F. T. C. v. SIMPLICITY PATTERN CO.

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Argument of Charles H. Weston

Chief Justice Earl Warren: Number 406, Federal Trade Commission versus Simplicity Pattern Company Incorporated and Number 447, Simplicity Pattern Company Incorporated versus Federal Trade Commission.

Mr. Weston, you may proceed.

Mr. Charles H. Weston: Mr. Chief Justice, may it please the Court.

These cases involved the validity of an order of the Federal Trade Commission which was issued under subsection (e) of Section 2 of the Clayton Act.

Section 2 (e) makes it unlawful to discriminate by furnishing services or facilities to a purchaser upon terms not furnished -- upon terms not given in proportionally equal terms to all purchasers.

The complaint which the Commission filed, charged Simplicity Pattern with violating Section 2 (e) and also with violating the Federal Trade Commission Act.

The Commission dismissed the Trade Commission Act charge and it is not in issue.

Simplicity does not sell its patterns direct to the public.

It sells to ten cent store chains such as Woolworth and Kresge to so-called fabric stores and to department stores.

The discrimination which was found was in furnishing catalogues and cabinets which I will describe later to ten cent stores on terms which were entirely different from the terms in which it furnished them to fabric stores.

There were also discriminations in the services rendered these two classes of stores.

Simplicity makes no charge for the catalogues which it furnishes to the ten cent stores.

It also makes no charge to the cabinets furnished to them.

It charges the fabric stores for every catalogue and every cabinet furnished to them.

It makes no charge to the ten cent store chains, the cost of transportation on these catalogues, cabinets and patterns also.

It requires the fabric stores to pay this cost of transportation.

It requires the fabric stores to pay for their initial stock of Simplicity Patterns.

It does not require the ten cent stores to pay anything for their initial stock of patterns.

So it is that Simplicity, there's the cost of carrying the entire inventory of the ten cent stores and this is not negligible in amount for these ten cent store customers had a pattern and inventory that was close to a $1,800,000.00.

These various preferences were equivalent to a price discrimination of more than 25%.

The preference was also of the large barrier over the small.

That is a preference which Congress considered to be an evil and which the Robinson-Patman Act was designed to prevent.

The pattern which Simplicity makes consists of several pieces of tissue paper which give designs and directions for making dresses and garments.

Simplicity puts out about 40 new patterns each month and it discards about the same number.

It maintains approximately 600 patterns in its current list.

It sells to all retail stores at 60% of the retail price and that price is stand on the pattern.

Now, a catalogue which lifts the current offerings is essential to retail sale that was specifically found.

The prospective purchaser looks through the catalogue to find out what is offered and what will suit their needs and then buys whatever pattern is selected.

Simplicity issues a new catalogue each month and it furnishes one or more of these catalogues to every store which handles its patterns.

It also furnishes, to these stores, cabinets, steel cabinets.

They're made by a steel fabricator according to Simplicity's specifications and designed to be convenient store containers for Simplicity patterns.

The original stock of patterns are shipped to the store in one or more of these cabinets and the store later adds to its patent -- to the pattern stock, which it carries and needs more cabinets while Simplicity will furnish them.

Now, the cabinets which were furnished to the fabric stores were somewhat superior quality to those which were furnished to ten cent stores.

I submit that on the question of discrimination, this is absolutely immaterial.

Whatever the fabric store got, it paid for.

And what the ten cent store got, it got free and without charge.

Simplicity has seven ten cent store customers and about 24% of its sales are to these -- these ten cent store chains.

Of course, there are many stores in the chain and there where over 1800 in the worldwide chain.

Simplicity makes its contract with the chain, but each store in a chain individually orders and reorders the patterns which it wants.

Therefore, as far as servicing was concerned, these stores were serviced individually just as the fabric store would be.

And at least in some areas, the average purchases of the ten cent stores was less that the average purchases of the fabric store customers of Simplicity.

Now, I've used the designation, fabric store.

That is meant to cover dry good stores and fabric shops which carry a large assortment of fabrics.

They sell patterns primarily to promote their fabric sales.

They are, in a sense, captive customers.

The bargaining power is very weak, because each individuals, the purchases of each individual store infinitesimal compared to the purchases of one of these ten cent store chains, the -- the chains bought hundreds of thousands of dollars worth of patterns each year, Woolworth bought well, over 1 million, but Simplicity had 6000 some -- up around 6000 fabric store customers, but less than $400 worth of Simplicity's pattern each year.

It's not surprising that these stores got the short-end of the deal and that they generally lost money on their pattern business.

Justice Potter Stewart: Does the record show that Simplicity also lost money in dealing with those small stores?

Mr. Charles H. Weston: It claimed that it did.

It had a very curious way of arriving at -- at that -- at the result that it -- it did lose money.

Justice Potter Stewart: They gave us -- because of the destruction of the patterns that it go out of date, isn't that it?

Mr. Charles H. Weston: Yes.

Justice Potter Stewart: Isn't that the claim, I mean?

Mr. Charles H. Weston: That's the claim.

Let's look at that a little bit though.

The store pays for the patterns it gets originally.

Simplicity just simulates sales when it's a constant flow of new patterns.

It can't have thousands on the market at once.

It discards certain ones as outdated that the store has one of the old patterns.

It's paid for it.

Simplicity doesn't lose money and that, it merely sends out some new two pieces of tissue paper representing a new pattern.

It gets a credit against what it paid for the first pattern which is not been sold against the new pattern.

It hardly stands to reason that Simplicity, out of mere goodness of heart, would continue to do business with 6000 customers with whom it was asked of which it was losing money.

It had about 10,000 fabric store customers in all.

Justice Potter Stewart: While you're still on the facts, Mr. Weston, for my own clarification, I wanted to be sure I understand.

What you called ten cent stores are what I call the red front stores?

Mr. Charles H. Weston: Yes.

Justice Potter Stewart: I just want to --

Mr. Charles H. Weston: Yes, I used a phrase -- it's the same thing.

Justice Potter Stewart: The red front stores.

Mr. Charles H. Weston: It's the same thing.

Justice Potter Stewart: And the so-called fabric shops include small specialty shops?

Mr. Charles H. Weston: Yes.

Justice Potter Stewart: As well as, large department stores?

Mr. Charles H. Weston: No, no.

The department stores are separate.

There were those three classifications.

Justice Potter Stewart: There were three classifications.

Mr. Charles H. Weston: And the Commission limited its evidence and all the findings are limited solely to the ten cent store group and the fabric store group, not department stores.

Justice Potter Stewart: And the fabric store group would be then a specialty --

Mr. Charles H. Weston: Yes.

Not necessarily a specialty.

Of course, they carry -- most of them at least, carry other things than fabrics, but they had a substantial pattern -- fabric department.

Justice Potter Stewart: And are they typically of small independent units?

Do the record show or not?

Mr. Charles H. Weston: Yes.

They are.

They're all independent.

They -- and they -- certainly, most of them are very small.

The record did show one that had purchases of something like 12,000 which of course was entirely a typical one, as to the --

Justice Potter Stewart: 12,000 in patterns?

Mr. Charles H. Weston: Yes.

Justice Potter Stewart: Or fabrics?

Mr. Charles H. Weston: But -- no, patterns.

That was very unusual, if not at all, typical.

I -- I think that that was -- a few of the fabric stores would carry patterns of other makers than Simplicity and I think that in that case, they carried three different kinds of patterns.

Now, the Commission -- the case went through the usual administrative process to this initial decision by the hearing examiner and then that was carried to the Commission and it rendered an opinion.

In that opinion, it adopted the findings and conclusions of the examiner and it found, which really wasn't disputed that Simplicity did discriminate in the services and facilities which it furnished.

It found that the ten cent stores and the fabric stores compete in the sale of Simplicity patterns.

It ruled that these facts established a violation of Section 2 (e) and that is not necessary to show, in addition, that the fabric stores were injured by the discriminations.

It also ruled that in a proceeding under Section 2 (e), the seller does -- does not -- given the defense of so-called cost justification.

The court below was unanimous in affirming the finding as to competition.

A majority held that the clause in Section 2 (a) prohibiting price discrimination, which limits the prohibition to price differentials which happened in jury's effect on competition, may not be read into 2 (e) which is an outright prohibition.

A differently constituted majority held that Section 2 (b), which I will come to later, permits justification did not attack to state just what the -- how broad their justification was, but justification over and above any defense given by the statute itself, apart from 2 (b), but that at least that that -- that justification included so-called, cost justification.

Now, we take issue with the Court's ruling as to the effect of Section 2 (b).

Simplicity challenges the finding as to competition.

It also urges that under Section 2 (b), it is entitled to show, by rebuttal evidence, absence of competitive injury.

A question of competition is preliminary to the other questions and I hope to discuss it first.

The Actual wording of 2 (e) does not confine the prohibition to purchasers who compete with each other in resale of the seller's product.

However, this has been the -- at least, inferentially, the Commission's interpretation of that section and we're prepared to have at Court, for purposes of this case, assume that Section 2 (e) applies only if the purchasers resell the same product in the common market.

The facts here show, we think, ordinary common garden-variety type of competition where two stores -- two types of stores selling the same thing in the same cities and shopping areas, sometimes in the same city block.

Now, they weren't rendered noncompetitive because of different motivations for selling patterns.

The ten cent stores sold patterns to make a profit on the sale of patterns and they would not sell them, if they were not independently profitable.

As I mentioned before, the fabric stores sold them primarily to aid in there fabric sales.

But they're both soliciting trade in the same group of public.

They both have the purpose of capturing as many pattern customers as possible.

Ten cent store wanted to do this to make as much money as possible in its pattern sales.

The fabric store wanted to do this, because sale of a pattern in its own store was likely to lead to the purchaser trading to its adjoining fabric department and the buying unnecessary material there.

Also, the larger the sales of patterns, the easier it was to absorb the cost of such things as catalogues and cabinets.

Justice Potter Stewart: Does the record show that some of the fabric stores actually operated their pattern -- pattern part of their business at a loss?

Mr. Charles H. Weston: Most of them said that they regarded it as unprofitable.

Now, the --

Justice Potter Stewart: So, that does appear in the record?

Mr. Charles H. Weston: Yes.

Justice Potter Stewart: At least to that extent, as an alternative.

Mr. Charles H. Weston: It was -- the testimony along that line was all very general and rather vague in the note.

Cost figures were put in, but they were -- they would be asked a question in cross-examination whether they consider this a profitable business and most of them said, “No.”

They hoped it might become to such, but that is -- as it has then being conducted, it wasn't.

Justice Potter Stewart: One of the fabric stores gave these patterns away?

You couldn't have competition then, would you?

(Voice Overlap) gave -- gave the customer's opinion about fabrics.

Mr. Charles H. Weston: No, I suppose you -- I suppose if you -- if it was just a gift of business, then -- then it wouldn't be.

Justice William J. Brennan: Well, the prices that which --

Justice John M. Harlan: I wouldn't understand that.

It must have been --

Mr. Charles H. Weston: Well --

Justice John M. Harlan: What you said that the reason there was competition was before they sold to the same market.

(Inaudible)

Mr. Charles H. Weston: Well, the -- they wanted to -- well, perhaps I -- perhaps I was a little too hasty to say if that -- that -- if they gave them away, they would not be in competition.

They would -- of course, they would -- there wouldn't be the usual question of comparison of cost and -- and discriminatory treatment, if -- if the person was just giving away the ultimate product rather than selling it.

Here, there was no question that they were selling it.

They were selling it at a price.

Justice William J. Brennan: Well, the customer paid the same price to be -- if a pattern (Inaudible)

Mr. Charles H. Weston: That's true.

Justice William J. Brennan: Woolworth or other fabric shops?

Mr. Charles H. Weston: Yes.

This as I said, the price was stamped on the pattern and the testimony was that there has been no price cutting in the field.

But the facts that price was the same, doesn't mean it was not an absence of competition.

If that were the case, you never have competition wherein the State having fair trade law and articles that are subject to fair trade contracts so that the same price by requirement of the law, they obviously would be in competition.

It might be -- it might affect the same -- of all the same elements of -- of competition that you'd have otherwise.

They would be seeking to get as many customers as possible in either case.

Now, Simplicity makes a rather complicated contention which is based on a ruling that the Commission made in pursuing on the Trade Commission Act charged and this ruling was that the evidence failed to show affirmatively that the discrimination injured the fabric stores.

Now, Simplicity argues that since the discriminations here were conceded to be equivalent to more than the 25% price differential and since in the Morton Salt case in 334 U.S., this Court said that, "A smaller price differential did not obviously -- adversely affected competition.

The ruling as to absence of proof, as to competitive injury and defining the competition, could not be squared with each other.

Our brief in 447 points out that it's highly doubtful whether the Commission applied the test and principles which -- which in the Morton Salt case were held to be determinative of the question of competitive injury under Section 2 (a)'s effect on competition clause.

Error by the Commission, if there was error in its ruling on the collateral charge, cannot invalidate the finding of competition which is made in connection with the Clayton Act charge.

In addition, the validity of that finding depends on the evidence which supports it, whether it's adequate.

There can be no doubt as to the adequacy of the evidence.

Two ten cent store witnesses testified without reservation that those stores and the fabric stores were in competition in the sale of fabric -- in the sale of patterns.

As I have mentioned, the finding was unanimously upheld by the Court of Appeals.

Now, under accepted principles, this administrative finding should not be reversed unless there is a convincing showing of clear error.I -- I submit that Simplicity's challenge does not even adumbrate error.

Now, the other questions are whether, when all the elements of the 2 (e) violation have been established, Section 2 (b) permits the defense of cost justification or the defense of the absence competitive injury.

These questions turned on the meaning and effect of 2 (b), but possibly the other provisions of subsections of Section 2, maybe relevant to some extent and I will briefly indicate what these sections are.

There are five prohibitory sections, but 2 (f) is tied to 2 (a) and I think we can regard in -- sections as limited to four sections of this type.

2 (c), 2 (d) and 2 (e) constitute each a specific prohibition of a specific practice, each is without a proviso.

Each is without any qualifying clause.

They, therefore, stand in contrast with 2 (a), prohibiting price discrimination.

It has three provisos.

One of them is -- one proviso is subject to another proviso.

It has the clause limiting the prohibition to differentials which adversely affect competition.

The most important proviso is the one that exempts differentials which make only due allowance for differences in the seller's cost, due to resulting from different methods of delivery or quantity sold.

Now, I'll just state what 2 (c), 2 (d) and 2 (e) do.

2 (c) prohibits payment of brokerage to the other party to a sales transaction.

2 (d) makes it unlawful to pay a purchaser for furnished -- for services or facilities which he has furnished in connection with sale of the seller's product without making a proportionally equal payment available to other competing purchasers.

It's very close to 2 (e) and 2 (e) prohibits furnishing services or facilities to one purchaser not accorded and proportionally equal terms to all.

Now, the Commission and the courts have uniformly held that the effect clause of 2 (a) may not be read into 2 (c), 2 (d) or 2 (e), which as I said are outright prohibitions.

The Courts of Appeals in four different circuits have held that the effect clause may not be read into 2 (c).

In two circuits, it has been held that this clause may not be read into 2 (e), the one here involved.

It's also been held that the cost-saving proviso of 2 (a) may not be read into 2 (c).

And none of these cases was there a dissent on these points.

Actually, and I want to emphasize this, Simplicity states, concedes, or disclaims any contention that either the cost saving proviso or the effect clause of 2 (a) is to be read into 2 (e), it rests this case solely on 2 (b).

Now, that consists of what I'll call a procedural provision and a proviso.

The proviso as the Court knows is that it permits its seller to show that his lower cost or the services or facilities which he furnished were made in good faith to meet the equally low price of a competitor at the services or facilities furnished by the factory.

Simplicity doesn't act -- claim to be within this proviso, but rest solely on the initial part of 2 (b).

Now, I would like to read that initial part.

It's -- the Court will find it in page 26 of our brief in 406, "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 may shall -- but in 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."

On this -- on their face, these words are simply declaratory that party who has the burden of proof, has any exception from the general prohibition of 2 (a) or 2 (e).

These exceptions are granted by the provisos to 2 (a).

They are granted by the proviso of 2 (b), which applies to both 2 (a) and 2 (e).

Simplicity reads the words showing justification as broader and is authorizing substantive defenses which are not otherwise authorized for Section 2.

If such additional defenses are granted, they are obviously, holy undefined.Sections 2 (c), 2 (d) and 2 (e), instead of being outright prohibitions, there's something quite different.

They are open to any defense which a reviewing court and the Commission may consider to be just and reasonable under the circumstances of a particular case.

That's practically what the Court of Appeals said at 338.

And 2 (a)'s provisos do not set the limits of the defences given to price discrimination.

There are these unknown and unknowable additional defenses available under 2 (b).

Unknown Speaker: (Inaudible)

Mr. Charles H. Weston: No.

I -- it said that if you could do not just adopt 2 (a)'s criteria.

You'll find that the top -- near the top of 338, at the end of the paragraph at the top of that page, "We do not agree with petitioner that such justification reaches so far as -- so far as to import 2 (a) criteria as matters of defense in Section 2 (e) charge."

And then, near the bottom -- at the bottom of that page, "Congress, we think, must've intended that justification to be shown under the first clause of 2 (b) asked with 2 (e) charge of discrimination in facilities furnished was to depend upon the facts in a particular case."

As broad as that, as I read it, in -- in Morton Salt, this Court construed Section 2 (b) as this -- according to what's Court said pointed out that, "The general rule with a statutory construction was that when a statute contains an exceptionary exemption from the general prohibition, the party who claims the benefit as the exception, has the burden of proof."

It said that, "2 (b) specifically imposes that burden on that party charged with violation."

His construction was reaffirmed in the Automatic Canteen case in 346 U.S.

Now the Court there said that "2 (b), apart from the proviso, attempts to lay down the rules of evidence under the Act."

And it said, "As references to 2 (b) or to the procedural language preceding the proviso, legislative history confirms and requires the construction that 2 (b), apart from its proviso, does not -- is procedural and not substantive."

The section, as it now reads, was in the builder's reported by the House Judiciary Committee except that at that time, it applied only to price discrimination.

The committee filed a 17-page report which discussed at some length every provisions of the bill.

All of it said about this initial part of 2 (b) was, "That it merely lays down directions with reference to procedure including a statement with respect to burden of proof."

I submit that this statement is irreconcilable with Simplicity's construction of 2 (b) as creating, authorizing substantive defences.

The Committee unequivocally said that it was procedural loan.

Several pages of the report were devoted to an analysis of the provisos of 2 (a) and I may say that the report was issued after extensive public hearings.

If in addition to the defences given by this provisos, 2 (b) gives other defences of unknown and unknowable scope, the Committee's detailed discussion of the provisos was an exercise in futility.

Also, with statement that the -- this part of a section was procedural only, was Simplicity's construction is right, as I submit, practically attract to Congress.

Now, the circumstances under which 2 (b) was extended to discrimination in furnishing services or facilities are also irreconcilable with Simplicity's construction.

In the fourth Congress for the House was committee amendment to extend both parts of 2 (b) to furnishing services or facilities.

The significant thing about this action is that the only thing that was mentioned, that was brought to the attention of Congress was that the proviso was being extended to this kind of discrimination.

The extension -- the procedural provisions to the -- to this discrimination was so unimportant, it was not even mentioned.

It was naturally appropriate to extend the procedural provision when the proviso was extended because with the change in the proviso, a defense was created to 2 (e).

That Senate action on 2 (b) gives no clue as to its meaning.

Originally, Senator Robinson and Representative Patman introduced identical bills.

Neither of these bills contained 2 (b) or any counterpart of it.

This was also true that the bill was reported out by the Senate Judiciary Committee.

Shortly before the bill was passed by the Senate, Senator Moore, of New Jersey, offered an amendment adding a new subsection which is the same as the present 2 (d).

He stated that he was offering this amendment at the request of people have telephoned me today.

Senator Robinson then said that he had not previously seen the amendment that he was in doubt about one aspect of it, but that he saw no objection to its being incorporated in the bill so that the conferees may consider it along with two other amendments which had been adopted earlier that day.

Therefore, Section 2 (b) came into the Senate bill without any prior committee consideration or consideration by Senator Robinson, without any explanation as to its meaning or effect by the Senator who offered it and was accepted simply on the basis of throwing it into the part were later consideration of conflicts.

We submit that the legislative history cited by Simplicity does not even inferentially support the construction of 2 (b) as creating substantive defences.

It cites general statements as to the objective of the Robinson-Patman Act.

None of them referred as Section 2 (b), even indirectly and the statements are in themselves, completely inconclusive.

It points to a statement by the House Judiciary Committee that the Act was not intended to prevent the economy's incident to mass buying or the passing on such cost saving of the seller -- at the seller's customers.

Simplicity asked why cost saving should not be a defense to discrimination in furnishing services and facilities when it is a defense to price discrimination.

I think the answer, in part, is that price is an element of every sale.

The various provisos of 2 (a) provide necessary flexibility in dealing -- isn't applying the section to the merit situations which involved price or pricing practices, giving a purchaser furnishing to in services their facilities is relatively rare.

Specialized circumstances in which this is done, there is sufficient latitude provided by the limitation to limiting the prohibition to situations where the furnishing of services is not done on proportion in equal terms to all effected purchasers.

Simplicity also contends that the economic effect of a price discrimination and discrimination in furnishing services and facilities is the same substance.

And that therefore cost saving should be deemed the defense in both cases.

But if furnishing services and facilities is tantamount to a price differential, the seller, if he has real occasion to furnish services and facilities, can give them on the same term so our purchasers and give those to -- for whom is cost through a lower -- a lower price.

Then he has available to him all the defenses of Section 2 (a).

There is another consideration in this connection.

A price differential which is usually in the form of graduated quantity discounts is much more easily measurable against this saving in the seller's cost than is inequality in furnishing services or facilities.

A difference in price is the difference in the specific amount.

Difference in services and facilities has -- involves first determining what is the dollar value or amount of that difference and a query whether that value is cost to the seller or a value that the purchaser made and quite different Then, when you got that, you have to relate it in some way to unit sales.

These are in quagmires of uncertainty and they avoided, if the statute is read according to its terms.

That is his granting cost saving as a defense only in the case of price discrimination.

It is also much simpler to determine the effect on competition of a price difference of a specific amount than where it involves difference in service and facilities to some purchasers and others.

Congress may well have concluded that its objectives would be better served by making that kind of discrimination in outright prohibition.

This would be merely to recognize that normally and almost inevitably, this involves adverse competitive effect.

That it certainly tends to adversely effect competition and would eliminate from the proceeding the difficulty, time consuming factor of proof and counter proof as to a competitive effect.

Now, I agree, there maybe reasonable difference of opinion as to whether this was sound policy to make this an outright prohibition.

But that as to the wisdom of what Congress has done does not justify recasting statutory provisions which are plain and unambiguous.

As I submit, these are both on their face and as shown by legislative history.

Justice Hugo L. Black: I haven't been -- I'm not quite clear just how you construe, unless justifications shall be affirmed and to be made.

I understand you to say that's procedural, but what kind of justifications can be made?

Mr. Charles H. Weston: The justification is any defense which the statute outside that provision creates or authorizes.

For example, a cost justification which was what was --

Justice Hugo L. Black: That's under (a).

Mr. Charles H. Weston: That which was under (a) and each one of the provisos of (a) would be of that character.

Justice Hugo L. Black: Did you say that (a) is wholly separate and distinct from (e)?

Mr. Charles H. Weston: Yes.

Yes.

Unknown Speaker: To --

Justice Potter Stewart: Excuse me.

Mr. Charles H. Weston: Each one begins -- each one of these things -- it shall be unlawful and as I said, the courts had been absolutely uniform.

There's been no deviation in holding that those provisos and the effect clause of 2 (a) may not be read into those prohibitory later sections.

Justice Potter Stewart: And it's your position, Mr. Weston, that the only justification provided in the statute for a violation of (e) is that which appears in the proviso in (b), is that right?

Mr. Charles H. Weston: That's right.

That's right.

Chief Justice Earl Warren: Mr. Simon.

Argument of William Simon

Mr. William Simon: In the one minute that remains, may I answer Mr. Justice Black's question to Mr. Weston by saying that it is the position of the Commission here that the first clause of 2 (b) is meaningless and that it should be read out of the statute and they can see in their brief, Mr. Justice Black at page 23 of their second brief.

They say, “It is true that the only affirmative defense authorized to a charge of discrimination in services or facilities is the meeting competition defense of Section 2 (b)'s proviso and that is the lower half of the proviso.

And then, they continue in -- and in that sense, it is true that the first clause of Section 2 (b) adds nothing to the proviso in its application to a 2 (e) proceeding.

And so, it is their flat position here.

They say it adds nothing to the case, in effect, they would wipe the first clause of 2 (b) out as to a 2 (e) proceeding in spite of the fact that Congress expressly said that it should be applicable to a case involving discrimination in price or services or facilities, so the use of the words services or facilities in the first clause of 2 (e) makes clear that Congress intended it to be applicable to a 2 (e) case and yet they conceded is meaningless.

Chief Justice Earl Warren: We'll recess now.

Print this transcript Transcript: 

Argument of William Simon

Chief Justice Earl Warren: Mr. Simon, you may proceed.

Mr. William Simon: Mr. Chief Justice, may it please the Court.

In the case of fabric shops, patterns are but a means to the end and the end is the sale of fabrics which are the business of the fabric shops.

Fabric shops generally have a substantial area of their place of business devoted to the sale of patterns.

As the Hearing Examiner found, they invite the women to come in and sit and browse through the pattern catalogues in the hope that when they find a pattern that suits their taste, it will generate a fabric sale, but fabrics to the things they want to sell.

The Red Fronts or 10-cent stores on the other hand sell pattens wholly on their own.

The evidence is they won't carry patterns unless they can sell them at a profit.

And they devote just a small little space on the counter big enough for one catalogue.

A woman stands there and stumps through the catalogue until she finds the pattern she wants, and then the clerk reaches under the counter and hands her -- her pattern.

And when a woman has purchased a pattern in a Red Front store, there is just one thing she can do it, and that's go to some fabric shop and buy some fabric with which to make a dress.

These are the findings of the Hearing Examiner which were later adopted by the Commission, and I quote from page 222 and 223 of the record, “It is quite true that stores of the two groups approach the sale of patterns from widely different view points and that their methods of selling the patterns also differs substantially.

With the 10-cent stores, patterns are handled as any other item of merchandise.”

Justice William J. Brennan: What -- what page is that?

Mr. William Simon: Page 220 -- page 22, Mr. Justice Brennan.

I'm sorry.

Justice William J. Brennan: (Inaudible)

Mr. William Simon: 22, excuse me, sir.

The -- about the 10th line from the bottom, “It is quite true --

Justice William J. Brennan: Yes.

Mr. William Simon: -- that the two -- that stores in the two groups approached the sale of patterns from widely different view points that their methods of selling the patterns also differ substantially.

With the 10-cent stores, patterns are handled as any other item of merchandise, that is patterns must stand on their own feet and show a profit, otherwise the store will not handle them.

The patterns are usually kept in a cabinet under the counter and the only thing the perspective customer sees is the catalogue which is a lot of small space on the counter.

No use is made of respondent's monthly fashion previews or any other advertising material.

The situation is quite different with the yardgood store.

Usually, it does not make any profit on patterns nor does it expect to do so.

It handles patterns to promote the sale of fabrics and because its customers expect this service.

The patterns, catalogue, fashion previous and other advertising material are prominently displayed and the customers are invited to sit and browse through the material all in order to create fabric sales.

The record evidence is that something like 90% of the cost of making a garment is in the fabric.

Now, the other costs include the buttons and the accessories and a minor cost for the pattern, but 90% of it is the cost of the fabric.

Three of the Commission's six fabric store witnesses testified they'd like to have a Red Front on either side of them selling fabrics because that would generate selling patterns -- excuse me, so long as they didn't sell fabrics because that would generate fabric sales and two more of the Commission's witnesses said, “We don't regard Woolworth as our competitors because they don't sell fabrics.”

And one of those men said, “When she buys a pattern in a Woolworth store, she might come to me to buy for fabrics.”

In addition to the things that we do for the Red Fronts and Mr. West from this morning named four things that we do for the Red Fronts, the catalogues, the cabinets, the transportation, the initial inventory and there are other things that were charged in the complaint that we also do for the Red Fronts.

But significantly, most of the alleged differential treatment was charged by the Commission as a violation of count one were they conceded they had the proving through the competition.

And in their brief in this Court on page 4 of the first brief and page 9 of the second brief, they expressly say that 75% of the total differentials were charged under count one.

This morning, Mr. West told you that Woolworth has a $1,800,000 worth of inventory.

That was charged under count one, in spite of the fact that 75% of the differentials were charged under count one including the major items he mentioned this morning.

That count was dismissed because of the affirmative finding of knowing through the competition.

And this record shows that we do even more for the fabric shops than we do for the Red Fronts although they are different items.

Simplicity spends a half a million dollars a year promoting home sowing in the economics departments of the schools.

They have a core of women who tour the country calling on home economics teachers and promoting home sowing and these women coordinate their work with the local fabric merchant.

So as to introduce him to this youth market were girls are acquiring the habit of home sowing.

The company sends free to 40,000 home economics teachers a monthly -- a magazine periodically devoted to promoting home sowing.

They have a nationwide 4-H program devoted to promoting home sowing.

The company spends $200,000 a year in sending fashion posters and fashion design material to these fabric stores and this don't portray the pattern, they portray the finished dress that it's hoped the women will see in the store of the window and come in and buy the ingredients, most of which is fabrics to make that dress.

And finally, from six to 10 times a year, they send to these fabric merchants from New York throughout the country the latest style information on women's fashions and women's designs of new dresses.

And these are used by the fabric merchants to promote the sale of fabrics which is what they're really interested in.

In these matters, the company spends more than a million dollars a year, none of it is charged to the fabric merchants.

If permitted to do so and the Court of Appeals reversed because we had not been permitted to do so, we can readily prove that not -- the -- as Mr. Weston said, the small fabric merchants get the short-end of the stick.

We can prove they get the long-end of the stick because we spend more on what we do for them than what we do for the Red Fronts and if the Commission --

Justice Potter Stewart: Now, of course -- primarily, Mr. Simon, those expenditures that you've mentioned are for your -- in your own interest obviously.

Mr. William Simon: Yes, Mr. Justice Stewart.

Justice Potter Stewart: It's Simplicity's interest to sell these patterns --

Mr. William Simon: That's correct.

Justice Potter Stewart: -- where they can be sold.

Mr. William Simon: That's correct.

Justice Potter Stewart: And certainly, some of those expenditures at least that you just told us about promoting home sowing and so on would be, would they not, of equal primary benefit and of course, the purpose is to benefit Simplicity?

But wouldn't they also be of equal benefit to the Red Fronts stores as to the fabric stores?

Mr. William Simon: Not -- certainly not of equal benefit, Mr. Justice Stewart.

Our women who go to the schools and promote home sowing in the economics department at the schools, they bring the local fabric merchant over by the hand and introduce them and promote them.

The Red Fronts stores don't even have personnel that they can send to a school to coordinate these promotional activities.

We give them these large fashion posters which we spend $200,000 a year on the Red Fronts use, and they're helpful.

The 10-cent stores have no place for it.

Now, granted that many of the things we do have a benefit that applies to anybody who carry Simplicity patterns.

But the great bulk of this home sowing program, particularly the fashion material, the design material, promotes the sale of fabrics in the fabric stores and isn't used and in the very nature of their operation couldn't be used by the 10-cent stores.

Might I, at this point, Mr. Justice Stewart, elaborate on the answer of Mr. Weston gave you to the question this morning as to whether we had 6000 customers whom we sold at a -- a loss, and he said that was hard to believe.

The record evidence, however, is that the Commission lawyer asked the president of Simplicity this question which appears at page 232 of the record.

Question, “You testified earlier that your company had 6000 accounts selling $400 a year or less and they were unprofitable.

Have you eliminated any of them?”

Answer, “We have not eliminated any of them.

We have never eliminated a customer who has paid his bills whether he has been profitable or unprofitable in the years I have been president of this company.”

And then at page 284, the same witness in response to another question by Commission counsel said, “And now, we have always thought of ourselves as the common denominator in the pattern business and that is that we sell our patterns at the lowest possible price for the best possible value and it is to our interest to have Simplicity available in every place that is reasonable for it to be sold.

If we can get as popular as Wrigley chewing gum or Coca-Cola, so much the better.”

And finally on 286, Commission counsel asked him.

Question, “Well, anyway, you got your start with the small stores.”

Answer, “Yes, sir.”

Question, “And now, you wouldn't want to be kind of like a man that gets tired of its wife and cast her off, would you?”

Answer, “I certainly would not, sir, and that is straight unequivocal.

As long as a small merchant conforms to the normal business practices or paying his bills and has a store open, he is going to get service from Simplicity Pattern Company unless it is made impossible for me to do so.”

There is an advantage to this company in having the widest distribution of its patterns and it does so serving 6000 stores at a loss.

Justice Hugo L. Black: I don't quite understand the inference you had drawn from the part of your argument.

Suppose your agency here puts up a filling station and also has some tires, aids service business in (Inaudible) would it violate this act or to give it more services or less services than it did in filling stations and competition with it who sold nothing but gasoline?

Mr. William Simon: Mr. Justice Black, I -- I think your question, so far as I'm concerned, has answered it because you have said that they were in competition.

Justice Hugo L. Black: Well, I --

Mr. William Simon: And --

Justice Hugo L. Black: Well, they sell gas -- each one of them sells gasoline.

Mr. William Simon: Our --

Justice Hugo L. Black: I -- I won't say competition, each one of them sells gasoline.

Mr. William Simon: If they are in competition with each other.

Justice Felix Frankfurter: Well, they are in same town --

Justice Hugo L. Black: Well --

Justice Felix Frankfurter: -- and maybe of two blocks away.

Mr. William Simon: If one of them is selling gasoline purely as an accommodation to his customers and if the competitor would prefer that the customers buy their gasoline from this other man because that would somehow make money for him and I couldn't be -- how it could be in the case you posed, then I would say they were not in competition.

But we're in the unusual situation, Mr. Justice Black, where these fabric stores carry patterns solely as a service to their customers.

They prefer not to have them.

They want --

Justice Hugo L. Black: (Inaudible) stores engaged in a business that it preferred not to be in?

Mr. William Simon: Their in the fabric business, sir.

Justice Hugo L. Black: Sure.

Mr. William Simon: Fabric is what they want to sell and these 35 cents sales of a pattern take a lot of time.

They have to have a lot of space for it and they sell the pattern only because it's necessary to making the fabric sale.

Now, when a woman goes to the 10-cent store which sells patterns but does not sell fabrics, she buys the pattern at the 10-cent store, she's got to come to some fabric store to buy her fabrics.

Justice Hugo L. Black: She has to do that whether the fabric store have them or not.

Mr. William Simon: That's --

Justice Hugo L. Black: (Voice Overlap) money.

Mr. William Simon: -- that's correct, sir.

Justice Hugo L. Black: What they want is to sell their fabrics.

Mr. William Simon: That's correct, sir.

And three of the Commission's six fabric store witnesses said, “I wish I had our Woolworth and or Kresby on either side of me, so they could sell the women the patterns and then I could sell them the fabrics.”

Justice Hugo L. Black: Well, evidently your company is not doing its pattern, didn't get enough other salesman after your pattern.

Mr. William Simon: We have 18,000 stores selling them, Mr. Justice Black.

Justice Hugo L. Black: Is it -- could that -- it is a success I've just asked you for curiosity (Inaudible) Publishing Company.

Mr. William Simon: Their -- no, sir, their competitors.

Justice Hugo L. Black: Their competitors.

Mr. William Simon: Yes, sir.

The Commission's complaint here is saying that what we do for the Red Fronts is service discrimination.

It might equally be turned around and say that what we do for the fabric stores in the way of posters and styles and designs if that too is discrimination.

What each group gets that which is best suited to their own needs and what the Commission is charging here would be anomalous to charging that a seller discriminated when he gave suits to men and dresses to women because each group wasn't given the same that the other group was given.

In this case, the complaint for procedural purposes was divided into two counts.

Count one was brought under Section 5 of the Federal Trade Commission Act charging an unfair method of competition.

But throughout the proceedings, it was conceded that it was analogous to a charge of price discrimination under Section 2 (a) of the Robinson-Patman Act, both the Examiner and the Commission applied the standards of 2 (a) of the Robinson-Patman Act.

And as I said a moment ago, some 75% of the total dollar value discriminations were charged under count one of the complaint.

We did not dispute that certain services, certain benefits were given in one group and not given to the other.

The issue litigated before the Commission as whether there was injury to competition.

And at the close of the administrative hearing, the Hearing Examiner dismissed count one on the ground that the evidence showed an absence of probable competitive injury.

But as to count two, he said that it was a per se statute and that it was not necessary to show any adverse competitive effect.

The Hearing Examiner adopted his findings and his conclusions.

And I think it's important here to note that before the Commission, commission counsel argued the entire group of discriminations as a single package and he reached this 25% aggregate discrimination by combining discriminations of count one and of count two, and saying they were 25% and that proved injury to competition.

The Commission disagreed and dismissed the count where the bulk of discriminations occurred on the ground of no injury.

We say that the Commission's order should be set aside for three reasons.

First, that there is no competition between these two groups of customers on the Commission's own findings of fact and the law as established by this Court.

And secondly, that under the proviso under the clause in the first half of Subsection 2 (b), we are permitted the affirmative defense of showing an absence of competitive injury which the Commission here found and under the same subsection, we are permitted the defense of cost justification which the Commission denied as the opportunity to present.

In the Automatic Canteen case, this Court held and the Commission has never disputed that this statute is not a model of clarity.

It contains six subsections.

Subsection (e) relates to buyer liability.

Subsection (b) contains the affirmative defenses and (a), (c), (d) and (e) contained prohibitions against seller conduct.

Subsection (a) makes it unlawful for a seller to discriminate in price in the course of interstate commerce where the effect may be substantially to lessen competition and where the discrimination is not justified by differences in the cost of sale, manufacture or delivery.

Subsection (c) has nothing to do with discrimination at all.

It is the only one of these statutes that is violated even though you give every customer the same treatment.

It places a ban on the payment of brokerage to the buyer or the buyer's agent and presumably was intended to protect the broker, and it is violated even though every customer gets equal brokerage.

Subsection (d) prohibits payment of allowances for promotional or advertising activities to one customer which are not made available on proportionately equal terms to all competing customers.

And subsection (e), the one here at issue prohibits discrimination and services to our facilities not made available to all customers on proportionately equal terms.

Now, the Commission argues here that you must take each of these four subsections and treat them an isolation and that you will not consider anyone of the other three subsections in determining the scope of anyone of the four.

But at the outset, they are met by the facts that the Court of Appeals for the Eighth Circuit held and they don't disagree, there is no reference in subsection 2 (e) to interstate commerce.

The Court of Appeals for the Eighth Circuit held that we will read in from 2 (a) the interstate commerce provision to save the constitutionality of the Act.

There is also no provision in 2 (e) that the customers discriminated against must be in competition with each other.

The Court of Appeals for the Seventh Circuit in the Corn Products case, which was later affirmed by this Court, held that 2 (e) was violated only where the discrimination was between competing customers.

And the Commission in his brief here concedes that you will read in 2 -- 2 (e) the competition requirement of 2 (d).

It says at page 11 of its second brief, and I quote, “Subsection 2 (d) is expressly limited to inequality between customers competing in the distribution of such products or commodities.”

The two subsection are complementary to each other and there is no evidence that Congress intended 2 (e) to be broader in scope than 2 (d).

Now, conceding that the statute has violated only if these two groups were in competition, we say that the hearing examiner's findings as to the nature of the business of each of these two groups and what he said about the testimony shows that they were not in competition with each other.

At page 24 of the record, the Hearing Examiner found and this finding was later adopted by the Commission, about the middle of the page, “They,” meaning the fabric store witnesses, “emphasized that they all handled patterns only to sell fabrics and because their customers expect the service”.

None of the witnesses regards the competition of the 10-cent store in the sale of patterns has of any real consequence.

In fact, two of the witnesses did not regard themselves as being in competition with the 10-cent store at all, while these two expressions of opinion are, of course, not conclusive on the fundamental question of the existence of competition.

They served to emphasize the apparent feeling of all the witnesses that they are sustaining no substantial competitive injury as the result of a more favorable treatment accorded the 10-cent stores.

The record seems clearly to be without any substantial evidence warranting a finding of injury to competition.

And in another part of his findings which appears at page 294 of the record, the Hearing Examiner found, and I quote at the top of the page, “The attitude of the witnesses, that is to say the smaller merchants who have testified in this case, seemed to be about this,” and then I'm skipping a sentence, “They would like all of those things as well as the other items mentioned in the complaint but none of the witnesses seemed to attach any real significance or importance to any of those things.”

No witness comes in complaining about any of these matters.

It would seem to me it would be a rather strange situation for the Federal Trade Commission to undertake to give relief to a group of merchants who apparently do not need any relief, that is to say they are indifferent about it.

Justice Potter Stewart: Where is it found?

Mr. William Simon: Page 294, at the top of the page, Mr. Justice Stewart.

The Commission's definition of competition here is at variants with any definition of competition in an antitrust action.

Conceding that there's no rivalry between these people, they defined competition at page 12 of their second brief vastly.

In our view, however, that test is satisfied by the facts that the two kinds of stores sell the same commodity to the same class of customers in the same area and no other proof of competitive rivalry is required.

We say in an antitrust case that there must be competitive rivalry before you can find competition.

The Commission says this is a per se statute, if you give them ones the service you don't give it to the other, it's per se illegal.

And then they have a per se definition of competition, if you're both selling the same thing in the same community, you're in competition.

But this Court in a case dealing with the same statute, Section 7 of the Clayton Act, and this is Section 2 of the Clayton Act, in the International Shoe case held that competition in the Clayton Act met substantial competition and that it did not apply.

At least Section 7 did not apply to competition which was not substantial or of consequence.

I'm impressed by the fact that we relied upon that case in our opening brief and it has not been mentioned by the Commission in their reply brief although my good friend Charles Weston was also counsel for the Government in the International Shoe case.

In addition to the Commission's findings of no rivalry, which we say is a matter of law, under the Shoe case means no competition.

The ruling of this Court in the Morton Salt case compels a similar conclusion.

And the Commission here confesses error before this Court on this point, although we are not in agreement as to what is the error.

They concede that under Morton Salt, a substantial price difference, and it was 4% in that case, to competing customers is equated to competitive injury under this statute.

We argue a fortiori a 25% discrimination which is expressly found not to have a probable adverse competitive effect, must necessarily be between customers who are not in competition.

The Commission says our theory is right and if there was any error, it was in their not finding an injury to competition under count one and that they should have found that the 25% differential did result in an injury to competition.

But I submit to this Court that that was the very issue litigated below.

That was the very issue to which all the testimony was directed.

And in their argument before the Commission, commission counsel said, “This 25% differential is so big, you must find injury to competition.”

The Commission rejected that argument.And they said at page 29 of the record in the Commission's own opinion in the middle of the page, “The substance of the argument made seems to be that the total value of the preferences granted to the 10-cent stores were of such substantial percentage of the purchases that they create a presumption of competitive effect.

And then at the first of the following paragraph they say, “As appealing as this argument may be, it is clear that under the circumstances, the mere showing of discrimination among customers is not allowed.”

And may I point out that that finding isn't before this Court.

No appeal was taken and in fact no appeal could be taken by the Commission from its own finding of adverse competitive effect.

And if it is conceded that the finding of no competitive injury cannot stand side by side with the finding of competition then since one finding has not been brought to this Court, it must that the latter finding must fall.

But apart from that technical point, the Commission itself adjudicated this point.

It was litigated and they found no competitive injury.

With respect to the defenses based on the language of Section 2 (b), I would like to say initially that we do not urge that the proviso of 2 (a) must be read into 2 (e).

The Court of Appeals for the Second Circuit and the Elizabeth Arden case held that that was not required, and we do not contend otherwise.

Unknown Speaker: (Inaudible)

Mr. William Simon: Yes, sir.

Unknown Speaker: (Inaudible)

Mr. William Simon: Yes, sir.

But we do contend that the language of Section 2 (b) contains a bridge which when you read the entire statute makes clear that there is an affirmative defense and we concede the burden is on us to prove the absence of competitive injury or cost justification.

We concede the Commission made out a prima facie case by merely showing the different treatment to the competing customers, but 2 (b) in clear language gives us this affirmative defense.

And there are three factors that, to me, illustrate the merit of our position and the weakness of the Commission's position.

The Commission said if there's price discrimination, then it's a defense to show cost justification, it's a defense to show no injury to competition.

But it if it's price -- if it's service discrimination, those defenses aren't unavailable.

Therefore, had Simplicity given the Red Fronts a price reduction of an exactly equal amount to the value of these cabinets and catalogues, the Commission would say, “You're free.”

In fact, they would then have been under count one which was dismissed.We would have no liability.

But while it would be proper for us to give them a price reduction of the same value, the Commission says it's per se unlawful to give them the same value if you put a label of services and facilities on it.

Secondly, the 2 (b) Section contains two parts.

The first part reads in terms of justification.

It says, “The seller may justify.”

The second part reads in terms of excuse.

The second part says, “If you have violated this impact, if you created competitive injury, if you can't cost justify, you may still excuse your violation by showing that you were meeting the services and facilities of a competitor.”

It seems to us unthinkable that Congress would say, “You don't have the right to justify this action by showing that nobody was injured, that there was cost justification, but you do have the right to excuse and even though there was injury and was no cost justification.”

And thirdly, we can conceive of no reason why Congress should treat price discrimination so very differently than service or facilities discrimination without there being some reason why Congress thought one was more iniquitous than the other.

Justice Potter Stewart: Now, there is a reason suggested -- I don't think an oral argument today but suggested in the government counsel's brief and that is that price discrimination as the very evident and obvious thing usually and discrimination and pricing services can be hidden an obvious of invisible kind of a thing and that one therefore as much easier to please than the other.

I think, as I understood the argument, their brief was something along those lines.

Mr. William Simon: Mr. Weston gave three points this morning.

The first of which was substantially what Your Honor has said.

I don't see how it's any easier to hide service discrimination than it is to send customer's rebate.

There are many cases in the books where a big buyer is charged $10 a dozen for the commodity.

He gets a $10 dozen bill and then at the end of the year, they give him back the rebate.

That's a common thing and yet that's difficult to please.

There was no dispute about the facts here.

Mr. Weston added that it is more difficult to measure the value of service discrimination, price discrimination you measure it easily.

He said it was more difficult to measure the value of service discrimination.

Our answer to that is that this is an affirmative burden imposed on us.

If we can't measure it, we don't prevail.

Mr. Weston also says -- said that it was more difficult to measure injury to competition resulting from service discrimination.

But again, that's a burden on us.

If we can't meet that burden, we lose.

And finally, he said it would make it more difficult to try the cases.

And of course, I concur in that when you make anything a per se violation, the Government can try its case in two or three minutes.

But in an antitrust case, it seems to me that the cardinal objective of the statutes and of the Court's interpretation should be to protect and preserve competition and where something is done which is competitively healthy, it seems inconsistent to me to deny the legality of it merely because of the label which attaches to it.

In fact, in the Motion Picture Advertising case which was another Federal Trade Commission case involving a sister statute in an opinion of this Court by Mr. Justice Douglas this Court said referring to the anti-trust cases, “The crucial fact is the impact of a particular practice on competition not the label it carries.”

And we submit here the Commission makes the crucial fact of the label.

If you call it service, then these defenses aren't available.

If you call it price, then we have all of them available.

Justice Hugo L. Black: What -- what was that said in?

What kind of case?

Mr. William Simon: That was Motion Picture Advertising versus Federal Trade Commission which was a Section 5, Federal Trade Commission case attacking a tying arrangement in the leasing of advertising space in motion picture theatres and while brought under Section 5, this Court applied the rules of Section 3 of the Clayton Act and found the practice illegal.

And there, they were contending that they didn't strictly come within the letter of the statute.

And this Court said, “It isn't the label that carries, it's the impact of the practice on competition.”

The Commission has referred here to the legislative history as supporting their view.

We say the legislative history is exactly to the contrary.

As Mr. Weston said the Robinson bill was introduced in the Senate.

The Patman bill was introduced in the House.

The Senate bill was reported out with no 2 (b) provision in it at all.

The Patman bill was reported out in the House with a 2 (b) provision like the present one except that it did not mention services or facilities.

On the floor of the Senate, the 2 (b) amendment, as it now appears, was offered and accepted by the sponsor and the House then added services and facilities to its bill in order to conform to what the Senate had done and both bills were then alike.

To me, the most significant fact is that Senator Robinson certainly didn't think he was changing the purposes of the bill by expressly saying, “You can justify discrimination and services and facilities,” because they thought that could be done under the bill without the provision.

Both the Senate and the House reports on this legislation under a section entitled “Analysis of the Bill” contain a paragraph which is verbatim identical except for the first two or three words.

The Senate bill on page 3 of the report it starts out by saying, “The bill proposes to amend Section 2.”

The House bill starts -- the House report, which is on page 7 of the report starts out, “The object of the bill briefly stated is to amend Section 2.”

From thereon, both reports are identical.

And this is what they say, “The bill proposes to amend Section 2 of the Clayton Act so as to suppress more effectively discriminations between customers of the same seller, not supported by sound economic differences in their business' position or in the cost of serving them.

Such discriminations are sometimes affected directly in prices or terms of sale and sometimes by separate allowances to favored customers for purported services or other considerations which are unjustly discriminatory in their result against other customers.”

The bill is accordingly drawn in four subsections of which the first three contains substantive measures directed at the more prevalent terms of discrimination, while the fourth is designed to facilitate private remedies and damages to persons immediately and actually injured.

Significantly there, they didn't talk about price discrimination when they said, “The bill didn't prohibit discriminations which were justified by economic differences.”

They talked about discriminations and then they made it crystal clear that it wasn't limited to price discriminations by saying that these discriminations are sometimes in price and sometimes in these other matters.

Justice Hugo L. Black: They said sometimes by price discrimination --

Mr. William Simon: Yes, sir.

Justice Hugo L. Black: -- and service.

Mr. William Simon: Yes, sir.

Justice Hugo L. Black: They didn't say that (Inaudible)

Mr. William Simon: Such discriminations are sometimes affected directly in price or terms of sale and sometimes by separate allowances to favored customers for purported services or other considerations which are unjustly discriminatory.

But the important thing, Mr. Justice Black, is even though it's purported discriminations, they say are not intended to be prohibited by this bill if they are justified by sound economic differences in their business position or in the cost of serving them.

And here, we can prove that these differences are more than justified by differences in the cost of serving them and we say they are justified by economic differences in the finding that there was no adverse effect upon competition.

Justice Hugo L. Black: Does the legislative history shows that as one of the things aimed at so far as an alleged practice a large operator, chain store operators and others -- their sale to put in -- give them purported services in connection with their sales which would add to the price?

Mr. William Simon: I don't believe so that it does show which is not far from what you say that the large grocery chains frequently receive brokerage commissions --

Justice Hugo L. Black: Yes, that's another.

Mr. William Simon: -- for brokerage if they did not perform.

And of course, in Section 2 (c), Congress said it's illegal to pay brokerage even though you pay it to every customer.

The brokerage provision was one where they didn't pay any attention to discrimination.

They said, “Brokerage is illegal no matter if everybody gets.”

But I know of nothing in the history of covering up price discriminations by giving something in the nature of services although there was that on brokerage.

Justice Hugo L. Black: You said grown about that period, as I recall it, the considerable idea that that was a common practice upholding companies and general companies of that kind to render purported services and there was considerable hostility to it, as -- as I recall, in connection with this bill.

Mr. William Simon: Well, of course, all -- most of the legislative history here applied to the grocery trade.

Justice Hugo L. Black: That's right.

Mr. William Simon: And the bill was --

Justice Hugo L. Black: And drug did.

Mr. William Simon: Yes, sir.

ANP was the principle objective that was talked about in the legislative hearings.

But time and again, the Congressman said, “Now, we're not trying to prevent any price differences or any differences in services or facilities that are justified by the cost of doing business between the two groups.”

And this Court itself --

Justice Hugo L. Black: Justified by the cost?

Mr. William Simon: Yes, sir, and -- and that's what we contend for here, Mr. Justice Black.

This Court has said --

Justice Hugo L. Black: I understood you were contending that there should be a proof here that somehow, although it might serve -- serve to injure the trader, nevertheless, the Government must go further or you must show or in some of the issue came in there as to whether injured competition enjoin.

Mr. William Simon: We claim three things, Mr. Justice Black.

First, that if the two groups of customers who were given different treatment are not in competition with each other, the case should be dismissed.

The Government agrees what's on the law that a competition is required but we have a legal issue as to what constitutes competition in effect.

Justice Hugo L. Black: You have a legal issue to the definition of competition.

Mr. William Simon: Of competition.

Yes.

Justice Hugo L. Black: You say that a person, it may be selling goods across the street the same kind of goods as a man -- another merchant across the street, but that somehow, under some circumstances by reason of the fact that one is having these are that they are still non-competition with one another.

Mr. William Simon: We say the competition requires commercial rivalry and if there is no commercial rivalry, they aren't in competition.

Justice Hugo L. Black: But most of it -- I'm -- I'm asking because I --

Mr. William Simon: Yes, sir.

Justice Hugo L. Black: -- I hadn't understood that could be the -- had been my concept of competition.

I -- I didn't know that you -- had to somehow show that both of them are anxious to deal in those particular goods if they were actually dealing the same kind of goods.

I don't always suppose that they were competitors that they were in the same area.

Mr. William Simon: Mr. Justice Black, women generally use dental floss to spring pearls.

Tiffany's will sell you a spool of dental floss to Spring Pearls and the Woolworth store around the corner on Fifth Avenue Wood.

But I would hardly say that Tiffany's was in competition with Woolworth although they both have dental floss.

Justice Hugo L. Black: Well, it might as not be in competition with Woolworth on dental floss although it was not in competition with them on diamonds.

If -- if Tiffany's sales that dental floss, Woolworth service that much less, doesn't it?

Mr. William Simon: Yes, Your --

Justice Hugo L. Black: Most likely.

Mr. William Simon: But here is a case, Mr. Justice Black.

One of the witnesses testified a man named Merber (ph) who had a fabric store on Seventh Street here in Washington.

He said, “I can't make a profit on any sale in my store of less than $2.50 because when I have to have a salesclerk wait on the woman and give her a time that the sale is less than $2.50, I've lost money on it.”

The 10-cent store, on the other hand, he said is key to these small items sales.

They have a girl stand behind the counter and he does a lot and he actually testified, sir, that he would pay part of the rent of the Woolworth's store if they'd open one next door.

Justice Hugo L. Black: But as I recall it now, what you're saying is that he is actually doing that business at a loss.

As I recall it, one of the chief complaints that bought about, the passage of these laws was that some of the companies were selling goods at a loss and injuring the smaller ones.

Mr. William Simon: But, Mr. Justice Black, the record evidence is here that the pattern -- that the fabric stores would loose money on patterns even if they got the same terms as the Red Fronts and they would probably loose money on patterns if they got them for nothing --

Justice Hugo L. Black: Yes, but --

Mr. William Simon: -- because --

Justice Hugo L. Black: -- but every time -- every time they sell a pattern at the loss, it probably not every time, at least sometimes it takes away from the people who make a profit out of it their chance to make a sale to that person.

Mr. William Simon: Yes, Your Honor, and to that extent, the Woolworth stores may be injured, but the Commission's complaint here precedes on exactly the opposite premise.

It says that the Red Front is injured by what we give the Woolworth store, whereas the fact is the Red Front benefits every time Woolworth sells a pattern because a woman who buys a pattern from Woolworth can do nothing with it, but take it to a -- sir?

Justice William J. Brennan: “I can't make a profit on any sale in my store of less than $2.50 because when I have to have a salesclerk wait on the woman and give her a time that the sale is less than $2.50, I've lost money on it.”

Mr. William Simon: Well, I've treated them interchangeably, Mr. Justice Brennan.

Red Fronts as we call them include Woolworth, Kresby, all these 10-cent stores or variety stores that generally have the front of their store painted red.

If I may get back to your earlier request, Mr. Justice Black, in addition to the argument, we contend that there's no competition.

We secondly contend that if these differences can be cost justified as Congress, I think, made clear they didn't intend to deny if the differences can be cost justified and we say it's our affirmative burden of proof to do it.

We should prevail the --

Justice Hugo L. Black: That's quite a different proposition.

That's clear whether you read into the 3 (b) -- the 2 (b) -- the 2 (c).

Mr. William Simon: And in that the Court of Appeals held witness and remanded to the Commission to accept evidence which they had rejected on the cost justification.

And our third point is that the Commission has affirmatively found an absence of competitive injury here and we -- we rely on their affirmative findings and we say that the absence of competitive injury is a -- an affirmative defense and we have established affirmative defense and we're entitled to prevail on that score.

And the Court of Appeals, while disagreeing with us on the law on that point, did agree with us on the fact that there was affirmative finding of no injury to competition.

In the Court of Appeals' opinion on page 333 it said, “Even though absence of competitive injury was here shown, that fact is immaterial to the point we here discuss because Section 2 (e),” and so on.

The Commission's findings affirming the Hearing Examiner were of the same effect.

The Hearing Examiner found that on page 23 of the record at paragraph number 10, “True, there is no showing of competitive injury,” but this, as the Examiner understand, is not required in a proceeding under Section 2 (e).

Justice Hugo L. Black: What do you understand as meant there by competitive injury?

I mean what is your interpretation of it supporting your claim.

Mr. William Simon: The statutory language, Mr. Justice Black, is where the effect maybe substantially less than competition or tend to create a monopoly or injure, prevent or destroy competition with the beneficiary of the discrimination.

That, I think verbatim, is the language of the statute.

And when the Examiner and the Commission used competitive injury, I think it was a shorthand phrase for that longer statutory phrase.

If I may get back to the point discussed before the recess, this Court has held in many cases that wherever possible, every phrase, every clause, every provision of a statute will be given meaning.

The Commission's position here frankly requires you to read out of the statute the first clause of subsection 2 (b) and that clause clearly was not limited to price discrimination because the Congress expressly talked about discrimination and service as their facilities.

It appears at page 26 of the Commission's first brief, at the middle of the page.

I might say that the second half of the paragraph beginning with the “provided” relates to the meeting competition defense which was before this Court in Standard Oil versus Federal Trade Commission but which is not here.

But the first clause says “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 does made by showing justification shall be on the person charged with a violation of this section and unless justification shall be affirmatively shown, the Commission is authorized to issue an order.”

Congress could not have more clearly said that you may justify a discrimination in services or facilities, yet the Commission says you can't do it.

The Commission says there is no justification for a discrimination in services or facility.

They said the only way you can avoid liability is by showing, meaning competition, which is expressly provided for in the lower half.

If the justification is to be given some meaning, and we submit that it must be given meaning, we suggest three places the Court might look to determine the criteria of such meaning.

The first is in the overall statute itself.

What was Congress trying to get at it in the statute?

And we look to Section 2 (a) and we find that Congress said, “We don't mean to prohibit price discriminations where they are cost justified or where there is no probability of competitive effect.

And we read the justification clause of 2 (b) as applying to the things Congress talked about in 2 (a).

The difference is that in 2 (a), injury to competition is made a part of the Commission's prima facie case.

They must prove it there, but in 2 (b), Congress said, “These matters of justification are an affirmative defense of the seller.”

Secondly, we would suggest looking to the legislative history to see what Congress had in mind and the committee reports, particularly the quotation that I read a few moments ago, make clear that they were not intending to prevent discriminations either price or services which were justified by economic differences between the parties or by cross differences.

In fact, this Court has said in the Automatic Canteen case referring to this very statute, and I quote from the Court's opinion, “Time and again, there was recognition in Congress of a freedom to adapt and pass on to buyers the benefits of more economical processes.”

And that's exactly what we urged here, the right to pass on these benefits.

On the subject of cost justification, I would like to refer to the fact that the evidence is that two people in the company's office handled all of the correspondents in details with all of the chain stores.

80% of the personnel are devoted to the work with the fabric shops.

The company has a core salesman whose salary and expense accounts amount to $20,000 a year who calls on the fabric shops.

No salesman called on the Red Fronts.

That's all handled with the home office of each Red Front.

In addition, we spend in excess of a million dollars a year on these promotional activities which include the posters and style, design, material that goes to the store.

Justice Potter Stewart: You're suggesting that not that the decision is before us, but this is the kind of evidence that you would present to the Commission?

Mr. William Simon: Yes, Mr. Justice Stewart, including particularly the cost of salesman to call on one and don't on the other which is always been accepted by the Commission as a proper criteria for cost justification.

Finally, the profitability of a customer to a pattern company depends on the number of pattern he buys and paid for in relation to the number of patterns he throws away.

The pattern company that Mr. Weston said, “Three times a year withdraw all the old items from the line, they're thrown away.”

And obviously we're replacing a new one, but if we replace two for each he pays for, we don't make very much money of it.

One witness testified in this case that he had paid for $178 of patterns in the whole year that he had reordered in which he paid for, but he had thrown away for a credit $328 worth of patterns, and we asked him, “Do you think you're a profitable customer for the pattern company?”

And he said, “That's the pattern company's worry.

Frankly, as long as they're happy with the situation, so am I.”

And his testimony that was the witness Dodson is at page 152 of this record.

The Commission gives us three choices here.

They say that we can take these very unprofitable customers who are already losing money on but we want to serve if we can and we can make them even more unprofitable by giving them free cabinets and free catalogues even though the business doesn't justify.

And presumably, if their decision is to be rationalized, we must also give the Red Fronts these expensive posters if they have no place to put and don't care for.

Or secondly, the Commission says, “You can give up the Red Fronts,” because the evidence here is that if the Red Fronts had to pay for all these services, they couldn't make a profit and they wouldn't carry the patterns.

And if we did that, the fabric stores would be injured because a diminution in patterns they have -- would hurt us but it would hurt the fabric stores a lot more because the Red Fronts do not sell yard goods and when the woman buys the pattern in a Red Front, she's got to go to some fabric store to get her fabrics.

Or thirdly, the Commission says, “You can give up doing business with these unprofitable fabrics stores and don't sell them at all.”

And we submit that neither of those alternatives is in the public interest.

I would like to conclude, if I may, by, again, referring to the Motion Picture Advertising case where the Court said that in an antitrust case, “The crucial fact was the impact of the particular practice on competition and not the label it carries.”

And the Commission concedes that their whole case here is dependent on giving this the label, services and facilities.

Thank you, sir.

Justice Felix Frankfurter: Mr. Weston, would you mind stating at the outset briefly as you -- as your time permits, what the answer as to the suggestion that 2 (a) puts the burden on the Commission to prove justification but 2 (b) without qualifying justification except in the way in which you impliedly qualified makes a big difference in putting the justification on the -- on the person in charge.

Argument of Charles H. Weston

Mr. Charles H. Weston: My answer is that the statement is incorrect as a matter of law.

Justice Felix Frankfurter: Which statement?

Mr. Charles H. Weston: The statement that you just quoted from.

Justice Felix Frankfurter: Which part of it, the 2 (a)?

Mr. Charles H. Weston: The first part.

The 2 -- it was held in Morton Salt as to the cost justification provides over 2 (a) that was governed by the 2 (b) proviso and that the burden was on the respondent in that case and not on the Commission.

That was specifically held there and --

Justice Felix Frankfurter: That isn't everybody's understanding.

I was just reading the dissenting opinion, with great impartiality, I read the dissenting opinion, Automatic Canteen that it was the Court's opinion and I get a different impression from a very annoying writer in that phrase.

Mr. Charles H. Weston: Well, in any event, I think you'll find that's specifically held in Morton Salt.

But I just said that the burden was on the party who set up cost justification and not with -- with not a part of the condition's case.

In fact, both parties conceded that that was a correct interpretation of the law in that case.

Justice Felix Frankfurter: And not dependent on -- speak particular fact in Morton Salt?

Mr. Charles H. Weston: No.

Justice Felix Frankfurter: Just --

Mr. Charles H. Weston: That was a general --

Justice Felix Frankfurter: Just as the reading of --

Mr. Charles H. Weston: -- general proposition.

Justice Felix Frankfurter: Just as the reading of 2 (a).

Does -- does -- as one read 2 (a), that's what it said.

Mr. Charles H. Weston: No, you read that in the light of 2 (b) in -- and but Congress said in 2 (b).

In other words, the provisos were exceptions from a general prohibition.

2 (b) stated what is the general rule of law where there is an exception from the general clause.

Justice Felix Frankfurter: But will you agree that 2 (a) and 2 (b) state the matter of differences that in 2 (a), it's part of 2 (a) and 2 (b) it -- it state the differences?

Will you agree to that, as a matter of language of phrasing?

I'm not suggesting that Robinson-Patman is an elegant bit of draftsmanship.

I'm not suggesting that.

Mr. Charles H. Weston: Well, I don't see any real problem.

There are certain provisos in 2 (a) and then there's a general provision in 2 (b) as to burden of proof where there is a defense given by virtue of a proviso.

Justice Felix Frankfurter: That's true of 2 (b), but 2 (a) isn't stated in those term, is it?

Mr. Charles H. Weston: Well, I don't know which it means by stated in those terms.

Justice Felix Frankfurter: I mean, by the language if I read it without having the exegesis of decisions and all the rest of it.

That's what I mean I'm reading it.

Mr. Charles H. Weston: Well, it's -- it's just says -- a -- a proviso, it says --

Justice Felix Frankfurter: 2 (a) --

Mr. Charles H. Weston: -- provided that so and so and so and so.

Justice Felix Frankfurter: That what 2 (a) says the proviso?

Where is the proviso?

Mr. Charles H. Weston: Well, turn -- if you turn to page 25 --

Justice Felix Frankfurter: Just read it.

Just read it, pieces of the proviso.

Mr. Charles H. Weston: All right.

Here is the first one, “Provided that nothing here in contain shall prevent differentials which make only due allowance for differences in the cost to manufacture, sale or delivery resulting from the differing methods or quantities, and so on.

Justice Felix Frankfurter: But before you get to the proviso, read the substantive part of (a).

Mr. Charles H. Weston: That it shall be unlawful.

Justice Felix Frankfurter: All right.

Very well.

Very Well.

I'd -- I'd like to get your answer.

I'm not --

Mr. Charles H. Weston: There --

Justice Felix Frankfurter: I'm so confused that's why I'm asking, otherwise I won't be asking.

You say that -- in other words, there is no difference, period.

Is that your answer?

Mr. Charles H. Weston: No.

Justice Felix Frankfurter: Between 2 (a) and 2 (b), that's your answer.

Mr. Charles H. Weston: I say that 2 (b) clarifies what would be ordinarily the rule of law if 2 (b) was not in the statute.

Justice Felix Frankfurter: Although --

Mr. Charles H. Weston: And --

Justice Felix Frankfurter: -- they deal with different subject matters.

Mr. Charles H. Weston: 2 (b) is general.

And -- and that is if it applies to 2 (a) and 2 (e) in that sense as general.

It -- it states what the rule of law is as to burden of proof where there is a defense created or an exception created to one of the prohibitions.

In this case, we're not talking about 2 (a).

Justice Charles E. Whittaker: Mr. Weston (Inaudible) a cost justification defense to a 2 (e) action in words?

Mr. Charles H. Weston: I think not.

Justice Charles E. Whittaker: Does it not say that upon proof being made any hearing of the complaint under this section that there has been discrimination in price or services or facilities furnished the burden of rebutting the prima facie case of the Government shall be upon the person charged?

Now, then, doesn't that say that this defense shall be used against available under a charge brought under subdivision (e) which is necessarily one that relates to discrimination in favor of a purchaser, one purchaser against another of the commodity bought for resale by contracting to furnish or furnishing any service or facilities connected with the processing, handling or sale except on proportionally equal terms?

Mr. Charles H. Weston: The cost --

Justice Charles E. Whittaker: That could be (Voice Overlap) --

Mr. Charles H. Weston: -- said in proviso is limited to 2 (a) and where it says that the burden of rebutting the prima facie case does made by showing justification means any justification given elsewhere in the statute.

Now, that justification is given as to Section 2 (a) by its provisos.

It is given by the 2 (b) proviso as to 2 (a) and as to 2 (e).

And that's the reason, I think, it is very significant.

The -- let me repeat, that as this bill came out of the House as was reported by the Committee, it applied only to price discrimination and when by a committee amendment is extended to 2 (e), the only aspect of the extension that was even mentioned was that they were bringing 2 (e) within this meeting competition proviso.

Now, when that defense was created to 2 (e) which didn't exist before, then it was a normal and natural thing to likewise extend the initial procedural part to 2 (e).

It was -- that part of it that was largely pro forma.

I think 2 (b) would have had the same effect if they haven't made that extension.

But certainly, the pro forma extension didn't create or make any fundamental change in the meaning of the section.

Justice Charles E. Whittaker: 2 (a) though, as I read it, does not make any specific mention of services or facilities.

Mr. Charles H. Weston: That's right.

Justice Charles E. Whittaker: Now, 2 (e) condemns it.

Mr. Charles H. Weston: That's right.

Justice Charles E. Whittaker: 2 (b) however says that upon proof being made at any hearing under this Section, and of course, these are -- subsections were all part of the section, that there has been a discrimination in price or services or facilities furnished the burden of rebutting the prima facie case of the Government shall be on the person charged.

Now, how do you explain that language if otherwise then as to permit the defense of justification on the part of the person charged in the Dewey case?

Mr. Charles H. Weston: Certainly, insofar as justification is given by Section 2.

Now, it is given by Section 2 by the 2 (b) proviso.

In other words --

Justice Felix Frankfurter: That's slip with yourself by your bootstraps.

You say if given by 2 (e), where do you get -- what are the -- where do we derive to what advisory?

Where do I go to find out what are the elements for a justification?

Mr. Charles H. Weston: You go to the various provisos of the statute.

Justice Felix Frankfurter: The whole -- the whole statute?

Mr. Charles H. Weston: Of Section 2, yes, and --

Justice Felix Frankfurter: Are they spelled out or do I draw them from the purpose of the Act?

Mr. Charles H. Weston: No, they're -- they're written in.

There are no provisos except in 2 (a), apart from this proviso that is incorporated indeed and that is made applicable to 2 (a) and 2 (e), but there is no proviso, for example, as to 2 (c).

Justice Felix Frankfurter: Suppose there were no provisos in 2 (b), would -- what is now the proviso be included in the authorizations who make justification?

In other words, is the proviso redundant or explicatory?

Which is it?

What is it?

Mr. Charles H. Weston: It's the initial part that is redundant as far as services and facilities furnished is concerned.

In other words -- as -- as I've said before, when they made -- when they extended 2 (b) to 2 (e), the only thing that was mentioned in Congress was the change in the proviso.

The other thing was considered nearly pro forma now.