The Supreme Court/The Supreme Court.iso/pc/ascii/misc/7_2048c2

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Subject: 87-2048--CONCUR, TEXACO INC. v. HASBROUCK




        SUPREME COURT OF THE UNITED STATES


No. 87-2048



TEXACO INC., PETITIONER v. RICKY HASBROUCK, dba RICK'S TEXACO, et al.

on writ of certiorari to the united states court of appeals for the ninth
circuit

[June 14, 1990]



    Justice Scalia, with whom Justice Kennedy joins, concurring in the
judgment.

    I agree with the Court that none of the arguments pressed by petitioner
for removing its conduct from the coverage of the Robinson-Patman Act is
persuasive.  I cannot, however, adopt the Court's reasoning, which seems to
create an exemption for functional discounts that are "reasonable" even
though prohibited by the text of the Act.
    The Act provides:

    "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 discrimination 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."  15 U. S. C. 13(a).

As the Court notes, ante, at 10, sales of like goods in interstate commerce
violate this provision if three conditions are met: (1) the seller
discriminates in price between purchasers, (2) the effect of such
discrimination may be to injure competition between the victim and
beneficiaries of the discrimination or their customers, and (3) the
discrimination is not cost- based.  Petitioner makes three arguments, one
related to each of these conditions.  First, petitioner argues that a price
differential between purchasers at different levels of distribution is not
discrimination in price.  As the Court correctly concludes, that cannot be
so.  As long ago as FTC v. Morton Salt Co., 334 U. S. 37 (1948), we held
that the Act prohibits differentials in the prices offered to wholesalers
and retailers.  True, in Morton Salt the retailers were being favored over
the wholesalers, the reverse of the situation here.  But if that factor
could make any difference, it would bear not upon whether price
discrimination occurred, but upon whether it affected competition, the
point I address next.
    Second, petitioner argues that its practice of giving wholesalers Gull
and Dompier discounts unavailable to retailer Hasbrouck could not have
injured Hasbrouck's competition with retailers who purchased from Gull and
Dompier.  Any competitive advantage enjoyed by the competing retailers,
petitioner asserts, was the product of independent decisions by Gull and
Dompier to pass on the discounts to those retailers.  This also is
unpersuasive.  The Act forbids price discrimination whose effect may be "to
injure, destroy, or prevent competition with any person who . . . knowingly
receives the benefit of such discrimination, or with customers of [that
person]."  15 U. S. C. 13(a) (emphasis added).  Obviously, that effect upon
"competition with customers" occurs whether or not the beneficiary's choice
to pass on the discount is his own.  The existence of an implied "proximate
cause" requirement that would cut off liability by reason of the voluntary
act of pass-on is simply implausible.  This field is laden with "voluntary
acts" of third persons that do not relieve the violator of liability,
beginning with the act of the ultimate purchaser, who in the last analysis
causes the injury to competition by "voluntarily" choosing to buy from the
seller who offers the lower price that the price discrimination has made
possible.  The Act focuses not upon free will, but upon predictable
commercial motivation; and it is just as predictable that a wholesaler will
ordinarily increase sales (and thus profits) by passing on at least some of
a price advantage, as it is that a retailer will ordinarily buy at the
lower price.  To say that when the Act refers to injury of competition
"with customers" of the beneficiary it has in mind only those customers to
whom the beneficiary is compelled to sell at the lower price is to assume
that Congress focused upon the damage caused by the rare exception rather
than the damage caused by the almost universal rule.  The Court rightly
rejects that interpretation.  The independence of the pass-on decision is
beside the point.
    Petitioner's third point relates to the third condition of liability
(i. e., lack of a cost justification for the discrimination), but does not
assert that such a justification is present here.  Rather, joined by the
United States as amicus curiae, petitioner argues at length that even if
petitioner's discounts to Gull and Dompier cannot be shown to be cost-based
they should be exempted, because the "functional discount" is an efficient
and legitimate commercial practice that is ordinarily cost-based, though it
is all but impossible to establish cost justification in a particular case.
The short answer to this argument is that it should be addressed to
Congress.
    The Court does not, however, provide that response, but accepts this
last argument in somewhat modified form.  Petitioner has violated the Act,
it says, only because the discount it gave to Gull and Dompier was not a
"reasonable reimbursement for the value to [petitioner] of their actual
marketing functions."  Ante, at 16; see also ante, at 25.  Relying on a
mass of extratextual materials, the Court concludes that the Act permits
such "reasonable" functional discounts even if the supplier cannot satisfy
the "rigorous requirements of the cost justification defense."  Id., at 15.
I find this conclusion quite puzzling.  The language of the Act is
straightforward: any price discrimination whose effect "may be
substantially . . . to injure, destroy, or prevent competition" is
prohibited, unless it is immunized by the "cost justification" defense, i.
e., unless it "make[s] only due allowance for differences in the cost of
manufacture, sale, or delivery resulting from the differing methods or
quantities in which [the] commodities are . . . sold or delivered."  15 U.
S. C. 13(a).  There is no exception for "reasonable" functional discounts
that do not meet this requirement.  Indeed, I am at a loss to understand
what makes a functional discount "reasonable" unless it meets this
requirement.  It does not have to meet it penny- for-penny, of course: The
"rigorous requirements of the cost justification defense" to which the
Court refers, ante, at 15, are not the rigors of mathematical precision,
but the rigors of proof that the amount of the discount and the amount of
the cost saving are close enough that the difference cannot produce any
substantial lessening of competition.  See ante, at 15, n. 18.  How is one
to determine that a functional discount is "reasonable" except by proving
(through the normally, alas, "rigorous" means) that it meets this test?
Shall we use a nationwide average?
    I suppose a functional discount can be "reasonable" (in the relevant
sense of being unlikely to subvert the purposes of the Act) if it is not
commensurate with the supplier's costs saved (as the cost-justification
defense requires), but is commensurate with the wholesaler's costs incurred
in performing services for the supplier.  Such a discount would not produce
the proscribed effect upon competition, since if it constitutes only
reimbursement for the wholesaler one would not expect him to pass it on.
The relevant measure of the discount in order to determine "reasonableness"
on that basis, however, is not the measure the Court applies to Texaco
("value to [the supplier] of [the distributor's] actual marketing
functions," ante, at 16), but rather "cost to the distributor of the
distributor's actual marketing functions", which is of course not
necessarily the same thing.  I am therefore quite unable to understand what
the Court has in mind by its "reasonable" functional discount that is not
cost justified.
    To my mind, there is one plausible argument for the proposition that a
functional basis for differential pricing ipso facto, cost justification or
not, negates the probability of competitive injury, thus destroying an
element of the plaintiff's prima facie case, see Falls City Industries,
Inc. v. Vanco Beverage, Inc., 460 U. S. 428, 434 (1983): In a market that
is really functionally divided, retailers are in competition with one
another, not with wholesalers.  That competition among retailers cannot be
injured by the supplier's giving lower prices to wholesalers, because if
the price differential is passed on, all retailers will simply purchase
from wholesalers instead of from the supplier.  Or, to put it differently,
when the market is functionally divided all competing retailers have the
opportunity of obtaining the same price from wholesalers, and the
supplier's functional price discrimination alone does not cause any injury
to competition.  Therefore (the argument goes), if functional division of
the market is established, it should be up to the complaining retailer to
show that some special factor (e. g., an agreement between the supplier and
the wholesaler that the latter will not sell to the former's
retailer-customers) prevents this normal market mechanism from operating.
As the Court notes, ante, at 26, this argument was not raised by the
parties here or below, and it calls forth a number of issues that would
benefit from briefing and factual development.  I agree that we should not
decide the merit of this argument in the first instance.
    For the foregoing reasons, I concur in the judgment.
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