On Petition for review of order of the Federal Trade Commission.
Before MAJOR, and KERNER, Circuit Judges, and LINDLEY, District Judge.
Respondent issued a complaint on October 21, 1938, amended March 25, 1939, charging that petitioners had violated Sections 2(a), 2(e) and 3 of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C.A. §§ 13(a, e), 14. Petitioners answered denying the charges and averring that, if the acts complained of are prohibited, the statute is unconstitutional when so applied. The ensuing order, which petitioners seek to set aside and respondent to have enforced, directs petitioners to cease and desist from (1) discriminating in prices between purchasers of glucose, starch products and corn gluten feed and meal; (2) supplying services to Curtiss Candy Company in the latter's resale of dextrose purchase from petitioners, while failing to accord similar facilities to other and competitive customers upon proportionally equal terms; and (3) selling certain merchandise "on the condition that the purchaser shall not use similar products of a competitor."
Sales of glucose at delivered prices based on Chicago price and freight from that city but delivered from Kansas City.
The evidence upon this phase of the controversy is not in dispute. Petitioners manufacture glucose (corn syrup) in Chicago and Kansas City, and ship it from these two points to purchasers residing in various cities in the west and southwest. From which plant deliveries shall be made is entirely within control of petitioners and the selling prices are fixed by them by adding to the effective Chicago price the freight rate from that city to destination, regardless of whether the merchandise is forwarded from Kansas City or from Chicago. Under this formula, glucose delivered from Kansas City to places nearer that city sells at the Chicago price plus the freight from Chicago, which exceeds freight from Kansas City by substantial percentages; the excess for St. Joseph being approximately 31 cents per 100 pounds; Fort Smith, 20 cents; Hutchinson, 25 cents; Lincoln, 16 cents; Waco, 19 cents; Sherman, 20 cents; San Antonio, 19 cents; Denver, 10 cents and Salt Lake City, 10 cents. Purchasers in these cities are manufacturers using glucose in making candy, competitively engaged in sale of their products to customers located in various states.
Glucose is a major raw material entering into many candies, constituting from 5 to 90 per cent of the weight of the finished article, being greater in the cheaper classes. The higher prices paid in cities other than Chicago "result to a greater or lesser degree" in higher material costs than those of manufacturers in Chicago. Those paying the higher prices "may attempt to recover such increased costs" by increasing the price or making sales "on a nonprofit or other basis"; the effect in any case is reduce profit pro tanto. The result just mentioned may work out either through the absorption of higher costs in sale at competitive prices or indirectly through a reduced volume of business and the ultimate effect may be to diminish the ability of those paying the higher prices to compete with those paying the lower. These results may be avoided or augmented by the effect upon the cost to such manufacturers of such other factors as labor, taxes, rents, insurance, other ingredients, proximity to markets and delivery.
The Commission found that a purchaser located nearer freight-wise to Kansas City than Chicago who receives delivery from Kansas City is forced to pay a price which includes an item for delivery not actually incurred; that Chicago purchasers receiving delivery from Kansas City but at a price which does not include any freight, artificial or real, and that any purchaser located nearer Chicago than Kansas City who receives delivery from the latter point is charged a price which does not include all of the actual freight. Its ultimate finding was that such discrimination results in substantial injury to petitioners' competitors; hinders, obstructs and tends to suppress competition among petitioners' customers and to create a monopoly in processing and refining corn and in sale and resale of its by-products and has resulted in substantial injury to competition among purchasers by affording substantial unjustified price advantages to preferred customers and not to others, in violation of subsection (a), Section 2 of the Act.
Our inquiry is whether the evidence is such as to justify the finding that petitioners have discriminated in prices between competitive purchasers of commodities of like grade and that such discrimination will probably substantially lessen competition or tend to create a monopoly in commerce or to injure, destroy or prevent competition with any person who knowingly receives the benefit of such discrimination or whether the evidence discloses that the discrimination grew out of only due allowance for differences in the cost of delivery resulting from different methods or quantities of sales and deliveries under Section 2 of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C.A. § 13.
When purchasers receive goods from Kansas City, the sales price of which is fixed by charging the Chicago quotation plus the freight from Chicago rather than that from Kansas City, at a substantial increase of cost to the purchasers, a fictional factor is included in the sales price which is warranted in no way by actual delivery cost or other element. In some instances the price does not include all the actual freight; in others it includes more. In other words the item of freight from Chicago upon goods shipped from other points is an artificial element of cost arbitrarily added by petitioners. That it is substantial is apparent; in some instances amounting to approximately $400 per carload. Consequently, so far as this ingredient is concerned, purchasers in cities discriminated against have higher costs of manufacture than those elsewhere with whom they are competitively engaged in purchase of petitioners' glucose and sale of candy made therefrom. The parties stipulate that the effect "may be" to diminish the ability of those paying the higher prices to compete with those paying lower prices and that such increased cost can be met only by raising the prices of finished products or by making sales on a non-profit basis. In either event, obviously, the profit is reduced, in the absence of any offsetting factor. Consequently, some competitors have moved to Chicago, thereby decreasing their cost not only by reducing the actual cost of delivery but also by elimination of the fictional freight charge to which they were subjected when located in less favorably treated communities.
In so far as the delivery price includes for freight more than the actual cost of transportation it measures a definite discrimination forbidden by statute. Upon the principle of equality, the Act forbids any difference in charges to different competitive customers not based upon actual differences in service or delivery. If a difference is to be justified because of presence of the latter element, it must have some reasonable relationship to actual cost and may not be of such character or quality as to work an unjust discrimination. Western Union Telegraph Co. v. Call Publishing Company, 181 U.S. 92, 100, 21 S. Ct. 561, 45 L. Ed. 765. The inclusion of a fictional cost of delivery, having no justification in fact, in itself suggests, upon the part of the manufacturer, arbitrary fixation of prices discriminating illegally as between competitive customers.Systematic price discrimination is, irreconcilable with free, active competition. It is not the kind of price competition found in a truly competitive market. Thus in United States v. Sugar Institute, D.C., 15 F.supp. 817, 908, the court condemned and enjoined defendants from "determining transportation charges or freight applications to be collected from customers, or limiting freight absorptions" and "selling only on delivered prices or on any system of delivered prices, including zone prices or refusing to sell f.o.b. refinery." Upon appeal defendants waived their assignments of error as to each of these. The Supreme Court modified the decree in other particulars, not pertinent here, and affirmed in all other respects. Sugar Institute v. United States, 297 U.S. 553, 591, 605, 56 S. Ct. 629, 80 L. Ed. 859. Thus defendants were finally enjoined from selling at prices including artificial or fictional items of freight and the court adhered to the reasoning of Western Union Telegraph Co. v. Call Publishing Co., 181 U.S. 92, 21 S. Ct. 561, 564, 45 L. Ed. 765, for bidding "any difference in charge which is not based upon difference in service."
We think it irrefutable from the facts that resulting substantial loss is reasonably likely to accrue to purchasers in the less favorably located communities. The statute does no require proof of actual injury. Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346, 42 S. Ct. 360, 66 L. Ed. 653. Under Section 2(a) it is unlawful to discriminate in price between different purchasers where the effect "may be" substantially to lessen competition or to injury, destroy or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination. It is the congressional intent to half in its incipiency any possible injury to the public before it may have actually weakened the fabric of fair competition.
Petitioners' argument as to the wisdom or desirability of the expressed congressional economic policy is wholly beside the point. It is elementary, but it will work no harm to reiterate, that with determination of the wisdom of legislative policies, we are in no way concerned. It is far beyond our function to decide or declare what is wise or unwise in statutory economic, political or fiscal tenets. The Congress is charged with the obligation to determine all such question. When a standard of conduct has once been fixed by legislative enactment, the only functions of the judiciary, as a coordinate branch of government, are so to interpret the statute as to promote and effectuate the disclosed intent of Congress, to determine whether a factual situation is within the contemplation of the act and whether the legislation or the actions of administrative bodies charged with enforcing it infringe upon the constitution. If the standard proves unsatisfactory or unwise, relief can emanate only from Congress.
In this connection petitioners insist that debates in the Congress disclose that it was not the intent of that body to place the "basing-point" system of distribution of commodities beyond the pale; that the Congress, sub silentio approved the method and that its acts are within the range of such approved procedure. We are not advised that such so-called system has any recognized legal definition or any well established boundary lines. Just what pattern it follows is uncertain. And to us the debates indicate at most only disagreement between members of the Congress as to the desirability or non-desirability of any such practice, resulting in the end, in utter silence in the Act upon that subject matter, - neither condemnation nor approval, and this in face of the fact that the Federal Trade Commission previously in 1924 had held that the "basing-point" method of distribution employed by the steel companies embraced unlawful price discrimination under the Clayton Act. 8 F.T.C. 1. Such was the administrative ruling in effect at the time when Congress acted. Indeed, in presenting the bill the member in charge announced that he believed the system to be "indefensible." Rather than indulge in futile inquiry as to what individual members of the Congress may have though as to what is wise economic policy in this respect, we conceive it our duty to give effect to the words of the statute as written and to determine not whether any suggesed formal pattern is beneficial and desirable but whether the specific practice of petitioners is within the prohibition. A search for meaning, for significance, in the silence of the Congress is fraught with such ...