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American Oil Co. v. Federal Trade Commission.

November 19, 1963

THE AMERICAN OIL COMPANY
v.
FEDERAL TRADE COMMISSION.



Author: Castle

Before CASTLE, KILEY and SWYGERT, Circuit Judges.

CASTLE, Circuit Judge: This case is before the Court on the petition of The American Oil Company (hereinafter referred to as American) for review*fn1 of a cease and desist order issued against it by the Federal Trade Commission, respondent, following a hearing on a complaint charging American with violation of Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act. (15 U.S.C.A. ยง 13(a)).*fn2

The Commission found*fn3 that American had engaged in discriminatory pricing practices in connection with the sale and distribution of gasolines to its dealer-customers in and around Smyrna and Marietta, Georgia, by selling such gasolines to certain of its customers at higher prices than it did to other customers, and that the discriminations in price had the effect on customer competition proscribed by the statute. The Commission rejected American's affirmative Section 2(b) defense*fn4 that any lower price to any dealer in the area was made in good faith to meet an equally low price of a competitor. Also rejected was American's claim that any differences in its prices were the result of price changes in response to changing conditions affecting the market for or the marketability of the goods concerned.*fn5

The record discloses that American is engaged in the sale and distribution of gasoline and other products in twenty-five states and in the District of Columbia. In connection with its business in the State of Georgia, American has entered into contracts with service station operators pursuant to the provisions of which it sells and delivers its "Amoco" and "American" gasolines, according to the dealer-customers' requirements and orders.Ten of American's dealers are located in and around the vicinity of Smyrna and Marietta, Georgia. American's pricing practices in the sale of gasoline to these ten customers during a seventeen day period only is here involved. This period extended from October 10 to 28, 1958, and coincided with a gasoline price war in Smyrna.

Smyrna and Marietta are adjoining cities located approximately fifteen miles north-west of Atlanta, Georgia. Their common border consists of contiguous residential communities. Marietta is north of Smyrna.There are two main north-south highways in the Smyrna-Marietta area - State route 3 and U.S. route 41. State route 3 is the main highway from Marietta south to Smyrna which connects both cities with the Lockheed Aircraft Corporation plant and Dobbins Air Force Base. Also located on State route 3, in the heart of Smyrna, is a large shopping center patronized by inhabitants of the Smyrna-Marietta area. U.S. route 41 is a four lane highway running somewhat parallel to and about two miles east of route 3. It is a main arterial route between the mid-western states and Florida. The aircraft plant and the airforce base are located between the two highways.

For the purpose of gasoline pricing the Smyrna-Marietta area was divided into two areas. Area :1 or Smyrna area included generally the City of Smyrna and the areas to the south. Four of American's customer-dealers were located in this area. Area :5 or Marietta area included the City of Marietta and certain of American's dealers located to the south of Marietta and to the east of Smyrna on U.S. 41. Six of American's dealers were located in this area. The pattern of traffic flow between the two cities, and to and from the industrial plant, airforce installation and the shopping center, was such that local motorists had ready access to most of the American dealers located in either of the pricing areas.

In establishing the prices its dealers are to pay for gasoline, American quotes a tank wagon price. In addition, as conditions may require, American establishes a competitive price allowance (CPA) which it grants to its dealers in the predetermined area. Accordingly, as the "CPA" increases the price paid by the dealer for the gasoline decreases. Dealer's pump prices to their patrons are based on the net price afforded them by American, their supplier. Generally the dealers maintain a gross margin of profit of five cents per gallon. Thus the amounts of fall price differences either in the purchase price or the resale price are measured by the amount of the "CPA" or discount extended to the dealers.

A summary of the extent of the price discriminations favoring American's Smyrna dealers, as contrasted to its price to Marietta area dealers, during the seventeen day period involved, shown in cents per gallon, follows:

Day Date Discrimination in favor of Smyrna Dealers

Friday 10/100.0

Saturday 10/113.5

Sunday 10/123.5

Monday 10/133.5

Tuesday ...


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