, Sherman Antitrust Act, approved July 2, 1890, 26 Stat. 209, 15 U. S. C. §§ 1 and 2; § 5, Federal Trade Commission Act, approved September 26, 1914, 38 Stat. 719; §2, Clayton Act, approved October 15, 1914, 38 Stat. 730; § 2, Clayton Act, as amended by the Robinson-Patman Act, approved June 19, 1936, 49 Stat. 1526, 15 U. S. C. § 13; § 5, Federal Trade Commission Act, as amended, March 21, 1938, 52 Stat. 111, 15 U. S. C. § 45. See Bill “To Prevent Unnecessary and Wasteful Cross-Hauling” introduced by Senator Wheeler in 1936 banning basing-point systems by statute, but not reported out of Committee. Hearings before Senate Committee on *739Interstate Commerce on S. 4065, 74th Cong., 2d Sess. (1936), and see p. 325. See also, H. R. Rep. No. 2287, 74th Cong., 2d Sess. 14 (1936), and debates upon the Robinson-Patman Bill, 80 Cong. Rec. 8102, 8118,8140,8223-8224 (1936).