United States v. Borden Company

PETITIONER: United States
RESPONDENT: Borden Company
LOCATION: The Borden Company - Chicago Milk Division

DOCKET NO.: 439
DECIDED BY: Warren Court (1962)
LOWER COURT:

CITATION: 370 US 460 (1962)
ARGUED: Apr 24, 1962 / Apr 25, 1962
DECIDED: Jun 25, 1962

Facts of the case

The Borden Company and Bowman Dairy Company were both large distributors of milk products based in Chicago, Illinois. Each company sold dairy products to retail stores under a plan that gave independent stores discounts on the list prices based on the volume of the independent stores' purchases, up to a specified maximum discount. The dairies granted grocery chain stores a flat discount, without reference to the volume of their purchases, at a rate substantially higher than the maximum discount available to independent grocery stores.

The government brought a Section 2(a) Clayton Act suit against The Borden Company and Bowman Dairy Company, seeking an injunction against selling milk products at prices which discriminated between the independent groceries and the chain groceries. Each company conducted its own cost study in an attempt to demonstrate that the differences in pricing between independent groceries and chain groceries were due to actual cost differences. The cost studies demonstrated that it was less costly on average to sell to chain stores. So, the dairy companies argued that the price discrimination was justified by the cost justification proviso of the Clayton Act.

The United States District Court for the Northern District of Illinois dismissed the Government's suit, concluding that the cost differences demonstrated by the two companies' cost studies were sufficient to justify the price discrimination. The United States appealed the District Court's decision.

Question

Under the Clayton Act, is it lawful to engage in price discrimination in favor of chain groceries and against independent groceries with a showing that sales to chains are less costly on average than sales to independents, but without showing why chains and independents should be treated as separate classes of purchasers?

Media for United States v. Borden Company

Audio Transcription for Oral Argument - April 25, 1962 (Part 1) in United States v. Borden Company
Audio Transcription for Oral Argument - April 25, 1962 (Part 2) in United States v. Borden Company

Audio Transcription for Oral Argument - April 24, 1962 in United States v. Borden Company

Earl Warren:

Number 439, United Sates, Appellant, versus The Borden Company, et al.

Mr. Solomon.

Richard O. Solomon:

I'm afraid Your Honors that this is the day for cost accounting matters because we have another one here, all be at a relatively modern case since this only started in 1951.

This is an appeal from a decision by the Northern District -- District Court of the Northern District of Illinois which dismissed the Government complaint charging the Borden Company and the Bowman Dairy Company with violation of Section 2 of the Clayton Act as amended by the Robinson-Patman Act.

Section 2 of the Clayton Act is set forth on page 2 of our brief and as I'm sure, I don't have to inform this Court, it general -- it proscribes price discrimination by a seller between different purchasers of light commodities where the effect will be to injure competition substantially or to tend to create a monopoly in any line or to injure or destroy, prevent competition between a person receiving the benefit and somebody who's competing.

In this case, the Court found that the price systems of both Borden and Bowman did prima facie violate this prohibition, did involve price discriminations injurious to competition.

But the Court found that in both cases, discriminations had been cost justified under the proviso which is at the bottom of page 2 here, which reads 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 sales or quantities in which such commodities are to such purchases sold or delivered.

Now, we have brought this appeal to this Court because we believe that in so finding, the Court has seriously misunderstood the nature of a proper course justification and specifically because we believe the Court has incorrectly allowed types of classification of customers which if permitted will allow this cost defense to be broadened out again into the broad defense it was prior to the passage of the Robinson-Patman Act.

Let me state at the outset that although there are two defendants here and although the Government thinks that the difficulties with their cost differences are the same, this Court has ordered that there will be separate briefs and separate arguments with respect to the two cases, and therefore today, I will be focusing my attention on this problem as it relates to the price policies and the cost justification of the Borden Company, and tomorrow, we will get into the difficulties as we see it with the Bowman Company.

But of course there's some background which are common to both of these cases.

As the Court will --

Earl Warren:

For the benefit of the Court, would you mind stating the order of your arguments, so we can separate these two cases Mr. Solomon.

Richard O. Solomon:

I am arguing today the case as relates to the Borden Company.

Earl Warren:

Yes.

Richard O. Solomon:

And we have a separate brief with respect to Borden.

Earl Warren:

Yes.

And then Mr. Hall is to follow --

Richard O. Solomon:

Mr. Ball.

Earl Warren:

Ball, rather.

Richard O. Solomon:

Mr. Ball will follow me.

If I have any time, I will rebut and then I will start over again with the Bowman Company.

Earl Warren:

Yes.

Richard O. Solomon:

That's correct.

Potter Stewart:

So you're on the Borden case now?

Richard O. Solomon:

I'm on the Borden case now; yes sir.

But there's a common background to the two cases let me stretch that in very briefly.

In United States v. Borden, 347 U.S., this Court had before the previous decision of the same court which had dismissed the complaint.

At that time the complaint involved Sherman Act counts as well as Clayton Act counts and the dismissals for the Sherman Act counts was affirmed; so that's out of this case.

The District Court had dismissed the Clayton Act counts not because he thought there was no prima facie case but because he thought that there was no need for an injunction since there was a private antitrust case which had resulted in an injunction against these two parties.

And the Court thought that was sufficient.