UNITED STATES v. NATIONAL DAIRY CORP.

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Argument of Cox

Chief Justice Earl Warren: Number 173, United States, Appellant, versus National Dairy Products Corporation et al.

Mr. Solicitor General.

Mr. Cox: Mr. Chief Justice, this case is here on a direct appeal under the Criminal Appeals Act from the judgment of the District Court to the Western District of Missouri dismissing in its seven counts of an indictment on the ground that Section 3 of the Robinson-Patman Act is so vague as to be unconstitutional.

The provisions of Section 3 are set forth most conveniently on page 2 of our brief.

The relevant portions are the first two lines and then the last three lines in that big paragraph.

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to sell or contract to sell goods at reasonably low prices for the purpose of destroying competition or eliminating a competitor.

The indictment which was based partly on that statute and partly on the Sherman Act charged National Dairy's one of its officers with a number of monopolistic activities in violation of the Sherman Act and of the Robinson-Patman Act.

National Dairy is the world's largest dairy concern.

It has assets of something over 555 million and gross annual sales of over a billion and a half dollars.

To conciliate under the Sherman Act, charged a continuing conspiracy to restrain train by fixing prices, by excluding competitors from the market and by fixing differentials on the prices for sales of various kind of milk, that is milk in containers as oppose to milk in bottles, milk in stores as imposed to home deliveries.

Those counts aren't before us, but where a part of the indictment and part of the general background.

The seven counts under the Robinson-Patman Act with which we are immediately concerned are exemplified by Count 2 on page 9 of the record.

The offense charged leaving out the introductory allegations is set forth in paragraphs 22 and 23 on page 9.

They alleged first in the general words of the statute that National sold milk to its distributor in the Paola-Osawatomie, Kansas market at unreasonably low prices for the purpose of destroying competition in the Paola-Osawatomie Kansas market in violation of Section 3 of the Robinson-Patman Act.

That paragraph 2 goes on and particularizes the event by setting forth the facts of which it consisted.

Pursuant to an effect -- an effectuation of the offense charged from paragraph 22, National utilized the advantages it posses by reason of the fact that it operates in a great many different geographical localities.

In order to finance and subsidise the price war against small dairies selling milk in competition with it -- its distributor in the Paola-Osawatomie, Kansas market, by intentionally selling its milk to its distributor market at prices below National's cost.

The latter paragraph of course limits the general charge adjust, as bill of particulars with limited indictment and it framed in the general terms of the statute.

If the Government fails to prove sales below cost then of course at the trial, the respondent must be acquitted.

So that we deal here not with the bear words of the statute as applied to abstract hypothetical situations that with the application of the statute to sell at prices below the seller's own cost made for the purpose of destroying competition.

The District Court granted a motion to dismiss upon the ground that the relevant portions of Section 3 of the Robinson-Patman Act were so vague and indefinite that they violate the constitutional provisions relating to due process.

The judge delivered no opinion.

His few oral remarks simply state that conclusion.

A contrary decision I may say was rendered by Judge Alger Fee in F & A Ice Cream Company against Arden Farms, the citation appears in our brief and that I believe is the only other reported case of the subject.

The essence of this case, as we said, is very simple indeed and can be put in very few words.

Laying the statute entirely aside for the moment, let's think of this simply as a business proposition.

Suppose that this vast concern named a manager for the Kansas City area.

And later, the officers in reviewing prices observed that he was selling milk and other milk product at prices below the cost of production.

I suggest that the officers of the concern would have no difficulty in concluding just as a business proposition that those prices were unreasonably low and that unless the manager could point to some pretty specific market condition, or business exigency that explain this that they would say that prices were unreasonably low.

Now, let's suppose he replied, “Well, unreasonably low, that's an awfully vague term, that's terribly, terribly vague.

How can you tell that these prices are unreasonably low?”

If that was his only answer, I suggest that National would still soon be looking for another Kansas City manager and that the manager would soon be looking for another job.

All that this statute does, now coming to the legal question, is to judge National by the same terms that it would judge its manager in the Kansas City area or the Chicago area or anywhere else.

To put the specific illustration in general words, we say that the critical question under this statute would be whether the seller fix the price in which he sell the good so low with the specific intention of destroying competition or eliminating a competitor that the price has no rational foundation in the seller's cost, or in market conditions, or in any other business exigencies of facing the seller of a kind of a businessman without predatory intent would consider relevant in fixing his prices.

Justice Potter Stewart: He -- the benchmark is the seller's cost the -- this -- this seller's cost --

Mr. Cox: The benchmark the -- I would say --

Justice Potter Stewart: (Voice Overlap) cost or not industry cost, is that it?

Mr. Cox: Correct.

I'll explain the reason as I go along.

But I would say that the point of view, if I may put it in those terms, because we tackle the point of view in determining negligence is from the standpoint of the Act.

So the point of view here, I think, is from the standpoint of the seller, and that's one of the things that narrows the range of this term reasonable.

It's the seller's point of view and the seller's own cost and the standard would be that of a reasonable businessman in the position of the seller.

Of course, it's also necessary to have the predatory intention is just -- not just a matter of the cost level alone.

The Government to succeed would have to prove that there was a specific intent to destroy competition or eliminate a competitor.

I don't want to leave out that element which I think confuses the whole statute.

In --

Unknown Speaker: (Inaudible)

Mr. Cox: Correct.

The -- going on in more detail, the constitutional requirement of definiteness in criminal statute, serves two familiar purposes.

First, it insures that citizens will have an adequate opportunity to know what conduct is forbidden before they are charged with crime.

And second, it requires Congress or the legislature in the case of the state to resolve the questions of policy and provide the court's juries with adequate rules by which they can judge on whether one is guilty or innocent.

Now, both elements are plainly met in the present case.

Surely, no businessman reading Section 3 could have any doubt about whether the prescription of sales at unreasonably low prices for the purpose of destroying competition or eliminating a competitor, forbidding to sell goods at prices below his own cost for the purpose of destroying competition or eliminating a competitor.

Here, as in so many other statutes, the requirement of a specific evil intention eliminates any danger that one would be convicted simply because the jury or judge thought that the prices were too low.

One who has a purpose so at war without historic antitrust policy, certainly cannot claim surprise innocence if the Government later proceeds against him for violating Section 3.

In this respect, I suggest the case is exactly like United State against Regan where the Court held that the term reasonable compensation in making deductions from the -- from one's gross income for income tax purposes was not too vague because the statute required a proof of a specific intent to defeat or evade the payment of the tax.

And similarly in Hygrade Provision Company against Sherman where the language might otherwise have been too vague and uncertain, the constitutionality of the statute was saved by the fact that there was required proof of a specific intent to defraud.

And here we think to repeat that the requirement of proof of a specific intent to eliminate a competitor or to destroy competition.

Justice Felix Frankfurter: Suppose -- suppose the statute, instead of being in its present term left out at unreasonably low prices, simply made it a crime to sell goods at a price for the purpose of destroying competition -- at any price for the purpose of destroying competition.

What I have in mind, suppose a concern comes into a market in which it hasn't been theretofore and sells it as a -- what might be called an unreasonably high price in order to make people feel that the true value, if you want this kind of goods, you got to pay a price for it and that people are now selling it at a much lower price are really as it were skimping or cheating you or otherwise giving you less -- giving you meretricious commodity, would that be alright?

Mr. Cox: Well, that -- I'm inclined to think that it would, but I think it's a closer case than this one because it seems to me, what was done here was that instead of simply saying that predatory pricing should be unlawful.

The Congress put in an additional safeguard as I see it because it requires the Government -- it -- it avoids or certainly reduces if not avoids entirely, any possible confusion between fixing a price which attracts business to you and therefore away from competitor, and which might standing alone give rise to arguments about whether your purpose was to destroy competition or simply to do business.

This statute by setting up another element that the price set must be unreasonably low, must be --

Justice Felix Frankfurter: I take it as (Voice Overlap)

Mr. Cox: -- an abnormal price would make it harder for the Government to prove its case and avoid that possible dilemma.

Justice Felix Frankfurter: I'll take it as a third reason against vagueness in criminal statute and that is that you shouldn't leave too much room for variance determination by juries throughout the country.

Mr. Cox: That would seem to be -- to be much the same as my second reason that I would --

Justice Felix Frankfurter: Which is what?

Mr. Cox: That it was -- it is desirable to have it in order to provide a rule by which the finders of fact and the judge shall make their determination instead of simply leaving it to them to decide --

Justice Felix Frankfurter: I take it --

Mr. Cox: -- what's undesirable.

Justice Felix Frankfurter: My third suggestion is different.

The vagueness maybe the juries wouldn't know what to do.

But my third suggestion, my third reason against vagueness is that you'd have a jury in -- in Boston, make one -- have one standard in its head and the jury in Pittsburgh another standard.

Mr. Cox: Well, the standard which we think would be controlling here in each instance is the standard of the business community that the statute refers as so many statutes do to the standard of the people concerned in this line of activity.

Justice Felix Frankfurter: It doesn't say so.

Mr. Cox: No.

But reading -- reading the statute were denied in what it's seeking to achieve and in the light of its historic purposes.

It seems to me that quite plainly is the direction in which it looks as I've indicated in answering Justice Stewart and the standard which it incorporates just as the income tax law incorporate such a standard in -- in dealing with deductions just as the California statute dealing with driving in an unreasonable rate of speed, incorporates the standard of the ordinary man driving a motor vehicle.

Justice Felix Frankfurter: It all depends on how many --

Mr. Cox: And the shortest practicable route is the standard of the trucking industry and --

Justice Felix Frankfurter: It all depends on how many variant factors are implied.

Mr. Cox: That's true but I suggest here that they are narrowed very, very considerably.

Unknown Speaker: How many?

Mr. Cox: And certainly as -- and certainly as applied to this case, there could be no doubt that a price less than cost with no explanation -- it could be explanations but a price less than cost, there's no explanation --

Justice Felix Frankfurter: But if the --

Mr. Cox: -- is an unreasonably low price.

Justice Felix Frankfurter: If the statute itself is vague and you resend this particular case, there's no trouble?

Mr. Cox: One must find the standard in the statute.

But the possibility that some other hypothetical case might raise difficulties of interpretation is not one that should prevent the Court from applying it in the situation where from the standpoint of the defendant the meaning was clear and where in the terms of the court of jury applying it.

Justice Felix Frankfurter: No, no hypothetically --

Mr. Cox: The meaning was sufficiently clear.

Justice Felix Frankfurter: I don't think hypothetical harsh case, but the standards must be drawn from the terms of the statute -- and --

Mr. Cox: Well --

Justice Felix Frankfurter: -- not be vindicated by the specific fact for the particular case.

Mr. Cox: Reading the statute in the light of its background and in the light of its subject ground even in the Cohen Grocery case.

Mr. Chief Justice Taft clearly recognized that if the statute could be given meaning by reference to the practices of industry, or by particular industry, or could be drawn -- the meaning could be drawn out of the subject matter then that was -- it might make sufficient of what simply as a matter of etymology or an exercise -- academic exercise in cost counting was vague.

All statutes must be read with reference to their background and purposes.

Here, I think that if one looks at the background and -- before I go on, Mr. Justice Harlan have a question.

Justice John M. Harlan: I'm going to ask you.

How many prosecutions did the Government brought under this statute?

Mr. Cox: There have been very, very few, very, very few.

Justice John M. Harlan: The reason I asked was because when I wrote an opinion some years ago in Nashville, I couldn't find that I ever used it.

Mr. Cox: There have been very -- there have been very, very few.

There's a case brought against Safeway Stores where there's some dispute between the appellees and ourselves as to whether it was based partly on Section 3, but they certainly could be counted on the fingers in one hand.

Justice John M. Harlan: Have there been any convictions under it?

Mr. Cox: The -- there was a play of nolo in this case to which I refer.

Both situations, not all Mr. Justice Harlan in which Section 3 might be invoked, a prosecution can also be founded on the Sherman Act and I think that -- plus the fact that this was noble and there are somewhat problems.

I wouldn't deny that in the application of Section 3, has led the department not to use it widely.

I would also doubt whether there were many instances in which one could find sales at prices below cost in circumstances quite as extreme as those charged in this indictment or as we expect to prove.

Justice Felix Frankfurter: You speak -- you lay the emphasis on the fact that this was a vast organization.

What's the relevance of that?

If the statute had said in case of enterprises having a turnover of X hundred millions or $20,000,000, I could see that would be a hedging in.

That would tell you some implications with it, namely that you have means of comparison.But this statute isn't so restricted is it?

Mr. Cox: Of course, the size of the company does not fix a limit on who can be prosecuted and who cannot be prosecuted.

It's significant I think, however, as part of the background and one of the facts alleged in the indictment because it helps us look at what this statute is aiming to do.

This is a statute which is directed at dealing within historic problem for many, many years, large concerns with sufficient assets to conduct such a campaign have found cutting prices for the purpose of eliminating competitors or teaching those who are unwilling to follow its price leadership a lesson so that they will adhere to its price leadership in -- in the future and effective way of eliminating competition.

The history of the Standard Oil and Tobacco Trust was replete with instances of this kind.

Now, to a considerable extent where you have a combination in restraint of trade or had monopolization under Section 2 of the Sherman Act, these problems were dealt with under -- under the Sherman Act.

But the Sherman Act contains no specific provision directed at -- and its specific anti-competitive prac -- practices before that degree of monopoly or restraint had been achieved.

Then came the Clayton Act which is Your Honor of course, the members attempted to particularize.

And one of the things that it was directed at was on a discriminatory price cutting for the purpose of eliminating competition.

This provision turned out to have -- to be inadequate in the eyes of Congress.

And in 1936, the Robinson-Patman Act attempted to tighten.

And again, to feel more specifically with this predatory price cutting, some of the provisions as the Court recognized in Moore against Mead's Fine Bread were drawn so as to prevent a big company like this, from using the profits that it made in interstate sales to finance local price wars, and they -- they designed to eliminate small businessmen.

Discriminate not all the instances of this kind, fall under the rubric discrimination.

For example, there are many markets dealt is typically one of them in which the price is so affected by local conditions that one could in fact sell at a lower price in a particular market and subsidize that as sales below cost in that market out of the profits he made and some others without it's being possible to prove discrimination.

Or he might produce his price on a single product, adds the low cost as it's charged here and subsidize the loss by the profits he made on the other product.

Those practices are just as predatory, just as anti-competitive and I submit just as easily identifiable as the predatory practices involving price discrimination.

It's evident that this is what Congress was seeking to deal with.

And that the -- the knowledge of the evil that it was seeking the remedy not only helps to identify the general area in which the statute falls but I suggest that it does fix the point of view, Mr. Justice Stewart, that it does make it plain that we come at this from the standpoint of the fact -- the problems facing the seller.

Certainly, we don't as in -- might have been argued in the cases under the Labor Act, look at it from the standpoint of the prices -- of the situation facing the buyer.

After all and accept as he may see through the eyes of others, no price from his standpoint is unreasonably low.

I think it is also plain that we're not interested in some average cost because the theory of the antitrust laws of which this is apart is that the effect is to encourage a firm if it -- to reduce its prices and give the consumers the best buy for their money, even if this does hurt some marginal firm.

It's one when -- one gets an artificially low price, a price which has no business justification and that price coupled with the predatory intent that the policy of the antitrust laws is violated because of the long run damage.

Justice William O. Douglas: They sell it -- selling below cost would be just one illustration.

Mr. Cox: Yes.

Justice William O. Douglas: Selling -- it might be selling below, it might be selling at cost, it might be selling --

Mr. Cox: It might even be selling somewhat above cost.

Justice William O. Douglas: Above cost that -- at a -- at a marginal profit that is --

Mr. Cox: Is abnormal -- is so small that no business could long be surviving.

Now, there may be instances where selling below cost would be justified.

My contention stated more precisely is that sales below cost for this purpose without some business explanation are clearly unreasonably low.

But the business explanation are readily identifiable to go back to my hypothetical case of the manager if he were able to show his employers that by selling it what was below his current cost, he was getting rid of a spoiled milk and -- which he otherwise would have to throw away, this would make the price reasonable.

If he were showing that he had reason as Judge Merrill recognized in one of the private suits before the Carnation Milk case.

If he were selling at a price which was below his current cost, but which he could show at a reasonably anticipated volume would then be -- would then yield him a reasonable profit and that he had reduced the price to raise his volume and spread his overhead cost over a larger number of units, that too in the eyes of a businessman and the position of the seller would make this reasonable.

And we think it would make it reasonable here.

Justice Felix Frankfurter: Mr Solicitor General, I like to -- I have it of disclosing my difficulty in this case -- and my difficulty in this case is a case to which you don't even refer your belief, Connally Commission against General Construction Company.

I might say I was surprised at the time that sitting with -- that case was decided, but I shall think you have a good hurdle to get over in that case.

Mr. Cox: I'm not bringing our brief Your Honor.

I must confess that --

Justice Felix Frankfurter: Well, it seems to me the closest case that's involved in this case.

Mr. Cox: I --

Justice Felix Frankfurter: It's in 269 U.S. 385.

Mr. Cox: In 5 -- I'm afraid I just can't comment on that.

Justice Felix Frankfurter: Let me read you the statute which as I've said, I've indicated.

I thought that was strange decision.

There, imposed punishments upon contractors who pay their workmen less than (Voice Overlap).

Mr. Cox: Oh the reasonable --

Justice Felix Frankfurter: The current production --

Mr. Cox: (Voice Overlap)growing wage in -- yes.

Justice Felix Frankfurter: -- current on wages in the locality where --

Mr. Cox: Yes, I --

Justice Felix Frankfurter: -- the rest had performed.

Mr. Cox: I'd -- I do remember the statute.

Justice Felix Frankfurter: Not cited in the brief to my great surprise.

Mr. Cox: It's not cited -- it's not cited in either brief.

And when I read it, I had doubt frankly whether the case was the one that would be followed today.

Justice Felix Frankfurter: Well, but that's going (Voice Overlap)

Mr. Cox: But I think that --

Justice Felix Frankfurter: -- I'm not referring to it, is it?

Mr. Cox: No, no.

I do think that there is this that this is a question of which involves a knowledge of what are wages -- what are wages in the community.

It may be much harder to identify the wage in a community that it is to identify the -- well, but this is often true with all difference Your Honor.

Justice Felix Frankfurter: (Voice Overlap) wages in the locality.

Mr. Cox: Oh does it prevail, well -- just excuse me, I simply --

Justice Felix Frankfurter: What is unreasonable below?

Mr. Cox: What is a -- the prevailing rate of wage does not put this in terms of anybody's point of view.

Now, if you go in to the wages in the construction industry of the Philadelphia locality, you may find that for operating -- well operating engineers -- many classifications for carpenters that there are 10 different wage rates being paid by different concern which is the prevailing one.

There may be -- this happens all the time.

There may be 20% of the employers are paying carpenters $2.75.

Justice Felix Frankfurter: Well, I should think you equate -- equate working function to working function -- in working function.

In other words, the prevailing rate of wages of carpenters is one thing and particular kind of carpenters of any rate of wages of plumbers (Voice Overlap)

Mr. Cox: Oh no, no --

Justice Felix Frankfurter: -- professor is another thing.

Mr. Cox: Excuse me, I took carpenters because this is not a trade in which they are divided in terms of skill.

Carpenters for the most part are carpenters.

And the same thing would be true of laborers or qualified electricians where you have a lot of small employer.

You have -- under the devastation act.

This is frequently a very difficult problem.

And you have a lot of different prevailing wages.

The coming of unions has of course tended to stabilize it at a particular rate.

But here, it decides which is prevailing.

The economist had never -- as a matter of theory been able to work this out.

Justice Felix Frankfurter: Yes, I know but there's a statute which now -- what is it, the Miller Act?

Mr. Cox: The devastation act.

Justice Felix Frankfurter: The Walsh-Healey Act -- the Walsh-Healey Act (Inaudible)

Mr. Cox: That is -- both of those provide -- both of those provide for a determination by an administrative authority.

Justice Felix Frankfurter: Oh but if it can't be determined, how can he determine it.

Mr. Cox: I think (Voice Overlap) --

Justice Felix Frankfurter: How can he better than a jury.

Mr. Cox: Well -- oh, I'm not seeking to defend the ruling in the Connally case.

I'm suggesting --

Justice Felix Frankfurter: You don't have to defend it but you have to meet it.

Mr. Cox: -- and I am trying to suggest that the problem of selecting which of perhaps half a dozen or eight different rates are paid in no case to as many as the majority of the employees is prevailing.

It's quite different from deciding whether a sale at a price below the seller's own cost is unreasonably low, especially when it is coupled with the intent to destroy competition.

I submit that the cases are readily distinguished book on the -- on the ground of practicalities of the kind of judgment called from.

Might I say just one thing further that the -- in this case, the logical conclusion of the appellee's argument, it seems to me, is that the Congress is powerless to deal with this kind of predatory activity.

Neither the appellee nor anyone else has suggested any formulation more precise than the one in the statute here.

And this is the one which the Canadian parliament followed and others.

I think that it is important to take into account therefore if to be any doubt what Mr. Justice Black said in the Petrillo case and that is that the Constitution does not raise impossible hurdles to legislation.

Justice John M. Harlan: Should we judge a statute on its face or is it supplied?

Mr. Cox: I think that the -- I think on its face has two different meanings which is important to distinguish here.

I think ought to the extent that on its face, means that one must find the standard in the statute itself or in some business standard of the business community, the relevant community or that the statute incorporates, then it must be judged that way.

On the other hand, I think the question is whether the statute is reasonably plain as applied to this defendant and the conduct in which he engaged and that the hypothetical cases about somebody else's conduct that somebody else might engage in are not before the Court.

Justice John M. Harlan: Well, all I was taking with you is this.

Supposing this indictment as it might have simply charge the offense and the terms of the statute.

And then the -- the defendants should answer a bill of particulars and what is now in the indictment has been supplied by way of bill of particulars.

Mr. Cox: Yes.

Justice John M. Harlan: Then how --

Mr. Cox: And then the Government would be bound to that and the court --

Justice John M. Harlan: Well then, would you judge the statute if you have the case up here in that posture, would you judge it in light of the bill of particulars or would you judge it extra bill of particulars?

Mr. Cox: I think you would judge it in the later bill of particulars.

And I think this expressions that we determine the meaning of the statute on its face which are very common in the opinion means that the standard as applied -- that the standard must be found to the statute.

That -- but standard as applied to something and I say that's the -- as applied to the case made in the indictment and that is the case named the indictment is exactly the one that Your Honors followed.

It seems to me that this is essentially what was done by the Court in the Harris case, the one involving the Lobbying Act wherein some of its applications the Anti-Lobbying Act might have been unconstitutionally vague, limited to direct approaches to congressmen.

It was held sufficiently to decide.

Justice William O. Douglas: We don't -- notice in the -- in a footnote in the Nashville Milk case at the Department of Justice so far as we can ascertain -- as of that time, we never brought a criminal suit under 3.

Mr. Cox: There had been --

Justice William O. Douglas: Is this the first one?

Mr. Cox: I don't think this is the first one, but it is very nearly the first.

Chief Justice Earl Warren: Mr. Chadwell.

Argument of John T. Chadwell

Mr. John T. Chadwell: Mr. Chief Justice, may it please the Court.

There is not a word in this statute which is before the Court or consideration about sale below cost.

I think it well at the outset of my remarks to remind the Court of that fact.

The statute provides against sales at unreasonably low prices.

Those are the words of the statute.

Now, we contend and of this urge in our brief that if the unreasonably low price provision of the statute is considered on its face in line with the question of Mr. Justice Harlan, it obviously is unconstitutional under a long line of decision starting with Cohen -- the Cohen Grocery case.

The term unreasonably low price or the unreasonably high price or unreasonable price, the latter of which was held unconstitutional in the -- in the Cohen case is indefinite now as it was when those cases was -- were decided.

The term unreasonably low price has no ascertainable meaning.

It has no definition in law, in custom or in the business society which gives it any meaning whatsoever.

Now the Court said that in the Cohen case.

They repeated it in Cline against Frink Dairy Company.

They referred to it again as a rule of law in the Connally case to which incidentally our brief refers four different times.

The Solicitor General was in error in that case.

We do rely in part on the Connally case as well as these other cases.

And I strongly urge that upon the face of the statute and the decided cases of this Court, this statute is unconstitutional as the District Court held.

Now as the Solicitor General said, “This is the first time the statute has been before this Court in the criminal case.”

This is a criminal case.

Mr. Wise, one of the defendants in this case, an individual defendant, was entitled to notice in the statute not for the first time in the indictment that doesn't satisfy the vagueness requirements of the Constitution.

He was entitled to notice in the statute as to what he had to do to comply with the law.

That is the Due Process Clause in the Fifth Amendment.

That is the notice requirement in the Six Amendment and as this Court has said a number of times and as the Solicitor General virtually admits here today, he must find that standard and that definition in the statute.

And if he gets it for the first time in the indictment, which is what the Solicitor General is arguing here today, the provisions of the Fifth Amendment and the Sixth Amendment are a sham in a delusion.

As Mr. Justice Douglas said in the Cardiff case, he is entitled to it in the statute itself.

Now, if the Court please, I say that not only is the unreasonably low price clause, unconstitutional or indefiniteness and vagueness as this Court had said, but it cannot be saved by the intent provision of the statute.

If these were saved by the intent provision of the statute as the Solicitor General has argued, then you'll read the first requirement right out of the Act.

The Act provides two elements of an offense.

The first element of an offense is to sell at unreasonably low prices.

Now, what standard is set up by that provision?

I say there is no standard set up by that provision and so as the Court so held.

Now, what does the Solicitor General argued?

He argues oh well -- oh well, I'm not -- don't want to talk too much about the unreasonably low price clause.

But there is an anticompetitive intent requirement in the statute.

But this Court has held -- all seven justices held when the subject of intent was discussed in the -- in the Screws case.

All seven justices are writing separate opinions in this case held that the element of definiteness required by the Fifth and Sixth Amendments cannot be supplied by intent.

If so, as Mr. Justice Frankfurter indicated in his question to the Solicitor General, all you need to say would be “Any act done, any act done by a person with the intent our purpose of hindering or lessening competition would be sufficiently valid under the Fifth and Sixth Amendment,” and no court has ever held that.

Now, what does the Government say, and I might before passing on to this next point, I want to make this observation that the Government apparently at the time this appeal was taken, thought that this case should be determined as it was in the lower court on the face of the statute and not through any limitation -- limitation in the indictment, for in the notice of appeal in this case after we want it in the lower court.

The question stated by the Government to be presented by the appeal was whether or not the unreasonably low price provision of Section 3 was a violation of -- of the Fifth and Sixth Amendments to the Constitution.

It was not until they filed their jurisdictional statement and briefed the subject that they tried to narrow the issue before this Court to the cost question.

Now, let us discuss the cost question.

The Solicitor General argues in effect.

We don't have to defend this statute on its face.

We don't have to defend the statute on the word that Congress chose to enact namely unreasonably low prices.

We defend the statute on a ground that at least -- at least such language means sales below cost.

At least, it prohibits sales below cost.

Well now, in the first place, we deny that you can equate the term unreasonably low prices with the term sales below cost.

There are many, many instances as in and aside the Solicitor General stated in his oral argument.

There are many instances when no one could possibly say that a sale below cost could be predatory in any sense, could be unreasonable, it could be an unreasonably low price.

Many instances as they admit in their brief such as sales of excess inventory, such as sales of merchandise is not going very well, all sorts of things of that kind.

But there are many others of prices fixed in advance of the fact.

You don't know what your cost are until the transaction is completed.

Every cost and every accounting system in the land is based upon cost after the transactions have occurred.

There's no one who knows in advance what his cost is going to be, why?

It happens constantly with an efficient operation.

It happens constantly with efficient operations that after a sale has been made, it is then determined for the first time that the sale was below cost.

Let us assume that a business organization projects a certain volume over a certain period, and upon the basis of that project -- projection, they established a certain price, would it develops during the course of the -- of the period of sale that they were wrong and how much they were going to sell or and if their volume fell way below what they anticipated.

Or that they were wrong in what their cost were going to be, because of efficiencies or inefficiencies that develop in the course of operation or manufacture.

That sale turns out to be below cost.

Could anyone say that that act was an unreasonable act?

That that price was an unreasonable price?

And the only way the Solicitor General suggests to this Court that you could save that situation is by the intent clause.

And I say to this Court that you held over and over again that you can't save an Act by the intent clause where -- where it submits or -- or outlines or states any indefinite standard in the first place.

Justice Felix Frankfurter: I thought we decided the contrary in Screws?

Mr. John T. Chadwell: Your Honor, I -- I recognize the -- the -- the force of Your Honor's comment but I said this, that in Screws, both in the opinion written by Mr. Justice Douglas and in the opinion written by Your Honor, in which seven -- in both of which seven justices joined, I think you will find and I can stop and read -- read the portions out.

But they're cited in our brief.

I think you will find that in both opinions, all seven justices agreed to the statement that I have just made that a -- an unreas -- that an indefinite standard or the lack of the -- of the standard cannot be supplied by intent.

And Your Honor did distinguish a number of cases which have been cited to the contrary effect on the ground that the language used.

There were makeweight -- it was makeweight language that the Court had held in already that there was a sufficiently definite standard and pointed out in addition that there was a predatory intent or criminal intent required.

Why Your Honor, if -- if intent, if intent could supply a needed deficiency in an indefinite standard, the Cohen case wouldn't have been decided the way it was because that required willful intent to sell at unreasonable price.

The Frink case would not have been decided the way it was, because it is also requiring sale at an -- with a wilful intent.

The same thing was true in the -- in the Cramp case which the Court decided only last December as -- as an invalid statute, because of a failure to define the acts forbidden.

And that was the case in which intent was specified, a wilful intent to violate the law, and that did not save that statute.

I think that the Court -- the Supreme Court has made that very clear if the Court please and I do not think there is anything in Screws to the contrary.

In fact, I contend as I have said that all seven justices in the two opinions to which I refer are recognized that fact as a rule of law.

Justice John M. Harlan: Why you say that the Solicitor General's argument that if this statute is struck down for vagueness it's in effect saying that Congress cannot legislate in this field?

Mr. John T. Chadwell: I say they can legislate in this field if they desire to do it, if the Court please, and I -- and I want to -- and I want to state this which the Solicitor General has ignored and which their brief ignores although we have covered the point at quite some length.

30 different states, 30 different states have adopted sales below cost statutes.

Now, assuming that the Congress desired to legislate in the sales below cost field, they could easily say sales below cost.

They wouldn't have to say unreasonably low pricing.

The legislative history shows they didn't mean to say sales below cost.

They didn't say sales below cost, but 30 different states of legislation in that field.Now, what have they done?

They have prohibited sales below cost and they have defined what cost means.

Now, these definitions vary, I must say that greatly between the various states.

But there has been a standard of definition.

They have state adjust -- just what -- just how cost should be computed.

Now, the very fact that those statutes had varied greatly as between the various state is proved, it seems to us, that there is no ascertainable standard from the word cost itself.

And that if you get by the point which I have strongly urged to the Court that you cannot equate unreasonably low prices and -- and sales below cost.

If you get by that and say, “Well, we will interpret the statute as meaning sales below cost” then I say, “You've got no better standard than you have before.”

The Solicitor says “Well, anybody knows he shouldn't -- shouldn't sell below his own cost, and certainly the statute at least means that.”

Well, the indictment says that, but Congress didn't say that.

The indictment or Congress either one, doesn't supply or indicate what cost means if we go to the literature and define what cost means, we find the cost being defined every which way and great disagreement on the subject according to the -- the authorities which we have cited in our brief, and this Court in the Automatic Canteen case recognized the illusory nature of the term and referred to it in connection with that case which was of course justification case under Section 2 (a) of the Robinson-Patman Act.

Now, let us assume that the -- that the term unreasonably low prices should be considered to mean sales below the defendants cost -- the defendants cost.

Let's narrow it that much.

So, although the statute does not do so, no definition of cost does so.

Mr. Justice Stewart asked the question, “Does cost mean the defendants cost or does it means average cost?”

We will look to the statute in vain for an answer to that question because the statute doesn't even say cost.

The Federal Trade Commission and the Department of Justice was called upon by the House Committee on Interstate and Foreign Commerce just in 1960, to advice with them concerning a bill pending before Congress which have been introduced by Representative Patman in an effort to define the term unreasonably low cost -- unreasonably low price which was in that bill, which would have given to the Federal Trade Commission the right to determine unreasonably low prices and a -- and the trouble damage plaintiff to sue for damages resulting from sales at unreasonably low prices.

In effect, it was a bill to send aside the decision of the Court in the Nashville Milk case.

And in that -- in that bill which was introduced by Representative Patman in 1960, there was an attempt made to define the term unreasonably low price and among other definitions in there was selling below cost and then the -- the sales below cost was defined.

And it was defined in this way.

It was defined to say, first it means, cost is defined in any state sales below cost statute which might be applicable in the State where they say it was made.

Second, in the absence of such a statute, it should be defined as a sale at a price less than the cost of manufacturing, packaging and selling a commodity with the payment of such transportation cost as they're born for the producers and then they go on plus overhead and other cost of the vendor doing business.

Well, the Department of Justice was called upon to comment upon this bill.

And the Department said that it carries overall of the ambiguities and uncertainties of the unreasonably low price cost of Section 3.

We quote this letter in our brief.

And furthermore, that the -- that the definition is given, gives rise to a great many ambiguities and uncertainties and there will be great dispute over what this terms mean, which I urged to the Court is an admission by the Department of Justice itself that even if you try to define cost a little more than just saying cost and in the matter that was done in the Patman bill.

That man of intelligence as stated the Connally case.

Man of intelligence must guess as to its meaning and differs to -- as to its application.

And since that is necessary, there's no standard for this -- within the meaning of the Fifth and Sixth Amendments.

Now, I might say that we --

Justice Hugo L. Black: Why is that not applicable to the --

Mr. John T. Chadwell: I beg -- beg your pardon?

Justice Hugo L. Black: Why is that not applicable to the antitrust law as construed in the Standard Oil case?

Mr. John T. Chadwell: Well, Your Honor, it was decided in Nash of course, that the term unreasonably low -- or an unreasonable restraint of trade furnished a sufficient standard through the common law meaning of the term to satisfy the Fifth and Sixth Amendment and the -- and this Court, the Supreme Court in Cline against Frink Dairy distinguished the Nash case from the unreasonable profit case which was submitted to the Court there up on that ground.

There's no doubt that words that have a general meaning of the common law such as restraint of trade or a general meaning through custom or through business -- business ethics as in the Regan case which the Solicitor General has referred to which the Court equated with fraud.

There's no doubt that is sufficient standard --

Justice Hugo L. Black: Does it have to have fraud?

Mr. John T. Chadwell: No, it doesn't have to have fraud Your Honor --

Justice Hugo L. Black: What is an unreasonable restraint of trade?

Mr. John T. Chadwell: Unreasonable rest -- no, no, I was saying as a second -- as a second element or second category of cases.

No, the unreasonable restraint of trade statute, Sherman Act, was upheld in the Nash case on the ground that restraint of trade or unreasonable restraint of trade was well-enough known at the common law for a sufficient standard.

Justice Hugo L. Black: Can you make in a more definite -- accurate definition of it than it's made here with reference to prices?

Mr. John T. Chadwell: Well, I say to the Court, Mr. Justice Black, that there's quite a difference between unreasonable restraint of trade which has a common law meaning and a well-accepted meaning, and unreasonably low prices which has no meaning at the common law, in business or custom or society at all.

And it was -- because of that difference which I have just stated that the Court in the -- in Cline against Frink held to be invalid.

The statute there which provided for permissible -- which provided against combinations in restraint of trade provide that reasonable profits or satisfaction would not be illegal, the only combination which resulted in a reasonable profit.

The Court said reasonable profits is meaningless and they distinguished the antitrust or the Nash case on the ground that in that case there was a -- an established common law meaning.

But I say permissible general terms can be put in statutes of course even if they have no common law meaning if they have a well-accepted business meaning, or well-accepted meaning otherwise such as fraud -- a faking of -- or patting of business expenses.

The Court said in Regan, “Everybody knows whether he has truly stated his expenses or not, and what is forbidden in the Act is falsifying expenses.”

There is -- that furnishes a sufficient standard and that -- and the -- the Act was upheld.

I say it's a very different thing for the reasons which I have stated from the -- from a unreasonably low price prohibition when there's absolutely no standard of any kind which --

Justice Hugo L. Black: What would be -- what would -- what -- what would you suggest would be the difference in the Court charged to the jury in defining what -- asking him to decide whether it's been an unreasonable restraint of trade, and asking him to decide it whether there's been unreasonable price?

Mr. John T. Chadwell: Well, I think the very easy restraint -- charge a jury on unreasonably restraint of trade on the basis of many, many instructions has been given over a period of many years.

Justice Hugo L. Black: I understand that but I was just trying to see if we could capture the idea here, the difference.

Mr. John T. Chadwell: Well, in the first place --

Justice Hugo L. Black: -- maybe there is -- maybe it's enough just to say common law used a lot of words about what was restraint of trade.

Mr. John T. Chadwell: Well, there is a very well-accepted meaning for restraint of trade.

There's no question about that.

There is no well-accepted meaning for unreasonable price --

Justice Hugo L. Black: How can you tell a layman on the jury to determine whether or not that's an unreasonable restraint of trade?

Mr. John T. Chadwell: How can you?

Justice Hugo L. Black: As distinguished from telling him whether there's been an unreasonable price.

Now, my -- my question that I asked you is indicating any view one way or the other.

Mr. John T. Chadwell: I understand sir.

Justice Hugo L. Black: I do not intend it to.

Mr. John T. Chadwell: I understand sir.

I do not think it is possible to -- to instruct the jury as to what is the meaning of an unreasonably low price, because I don't think there is anything in law or custom that would enable you to do so.

Justice Hugo L. Black: Well, if you buy in some groceries, let it be known that they are charging you 200% profit on items that -- not much trouble to handle.

Would that -- would you say it's impossible for you to bring about -- think about what's an unreasonable price?

Mr. John T. Chadwell: Well, I don't know that.

I say that the -- that under the decided cases in this Court, we are entitled to have that standard set forth in the statute.

Justice Hugo L. Black: I think you're right.

Mr. John T. Chadwell: And this -- and the statute is -- and the standard is not set forth in the statute.

And I say that there's no way that I can think of to the advice and instruction on unreasonably low prices, unless you just arbitrarily say it's a matter of dollars and cents, how are you going to arrive at it?

Justice Hugo L. Black: I agree to the difficulty.

I was asking you if there's any similar difficulty in unreasonable restraint of trade.

Mr. John T. Chadwell: Well, the unreasonable restraint of trade instructions can be based upon the -- the common law.

Justice Hugo L. Black: In either way, you don't have to meet that here.

Mr. John T. Chadwell: I don't have to meet that here.

Justice Hugo L. Black: That's the problem (Voice Overlap)

Mr. John T. Chadwell: But if Your Honor please, I think the distinction is a -- is a valid one that for an unreasonably low -- for an unreasonable restraint of trade instruction, you've got ample authority in the law already established starting with the common law as was stated in Cline against Frink.

You don't have that for unreasonably low prices or indeed you don't have it for sales below cost unless you define cost.

And that gets back to the question as to what Congress could have done, and I say they could have done what the state legislatures did if they really mean to forbid sales below cost and it's not at all clear from the legislative history or from the words unreasonably low prices that they did.

In fact, as I've argued, unreasonably low prices and below cost are no sense the same.

Chief Justice Earl Warren: Mr. Chadwell --

Mr. John T. Chadwell: Now --

Chief Justice Earl Warren: What do you do with --

Mr. John T. Chadwell: Yes, sir.

Chief Justice Earl Warren: -- what do you do with cases like Petrillo --

Mr. John T. Chadwell: Well in Petrillo, if the Court please, the -- the Court held first that you must decide the -- the case on the face -- on the basis of the face of the statute.

And the Court did decide it on the basis on the face of the statute, and having made that decision, recently conclusion that it was sufficiently dealt with.

The statute there of course made it a crime for a -- for a union leader to require and an -- an employer to have more employees than necessary words to that effect.

And the Court --

Chief Justice Earl Warren: Is that -- is that more -- is that more direct or more definite than this?

Mr. John T. Chadwell: I certainly think it is Your Honor.

I certainly think it is because the Court held in that case that it was a term that had meaning -- that had meaning in business that -- that is ascertainable for that reason.

And -- but it -- but it went right to the face of the statute and decided the case on the basis of that term used in the statute rather than upon any narrower construction of the -- of the statute itself.

I --

Justice Felix Frankfurter: Well, what the Solicitor General argued is that unreasonably low means having no economic or business justification.

Mr. John T. Chadwell: But I say, if the Court please, that there is no way to determine whether it has an economic or business justification.

There are many, many prices that are below cost -- that are be low cost which could have and do have an economic and business justification as I have tried to -- and I have tried to point a few of them --

Justice Felix Frankfurter: But the whole --

Mr. John T. Chadwell: -- in my argument.

Justice Felix Frankfurter: -- price leader, the whole -- the whole -- whole of fair trade statute on that assumption.

Mr. John T. Chadwell: That's another -- that's another example, if Your Honor please.

Under -- the Department has prosecuted -- has prosecuted businessmen for trying to prevent loss leader sales or two for one sales or one cent sales or these other sales promotions which are all below cost, have prosecuted them on the ground that that's normal competitive activity, that's perfectly proper.

Those sales were below cost.

How is the Government going to say that Sale A which is below cost like the loss leader sales or like the erroneous projected volume sales, that sale below cost is alright or as some other sale is all wrong.

The fact that there may be a below defendant's cost as finally ascertained after the returns are all in and the -- and the figures are entered in the books does not necessarily make it unreasonable or uneconomic or on business alike --

Justice Felix Frankfurter: I'd suppose the Department gives you the comfort that -- Justice Holmes gave comfort in the Nash case that would -- well that's what a fair-headed reasonably minded juries will take care of.

Mr. John T. Chadwell: Yes -- yes Mr. Justice Frankfurter but I say we are entitled of this notice and this definition and this standard in the statute.

And that it's not enough merely to have an instruction after we're told by the -- in indictment to what it means to have an instruction that enables the jury to pass upon it.

Chief Justice Earl Warren: Well, Mr. Chadwell would you --

Mr. John T. Chadwell: Yes, sir.

Chief Justice Earl Warren: -- would you just explain briefly to me how you distinguish the word unreasonably low prices as -- as in this case from the words in excess of the number of employees needed by such licensee to perform actual services as the words of the statute were in the Petrillo case?

Mr. John T. Chadwell: If Your Honor please, I can only -- in doing so, I can only use the -- the words of the Court which I think were applicable in that -- in --

Chief Justice Earl Warren: Well, that --

Mr. John T. Chadwell: -- that case.

And that -- I beg your pardon, I didn't --

Chief Justice Earl Warren: Well, I'm just -- I'm just wondering what -- we know what the Court --

Mr. John T. Chadwell: Yes.

Chief Justice Earl Warren: -- said.

The Court held that that was constitutional.

Now, what I'd like to know is what you think can justify the Court in doing that and -- and then holding this one to be unconstitutional.

Mr. John T. Chadwell: The Court helds that in that -- and I -- I think properly so, in that case, there were -- there were means of common understanding and common practice, so that the standard was ascertainable.

That's what the Court held there.

I say for the reasons that I have argued to the Court, the words below cost have no general meaning, are not ascertainable, a great many sales can be below cost that are in no sense unreasonable, and that makes the standard indefinite and contrary to the Fifth Amendment.

And I say in the second place, there's nothing in this statute that prohibits sales below cost in -- in terms anyway.

It's unreasonably low prices.

And that, likewise, has no meaning in the law, has no meaning in common understanding, and I distinguished Petrillo on that ground.

I -- I want to say in -- in conclusion, if the Court please, that we have argued a number of other points in the brief, which I shall not have time to argue in my oral argument.

The first one being that this indictment does not limit the charge to sales below cost, because it charges in the general words of the statute.

We argue that and explain our position, beginning on page 6 of our brief.

I do not have time to discuss it at this time, and we'll rely upon our brief position there.

Although I repeat, that we do not depend entirely by any means upon that construction argument, but upon the fundamental proposition that I have -- I've tried to argue to the Court, that the term unreasonably low prices is in -- too indefinite as well as the term below cost if the indictment -- if the statute should be interpreted to be limited to below cost.

I thank the Court.

Print this transcript Transcript: 

Argument of Daniel M. Friedman

Chief Justice Earl Warren: Number 18, United States, Appellant, versus National Dairy Products Corporation, et al

Mr. Friedman.

Mr. Daniel M. Friedman: Mr. Chief Justice and may it please the Court.

This case which is here on direct appeal under the Criminal Appeals Act to the District Court for the Western District of Missouri, presents the question of the constitutionality of the provision in Section 3 of the Robinson-Patman Act which makes it a crime to sell goods at unreasonably low prices for the purpose of destroying competition.

The District Court in this case, dismissed the number of counts under that section, on the ground that the statutory provision is so vague and indefinite as to violate the Fifth and Sixth Amendments.

The appellee, National Dairy Company, is a large company engaged in the business of purchasing, processing, distributing and selling milk throughout the United States.

The violations involved in this indictment involved the area of Kansas and Missouri which is served by National's plant in Kansas City.

Now, in this big two-state area, National sells directly to customers in the Kansas City area itself.

And in the rural areas throughout these two states, it sells through distributors and the indictment alleged that in such sales, National competes both with other large dairies and also with a number of small dairies.

The indictment was in 15 counts and it charges National Dairy in parallel counts.

That is a count under the Sherman Act followed by a count under the Robinson-Patman Act relating to various activities in numerous markets.

More specifically under the Robinson-Patman Act, National and in one count a Mr. Wise, its vice-president and director, are charged with selling at unreasonably low prices for destroying competition in each of seven different areas.

The counts are basically identical under all the Robinson-Patman Act charges.

And I would like to invite the Court's attention to the first of the Robinson-Patman Act charges at page 9 of the record.

This is typical of the Robinson-Patman Act counts.

The offense charged is stated in paragraphs 22 and 23.

The first paragraph, paragraph 22 begins, and in the language of the statute said that National are engaged in the foresaid interstate commerce sold milk to its distributor in the Paola-Osawatomie, Kansas market at unreasonably low prices for the purpose of destroying competition in that market in violation of Section 3.

Then the second paragraph, paragraph 23 goes on and particularizes the sales of unreasonably low prices charged in the statutory language in paragraph 22.

It alleged -- pursuant to an effectuation of the offense, National utilized the advantages it possesses by reason of the fact that it operates in a great many different geographical localities in order to finance and subsidize a price war against small dairies selling milk in competition with it and its distributor in the Paola market.

By intentionally selling milk to its distributor Martin at prices below National's cost.

So what we have in this indictment is a charge that in this particular market and there's seven of them, National sold at unreasonably low prices for the purpose of destroying competition and the particularization without the sales at unreasonably low prices here charged where sales below cost.

Justice John M. Harlan: (Inaudible) of the statute, isn't it?

Mr. Daniel M. Friedman: That is correct, Mr. Justice --

Justice John M. Harlan: As the thrust of your argument that we don't have to decide whether the statute is good or bad except in the context of this indictment, is that your point?

Mr. Daniel M. Friedman: Well, let me put it this way if I may, Mr. Justice.

I think the Court has to look at the statute first to see whether it is --

Justice John M. Harlan: It was charged from the beginning.

Mr. Daniel M. Friedman: Exactly.

But then all that the Court has to do to sustain the statute in this case is to say that at least, as applied to the sales charged in this case, selling below cost, the statute clearly does provide a sufficiently definite standard.

But I shall, in my argument, first argue generally as to what the statutory standard is and then go on to show that without having to reach what maybe a more difficult problems in other cases, it certainly is constitutional to decide the violation here charged.

Now, the statute is set forth at pages 2 and 3 of our brief on re-argument and the statute contains three subsections.

The first two of them deal with discrimination in price and the third subdivision which is the one on which we are here concerned which is on lines four to seven of page 3, makes it a crime to sell or contract to sell goods at unreasonably low prices for the purpose of destroying competition or eliminating a competitor.

So the statute is composed of two elements in addition to the sale of the goods that must be at unreasonably low prices and it must be for the purpose of destroying competition or eliminating a competitor.

Now, while I said that these are separate elements and the Government must prove both of them, we think the elements are interrelated.

And we think that the ‘unreasonably low prices'; the meaning of that phrase draws its meaning and has helped in interpretation by the second clause, the specific purpose.

In other words, we think that the frame of reference within which the meaning of ‘unreasonably low prices' is to be determined is the second section requiring for conviction the purpose of destroying competition.

We think as I shall now demonstrate that this clause from the basic purpose of the statute from its legislative history and from our entire antitrust experience of more than half a century dealing with predatory pricing, what the statute is directed at.

Now, a major purpose of the Robinson-Patman Act, and when I say the Robinson-Patman Act here, I'm not limiting it just to Section 3.

I also include the civil price discrimination provisions contained in Section 2 of the Clayton Act was to prevent predatory pricing.

That is pricing which is designed to destroy competition or eliminate a competitor.

This statute was written against the history of many years of our experience under the antitrust laws with the devices by which monopolists and powerful firms have been able to destroy their competition to put competitors out of business, to force weaker firms into cooperation with it.

And this history had shown that one of the favorite devices which these large firms and monopolists employed was cutting prices in warfare against a smaller firm, and in most instances of course, what was done was using the profits in one area when they were not competing in order to attack a weaker competitor and another but not all and this history is shown in some of the early landmark Sherman Act cases which we have described in our brief, for example, this Court's decision in the American Tobacco case, the decision of Judge Learned Hand as the district judge in Corn Products case and both of these leading cases, sales below costs were a very effective method by which these tremendous combinations were put together in which competition was suppressed and by which recalcitrant smaller firms were driven to the war.

And in 1914, when Congress passed the original Clayton Act, it referred to this practice and the House Committee report which we have quoted in our brief stated that it was a common practice of great and powerful combinations to lower prices of their commodities oftentimes below the cost of production in certain communities and sections where they had competition with the intent to destroy and make unprofitable to the business of their competitors.

And similarly, as we've set out in our brief, the legislative history of the Robinson-Patman Act shows congressional concern with this predatory price cutting.

Now, most of the legislative history dealing with the Robinson-Patman Act related again to discrimination and it was in many instances, this was what being discussed but not all of it there is evidence for example that people were terribly concerned about the practice of this large firms cutting prices.

Now, in terms of the effect on competition, it doesn't really matter whether the large firm is cutting prices in one area and using its profits in another area to subsidize them or whether it's big enough that it can afford to take a loss in a particular area.

In both instances, the smaller firm that is faced with this price cutting find itself in the position that it can't hold up very long, it's either going to go out of business or it may find that it just has to give in.

It's going to stop its price warfare.

Much of this price warfare in these areas is designed not to put someone out of business but to get them to bring their prices up to the level of the large firm thinks appropriate.

And all these experience in history to us illuminates what the Congress was driving at in this third clause of Section 3.

We think that what we have in Section 3 is this, we have the first two clauses which deal with price discriminations and those are made crimes.

We have the third clause which then goes on to make it a crime to sell at unreasonably low prices for the purpose of destroying competition.

We think what Congress intended to reach by that clause was the same type of predatory practices that history have shown, were frequent methods by which large economic firms throw their competitors to the wall and which however did not come within the precise boundaries of the discrimination.

I'd like to illustrate that.

First of all, many large firms may sell multiple products.

So they have for example a firm selling milk at unreasonably low prices in a particular area.

It would necessarily have to make that up on selling milk in other areas at higher prices.

It could make it up by selling butter or cheese or some other dairy products.

In that situation, there would not be discrimination than the meaning of Section 3.

Similarly, products such as milk, there are frequently local variations in price.

The nature of the milk industry as such that milk is sold at different prices so that the mere proof that a company sold milk at one price in the Kansas City, Missouri market and at another price in the Chicago market might not itself be sufficient to establish discrimination and therefore we think what Congress did was to go on and prohibit sales at unreasonably low prices the same kind of predatory sales which did not however have the particular element of discrimination which is condemned by Section 2.

And we think in the light of this experience and this purpose that the phrase to sell unreasonably low prices for the purpose of destroying competition means that a price is unreasonably low when it lacks any rational foundation in the seller's normal business methods which would justify it being said other than a purpose to destroy competition.

Let me illustrate if I may.

Ordinarily, a seller operates at a profit.

Now, if a seller is selling a product at a price which could not be justified by the business considerations, the exigencies of the business which a reasonable man would rely on in setting his prices.

And if you add to that, the further specific intent, the predatory purpose the intention to destroy competition, we think that is selling at unreasonably low price for this purpose.

And we think certainly, at least where the product is priced below cost with the predatory purpose.

This is plainly an unreasonably low price.

There may be situations of course in which selling below price, below cost has a legitimate business purpose for example --

Justice Byron R. White: (Inaudible)

Mr. Daniel M. Friedman: Yes, Mr. Justice.

For example let me give the case of a businessman who was trying to get rid of surplus merchandise or merchandise which is spoiled now which is obsolete, he may find that the appropriate business method, the normal practice of getting rid of this merchandise is to sell it below cost to clear it out.

But in that situation, in that situation, he would not have the intent to destroy competition.

Justice Byron R. White: Would you say that -- would you say that it's unreasonable to sell below cost where you're merely lowering your cost to meet the price of the competitor?

Mr. Daniel M. Friedman: No, Mr. Justice, not that.

Justice Byron R. White: Even thought it's saying that the competitor's business --

Mr. Daniel M. Friedman: Well --

Justice Byron R. White: -- absolutely that they go to either keep your business or take away some business --

Mr. Daniel M. Friedman: That's the normal process of competition.

Justice Byron R. White: Yes.

Mr. Daniel M. Friedman: It's trying to take away business from a competitor.

Every seller is trying to take business away from the competitor but this statute goes beyond that fact.

This statute requires a purpose to destroy competition or to eliminate a competitor.

Justice Byron R. White: But it's perfectly reasonable to lower your price below cost to meet the price of the competitor even though you're after him.

Mr. Daniel M. Friedman: Even though you're after him provided -- provided Mr. Justice, you're not doing this for the purpose of destroying him or --

Justice Byron R. White: Well, let's say you are doing it for the purpose of destroying him.

Mr. Daniel M. Friedman: Well, if you were doing it for the purpose --

Justice Byron R. White: Will you say it's an unreasonable -- unreasonably low price?

Mr. Daniel M. Friedman: If it's below cost.

Justice Byron R. White: Yes, but you're meeting his price.

Mr. Daniel M. Friedman: That is -- well, you're meeting his price but it seems to me -- meaning --

Justice Byron R. White: You said there were two elements that were necessary.

Mr. Daniel M. Friedman: That's right.

Meeting his price -- meeting his price is -- happens to be the case but it seems to me the basic question is whether it was done for the purpose of destroying competition.

Justice Byron R. White: No, but we still have to decide whether it was an unreasonably low price.

Mr. Daniel M. Friedman: Well, yes and I'm suggesting that if --

Justice Byron R. White: You're suggesting that it is even though it's -- it's lowered only to meet the competitor's price.

Mr. Daniel M. Friedman: No, no, Mr. Justice, sir.

If I'm not -- I didn't make myself clear.

If it's done for the purpose of meeting a competitor's price then we'd say that would not be an unreasonably low price.

In other words, it would not prove the first element because in that situation --

Justice Byron R. White: Yes, but these things can't be kept in this kind of categories when you're meeting some competitor's price.

That just isn't a descriptive term or just an isolated purpose that may very well be for destroying the competitor, that's why you're meeting its price.

Mr. Daniel M. Friedman: Well, if --

Justice Byron R. White: I mean both of them are perfectly consistent for the purpose of meeting him price -- meeting his price and destroying him is perfectly consistent.

Mr. Daniel M. Friedman: Well, I would -- I would --

Justice Byron R. White: Especially if you -- in this case -- does this record show whether there was some differential between the -- between the major's price and the independent's price?

Mr. Daniel M. Friedman: It doesn't so show but the allegation of the Sherman Act counts as one of their purposes was to eliminate a differential between the price charged by the small dairies to selling milk and glass containers in the price these people charge for selling milk in paper cartons so this is apparently what is involved in the case.

The record does not show that as I say because it comes up on the dismissal of the indictment.

Justice William J. Brennan: We say one statute as I remember in this Screws case by requiring the presence of requisite intent.

But here even though you have the requisite intent, you don't violate the statute unless the price is unreasonably low.

Mr. Daniel M. Friedman: That's correct.

Justice William J. Brennan: And so your -- I don't think you have come up -- flashed with the problem under our other cases to whether or not unreasonably the low satisfies the standard for a definite one.

Mr. Daniel M. Friedman: Well, I will address myself to that right now.

Justice William J. Brennan: Because I can sell on this statute at a low price to eliminate a competitor, to get rid of him and still not violate them.

Mr. Daniel M. Friedman: Well, but we -- as I say, we think that the statutes, the words ‘unreasonably low' have to be interpreted in the light of the basic purpose and we think that when it's interpreted in light of the purpose that a price is unreasonably low when its level cannot be justified except in terms of attempting to destroy competition or eliminate a competitor.

We then think it does come within the cases which this Court has previously upheld statutes of this type --

Justice John M. Harlan: How should we deal with the statute?

Odd states do not apply, you can produce cases on both sides of the question that's one of the most mixed up fields of law that I know.

Mr. Daniel M. Friedman: Well I --

Justice John M. Harlan: What is your position?

Mr. Daniel M. Friedman: I'd say you'd just deal with it as applied and let me explain why.

The basic theory of the rule of definiteness is to enable a person to know when he acts whether he is violating the statute.

Justice John M. Harlan: Question of notice.

Mr. Daniel M. Friedman: Notice, that's correct Mr. Justice.

The question that seems to us in terms of this case is whether this appellee or these appellees were fairly unnoticed when they did the things charged in the indictment that is selling below cost for a predatory purpose that they were violating this statutory prohibition against selling unreasonably low prices for that purpose.

And we think that whatever may be the difficulties in other cases, certainly, a businessman who sells below cost for this stated purpose of destroying competition can have no doubt that he is violating the unreasonably low prices.

Justice John M. Harlan: Now, the trouble is that when you put in costs, that's got -- that's about as vague as unreasonable.

Mr. Daniel M. Friedman: Well, because --

Justice John M. Harlan: What is your position?

Is it out of pocket cost?

What are you going trying to prove in this case?

Mr. Daniel M. Friedman: Well we -- in this case, the indictment allegedly sold intentionally below cost.

Justice John M. Harlan: Well, I know but --

Mr. Daniel M. Friedman: And we -- we believe we can prove that they sold below cost as shown on their books.

Now, we would say ordinarily that's not I have to say not so alleged in the indictment but we think it falls intentionally.

But we think going a little beyond that that costs means basically the costs as shown on their books.

Justice John M. Harlan: Well, my trouble is that if you take the premise that you are to treat the question of vagueness and turns that the statute is applied, how can we tell from this record until there has been a trial to know how it's going to be applied.

Mr. Daniel M. Friedman: Well, we can tell I think Mr. Justice because the indictment here alleges that the sales we're below cost.

Justice John M. Harlan: Yes, but cost still got that element of vagueness in it.

Mr. Daniel M. Friedman: Well, I think Mr. Justice its terms intentionally selling below cost not inadvertently that in that situation as -- I suggest that they knew they were selling below cost and therefore, if it can be shown that they were selling below cost are shown in their books or if it can be shown that they gave some indication they knew they were selling below cost then we think clearly that meets the standard.

Justice John M. Harlan: But what that's arguing is that the second element of intention and you call it intention for the purpose of destroying competition, infuses definiteness either into unreasonably low prices or which seems to me to be equally indefinite cost -- internal cost.

Mr. Daniel M. Friedman: That's point -- the exact point I have in mind.

Justice William J. Brennan: If you look at you're brief on page 6 near the bottom, you defined what's unreasonably low.

It has no rational justification existing or foreseeable business condition other than this seller's desire to destroy competition.

But I would think that under the statute, his desire to destroy competition or eliminate a competitor would be wholly legitimate.

Mr. Daniel M. Friedman: It would be wholly legitimate he was not selling it at an unreasonably low price.

In other words, we think the two are interrelated we think.

Justice William J. Brennan: Well, I would think it's quite the opposite that they were two distinct things.

Mr. Daniel M. Friedman: Well, they're two separate things but I think the one borrows meaning from the other.

In other words, what is unreasonably low has to be related to the basic purpose for which the sales are made that is whether they are a legitimate business activity, a pricing practices which a reasonable seller would normally follow absent an intention to destroy competition or whether they are in fact intended for the purpose of destroying the competition.

And may I suggest that there are going to be many cases where this is like so many other areas of the law that it's a matter that will have to be resolved for the jury.

The jury will get all of this evidence and the jury will have to make the value judgment as question of decree really, whether --

Justice Arthur J. Goldberg: (Inaudible)

Mr. Daniel M. Friedman: Almost certainly.

I think it's -- I think it's more precise than that and I think it's as precise as such phrases as requiring a broadcaster to hire more than the number of employees he needed prohibition against adopting more than a reasonable allowance for depreciation.

Just unreasonable charges, unreasonable waste of natural gas, a host of standards which this Court has adopted and I think Mr. Justice Holmes' statement in the Nash case many years ago in upholding the Sherman Act is very pertinent here in which he pointed out that the law is full of instances where a man's fate depends upon its estimating rightly that is as the jury subsequently estimates at some manner of degree.

And also, in the Regan case in which this Court upheld a criminal indictment involving charges of deducting more than a reasonable allowance for compensation pointed out that the mere fact that appeal statute is so framed as to require a jury upon occasion to determine a question of reasonableness is not sufficient to make it too vague to afford a practical guide to permissible conduct.

Now, I just like to say one thing with respect to the cases upon which our opponents rely and which this Court has struck down statutes as unduly vague.

The leading case of course is the Cohen case which said that a prohibition on willfully charging unjust or unreasonable prices for necessaries was bad.

We think the basic distinction between that case and the other cases that they rely on -- and this case is that in those cases, the standards of unreasonable prices were just up in the air.

It was not tied to any specific thing by which you could identify it.

There's no basic purpose of the statute.

And in this case, we think, that the statute does get meaning after two facts.

First, it appears not just unreasonable prices but unreasonably low, and unreasonably low, we think in the light of our antitrust history discloses a basic concept here, predatory prices.

And in addition to that here, in contrast to the Cone case where the only intent was the requirement of willfulness.

In this case, we have the specific intent.

And in conclusion, I just like to suggest to the Court that I find it difficult to see really how the Congress could draw a more definite standard.

Justice Hugo L. Black: It could say, couldn't it, below cost?

Mr. Daniel M. Friedman: Yes, yes, Mr. Justice, it could say below cost but we think --

Justice Hugo L. Black: That's what you've been arguing, below cost.

Mr. Daniel M. Friedman: Below cost in this case but the statute is not --

Justice Hugo L. Black: I would think it contains much more difference as my Brother Harlan is suggesting below cost.

I would think probably that the -- to meet the standards, that's not what we have.

Mr. Daniel M. Friedman: No.

Well, we have two things Mr. Justice.

We have a broader standard which we think below cost is clearly an unreasonably low price but we suggest that may be other areas where the sales even not below cost may violate the statute.

Justice Potter Stewart: I thought that you answered Mr. Justice White to the effect that a price which was lower to meet a competitors price and which was below cost and which I have behind that in the purpose of destroying that competitor's competition would not violate the statute.

Mr. Daniel M. Friedman: No, I'm sorry.

I misspoke myself.

Justice Potter Stewart: Well, Perhaps I misunderstood you.

Mr. Daniel M. Friedman: That would violate the statute if it was for the purpose of destroying a competitor.

That is nearly for the purpose of meeting this competition.

Again, it's basically a question of the intent with which these price cuts were met.

Justice Potter Stewart: How about the practice that the generation so ago, Henry Ford adopted if have it right, he reduced his prices below cost.

This was considered by the traditional conventional business community as something not only highly unreasonable but radical and unheard of and revolutionary and he did so in order to increase the volume which would end up if he succeeded as in fact he did succeed by making the big profit but he reduced his current prices below their current cost.

Mr. Daniel M. Friedman: But this it seems to me --

Justice Potter Stewart: And --

Mr. Daniel M. Friedman: -- would be not violating the statute because there, it would be -- this would be arguable certainly, but certainly a legitimate business justification.

This is one way of increasing your volume.

Justice Potter Stewart: The jury would have thought he was crazy.

The business community did.

Mr. Daniel M. Friedman: Well, but there was -- I think in that situation, there wouldn't have been the requisite intent to destroy competition.

Justice Potter Stewart: I think -- don't you think?

Well, I don't know the history and perhaps you know it better than I do.

Mr. Daniel M. Friedman: I don't know.

Justice Potter Stewart: Certainly, he was not doing this in order to help his competitors.

Mr. Daniel M. Friedman: No, not to help.

He was doing this to get more business but not to put them out of business.

Justice John M. Harlan: Oh, that's I gather your problem now at this stage at least.

Mr. Daniel M. Friedman: No.

Justice John M. Harlan: Let me ask you this.

When you say below cost, you say we should take the statute as applied.

And by applied, you say, you should read the statute in relation to the indictment which refers to cost.

Mr. Daniel M. Friedman: Yes.

Justice John M. Harlan: Now, do you take the next step and say, the cost in the indictment means cost as reflected on the books?

How do you define cost?

How should we read cost in the indictment assuming that we should read the indictment into the statute?

Mr. Daniel M. Friedman: Well, I would say that I think cost means one of two things as used in the indictment.

Either the cost as shown by their books or if they did not have books which showed cost whatever their normal sound accounting practice has shown.

In other words, if a seller did not show cost on his books but under his accounting system, the price is reflected.

That would be the situation because, again, it's the seller's cost and again, it's the question of the --

Justice John M. Harlan: Does the concept embrace direct cost only?

Does it include undistributed cost?

Mr. Daniel M. Friedman: I would say it includes both direct and --

Justice John M. Harlan: Everything.

Mr. Daniel M. Friedman: That's right.

Of course, I might point out the -- strangely enough that this is a peculiar situation that it's to the defendant's interest to show that their cost are as low as possible and presumably to the Government's interest in proving below cost to show that their cost are as high as possible.

But I would say that if their books, their regular books show that their sales were below cost, that would meet the standard if conversely they show that their sales were above the cost on their books under this indictment, we haven't proven our --

Justice John M. Harlan: Really, what's your argument all comes down to if I get it is that in the context of this practice in the antitrust atmosphere a reasonable businessman would know what he's up against in the statute.

Mr. Daniel M. Friedman: That -- that is --

Justice John M. Harlan: That's really what it comes down to.

Mr. Daniel M. Friedman: That's right but this statute with the intent and with the whole history gives this businessman fair warning as to what conduct --

Justice John M. Harlan: And that argument would go whether it's -- I would suppose without regard to whether you read cost into the statute or just take the statute on its face.

Mr. Daniel M. Friedman: We -- we think --

Justice John M. Harlan: The way that businessman knows that price cutting with predatory purposes is a violation of the antitrust laws, always has been and therefore he takes a calculated risk that what he does is going to be -- he's going to be able to sell it to the jury but as far as notice is concerned, that's enough.

Mr. Daniel M. Friedman: That's right.

Justice John M. Harlan: That's really the essence of that.

Mr. Daniel M. Friedman: That's right, and particularly, if I may just add, when he sells below cost.

Thank you.

Justice Byron R. White: (Inaudible) have a -- that short circuited in communication.

Mr. Daniel M. Friedman: I'm sorry.

Justice Byron R. White: What -- what's your final conclusion that you are lowering a price below cost to meet the price of a competitor is reasonable.

That's an -- that's a reasonable price, I take it.

Mr. Daniel M. Friedman: That's correct.

Justice Byron R. White: But if you combine it with the purpose of destroying a competitor --

Mr. Daniel M. Friedman: Yes.

Justice Byron R. White: -- then it's unreasonable and violates the statute.

Mr. Daniel M. Friedman: That's correct.

Justice Byron R. White: So that if I do not lower my prices below cost but I just have a price that's a bit a long way above cost, if I combine that with the purpose to destroy competition, that price -- that violated the Section 3 also.

Mr. Daniel M. Friedman: Not necessarily.

That would depend on the basis upon which you set your price.

In other words --

Justice Byron R. White: Well, I set it on the basis that I want to destroy competition.

Mr. Daniel M. Friedman: And there were no --

Justice Byron R. White: I'm going to destroy my competitor.

Let's assume.

Mr. Daniel M. Friedman: You're going to destroy your competitor but there's the further qualification that this price could not be justified on any of the other normal business exigencies.

In other words, let me put it -- I will see if I can put it -- perhaps put it this way, Mr. Justice.

If I set a price which a normal reasonable businessman would feel was a fair price under all the circumstances and if in setting that price, I still have the intention to destroy competition, that does not violate the statute because the second -- the first element, the element of unreasonably low that there'll be no other rational justification for the price other than the intent to destroy competition is lacking.

Justice Byron R. White: Of course, perhaps our difference really is that when the antitrust division would or wouldn't say something as for the purpose of destroying a competitor.

You would normally assume that someone intended the consequences of his act, I suppose.

And if you lower the price to meet the price of the competitor and it destroys them, I would think you might have some trouble with your people.

Mr. Daniel M. Friedman: Well, I would think -- I suggest to things Mr. Justice.

First, that we think this requires something more than merely intending the normal consequence of an intent, we think there has to be something more -- there has to be some showing of purpose.

But certainly, of course, this is a question for the jury in this kind of case.

In other words, the jury will have to draw the inference from all of the evidence before it.

Justice Byron R. White: And would you say that -- that -- you say that hard core of this statute is that this is unreasonably low -- is below cost and everyone knows that this would be unreasonably low, would you also argue that a -- that a fair measure of unreasonableness is -- if the price is discriminatory?

If you lower a price and it becomes discriminatory under the Robinson-Patman Act that that is a an unreasonably low price without relation to (Voice Overlap) --

Mr. Daniel M. Friedman: The mere -- not the mere fact that's it's being discriminatory alone.

Justice Byron R. White: Well, I know.

But let's assume that you add to that the purpose to destroy competition.

Mr. Daniel M. Friedman: Well, I was -- I --

Justice Byron R. White: It's a discriminatory price and it violates Section 2 and it's for the purpose of destroying competition.

Mr. Daniel M. Friedman: That's covered -- that is covered by -- that is a provision of Section 3.

There are other provisions which specifically deal with price discrimination.

Justice Byron R. White: Yes, but that says in one section in another section of the country, isn't it?

Mr. Daniel M. Friedman: One of them does, yes.

Now I would -- I would say again --

Justice Byron R. White: Well, I was talking about the same -- right the same city.

Mr. Daniel M. Friedman: I would say this, Mr. Justice.

I would think the discrimination that you suggest would be significant in determining what the basic purpose of the price was.

In other words, if a seller -- it was found that a seller discriminated between two customers in the same city.

Justice Byron R. White: Well, if I prove -- if the Government proved its case, it proves that a -- proves that there's a discriminatory price, not the same price as the -- that they're selling across the street for and it is for the purpose of destroying competition that it's way above the cost.

Is that --

Mr. Daniel M. Friedman: I would not think that's enough.

Mr. Justice Goldberg, did you have question?

Justice William J. Brennan: (Inaudible)

Mr. Daniel M. Friedman: That's right, because it would be a legitimate business practice.

Justice Hugo L. Black: Now, you have to look -- do they have to determine much of the general attitude about competitors or special competitors?

Mr. Daniel M. Friedman: Well --

Justice Hugo L. Black: I have an idea that at least in country merchants, the dream of all of this to reduce a competitor as much as they can, that they would not be unhappy if their competition reduced their competitors to a lower number.

You have -- you have quite a problem there when you start at that mode because maybe one of the objects of competitive system is if the other -- one man will try to do so good and do so well that he'll drive the others out of business.

Mr. Daniel M. Friedman: Well, of course the --

Justice Hugo L. Black: Now, we hope he can't do it and that's the (Voice Overlap) --

Mr. Daniel M. Friedman: The essence of the competitive system is that if you're more efficient than I am, the chances are, you're going to profit and I'm going to fail and perhaps this may have the consequence of driving me out.

But this it seems to me is something quite different.

Justice Hugo L. Black: The motive of -- motive of all revenue is very much alike, isn't it?

Mr. Daniel M. Friedman: Well, the motive maybe a matter of degree first of all, and secondly, I think one difference is the -- I mean this is just what they do in terms of their pricing.

How well they go?

What the circumstances are?

What other explanations there may be for this?

Thank you.

Chief Justice Earl Warren: Thank you, Mr. Friedman.

Mr. Chadwell.

Argument of John T. Chadwell

Mr. John T. Chadwell: Mr. Chief Justice and may it please the Court.

I think I should remind the Court -- I'm sure it's unnecessary to do so but I think I should remind the Court at the outset, there is not one word in this statute about cost.

Sellers cost or anybody else's cost or the word cost.

The statute says it shall be an offense to sell at unreasonably low prices for the prescribed intent.

That's what the statute says and that's all the statute says.

Now, the Government has made a halfway admission, what I think they must and should admit mainly that this statute has two separate and distinct elements of which would -- which must constitute the offense.

First is selling below cost and the second is with the intent to destroy competition.

Now, each must be proved, the Government admits that, and yet, and yet, the Government contends in effect that though they are separate and distinct, though they are separate and distinct, selling below cost which isn't even mentioned in the statute.

Selling below cost proves at least prima facie, both that the sale at the price was unreasonable and that the price -- and that the intent was anticompetitive.

Now, I think in order to straighten out this situation in the light of the words of the statute itself, I should have the temerity to start by reminding the Court of the Cohen Grocery case, of Cline against Frink Dairy and of the many cases which have followed.

They have held expressly and explicitly that the term ‘unreasonably high price' or ‘unreasonably low price' or ‘unreasonable price', or ‘unreasonable profit' is unconstitutionally vague.

Now, those decisions are expressed and there they are and the Cohen case has been woven into the firm fabric of the law of this nation and it has been referred to by this Court over and over again, and as a matter of fact a -- a situation which the Government has not referred to in its brief or in the record when this very clause, the Section 3 of the Robinson-Patman Act was before this Court in the Nashville Milk case.

This Court referred to the unreasonably low price clause as a vague provision.

And in the footnote in the decision, went so far as to say that the lower court had indicated that it would give rise to constitutional difficulties if the matter had to be faced citing both Cohen and Cline against Frink Dairy and those cases have not been referred to by the Government and Nashville has not been referred to the Government.

Now, Mr. Friedman spent -- I beg your pardon.

Justice John M. Harlan: After all you can't rely too heavily on that footnote.

Mr. John T. Chadwell: I don't rely upon the footnote except for this --

Justice John M. Harlan: This simply presents us to the problem that we have flushed there.

Mr. John T. Chadwell: Yes, sir.

And I will say this Mr. Justice, and I will say this, that in making that observation, the Court whether -- whether going into it fully or not on that occasion, I do not know, but the Court certainly was following intensely or not the legislative history of these things.

Why if Your Honor please, if you look at the legislative history which we have outlined in our brief, there is not one word in any statement by any member of the House or Representatives or by the Senate with respect to this unreasonably low price cost.

Not one word.

It is not construed, it is not stated to mean below cost, there is not -- there was no committee report on it except the conference report.

There's no committee report that mentions unreasonably low -- the unreasonably price clause.

It isn't referred to or interpreted by a member of Congress nor is it referred to or interpreted in a committee report and there's not one word in it about selling below cost.

Now, the Government can get no comfort whatsoever out of the legislative history in this case insofar as supplying meaning to this vague term ‘unreasonably low prices' is concerned.

And I say on the basis of the decided authorities that that clause itself has been decided by this Court in -- in cases I -- which I contended directly in point to be too vague to stand the test of the Fifth and Sixth Amendments.

May it please Your Honors, I want to make this additional observation.

Mr. Justice Holmes did say in the Nash case that law is full of instances where a man's faith and -- on estimating rightly some matter of degree, but Mr. Justice Holmes said that in the context of the Nash case in which the Court held of course that the -- unreasonably that the -- that the Sherman Act was constitutional against the -- an attack of vagueness.

And after Mr. Justice Holmes made that observation in the Nash case, he concurred in the Cohen Grocery case, he concurred and Cline against Frink and prior to that time, he had ripped in the International Harvester case and certainly he'd not -- did not mean by that observation and the Court did not mean by that observation that a statute need not to have an ascertainable standard of guilt.

Justice John M. Harlan: May I ask you a question?

Mr. John T. Chadwell: I beg your pardon.

Justice John M. Harlan: A part of this indictment had charged that you sell below cost, and by cost, meaning below the price that you paid for the raw milk.

How would you say then as to vagueness?

Mr. John T. Chadwell: I would say if the Court had -- if the statute had explicitly -- had explicitly outlawed selling below cost and have used those terms, the Court -- the statute should have defined cost in order to make it sufficiently definite.

It should have defined cost as 30 states have done when they have enacted selling below cost statutes as has been done and in almost every instance -- in every instance that I can now think of, we referred to them in our brief.

The state has defined what cost means and in answer Your Honors question, they have some time said, it shall mean cost of production.

With respect to a retailer, they have sometimes said it shall mean the invoice cost of the merchandise.

We sell above that Your Honor as to a retailer.

In other instances, they have said, it shall be the invoice cost of the merchandise plus a markup of 2%, 4%, 8% some of them have gone up as high as 12%.

Some of them have said -- have separated retailers from manufacturers and have specified a certain definition of cost for the one and a somewhat different definition of cost for the other.

I say Mr. Justice Harlan that it is necessary to supply some meaning for the term cost or else the statute would fall as vague for vagueness just as much as the unreasonably low price would.

Let me illustrate it, if Your Honor please.

Justice Hugo L. Black: Now you're -- you're putting them on that much of parody, do you?

You may be shaking some of your followers.

If you say it's just as definite to say that it's unreasonable as it is to say that it's below cost.

Now, I understand you put them on a parody.

Mr. John T. Chadwell: I said that if --

Justice Hugo L. Black: I have not yet been able to do so in my mind.

Mr. John T. Chadwell: Oh no sir, I didn't mean to put them below on the same parody at all.

I -- perhaps, I misspoke what I meant to convey to the Court.

What I say is this, the unreasonably low price clause is clearly invalid and under Cohen and the other cases.

It cannot be equated with the term below cost.

There are two reasons why it cannot be.

In the first place, below cost is not necessarily unreasonable.

There are many instances where below cost is perfectly reasonable, some have been mentioned by Mr. Justice White, others occurred to us all.

It is very possible that a sale will be below cost under the circumstances where the costs are lowered, are increased rather during a period of production.

The fact of the matter is that prices are set before the sale is made of course.

Certain prices are set if period goes by during which production takes place, the manufacturer does not sell a volume that he thinks he's going to or else other circumstances contribute to increase cost and it ends up that he sells below cost as it finally determined on the books of the company.

I say that since there are so many instances and other instances were given by the Government.

There are so many instances whereas sales below cost could under no circumstances be considered unreasonable that you cannot equate the term unreasonably low prices with the term below cost because they're not -- the two are not synonymous in any sense.

Justice Hugo L. Black: But the law wouldn't have to -- it could pass the law saying you shall not sell at below cost.

Mr. John T. Chadwell: I --

Justice Hugo L. Black: I'm not saying also that that is declared unreasonable.

Mr. John T. Chadwell: Oh, no.

No, no.

I didn't mean that, Your Honor.

I meant if this -- if the Court -- if Congress saw fit to outlaw sales below cost explicitly which certainly they might do in following the state statutes, then I think a mere provision that selling cannot be below cost should be further defined in some manner so that a businessman --

Justice Hugo L. Black: You mean that the Constitution requires that?

Mr. John T. Chadwell: Yes sir, because I think the term cost by itself is not sufficiently definite.

The --

Justice Hugo L. Black: A merchant goes out to buy a lot of clothing and he at least some of them did it and they pay so much per suit of clothes.

That's what the suit or clothes cost him.

You're not talking about the cost of that during business but the suit or clothes cost them $40.

Mr. John T. Chadwell: We're talking about the sellers cost now Your Honor as a matter of fact.

Justice Hugo L. Black: I'm talking about now about the merchant who has bought it and it's cost him $40 per suit.

Mr. John T. Chadwell: Yes.

Justice Hugo L. Black: Would you say that the law have said that if he sold it below cost that wouldn't be -- couldn't be held to that $40 that he paid for it?

Mr. John T. Chadwell: I would say that there's no determination merely by using the term cost that he would be in the clear in selling above only his invoice cost because it cost him to do business.

Justice Hugo L. Black: I understand that.

Mr. John T. Chadwell: He has many other costs.

And as a matter of fact, Mr. Friedman, in answer to the question of one of the justices, indicated that he would have to go above his direct cost and above his overhead or just -- or general cost.

Now, there's a very serious question in a businessman be he a retailer or a be he a manufacturer as to whether his cost for purposes of the selling below cost statute, if there were one, would be invoice cost, as Your Honor just stated so he'd be in the clarity --

Justice Hugo L. Black: I'm talking about just what he paid for.

Mr. John T. Chadwell: Yes sir, what he paid for.

If he merely pay -- if he merely resells at a price above what he paid for, it is true that he is above his material cost.

But he is not above his cost at the time that the merchandise goes out of his place of business because he has got many other costs.

In the event of a -- of a manufacturer, he has his -- let us say a dairy company --

Justice Hugo L. Black: I didn't intend to divert you because we don't have that here.

Mr. John T. Chadwell: Well --

Justice Hugo L. Black: Here, I think we have quite a different case.

Mr. John T. Chadwell: I don't think we do have it here, Your Honor.

That is true, but I say that even if the Court should construe this in spite of the legislative -- complete absence of legislative history justifying it, even if the Court construe -- should construe this as say -- as -- meaning selling below cost contrary to our contention, I still think there would be a very serious problem and that the statute would not be safe but that Court, I contend, does not have to reach that point because this statute does not say cost in the first place, and in the second place, there is not a word in the legislative history, not one word that would justify the Court in construing the statute to mean selling below cost.

As a matter of fact, and I think I should call this to the attention of this Court, the only word in the debates in the Congress, the only thing that was said about this unreasonably low price cost, and to me this is very significant, where statements made by two well-known congressmen supporting the antitrust laws, Congressman Patman and Congressman Celler.

Congressman Patman said that it is very indefinite as to what unreasonably low price means, so as Congressman Patman said, it's in our brief, and it is not further elaborated.

Congressman Celler in commenting upon Section 3 as a part of the Robinson-Patman Act which also covered the -- all of the -- all of the risk discrimination provisions of the Robinson-Patman Act said that, “the congressman's colorful language, the courts will have to double its own time with it.

And it we'll be Herculean task to make it yield at any sense”.

Now, that's the legislative history of this clause and --

Justice John M. Harlan: Prophetic.

Mr. John T. Chadwell: -- and I -- and I say that the words of Congressman Celler and of Congressman Patman were as indicated I think quite prophetic.

Justice John M. Harlan: Would you --

Mr. John T. Chadwell: The --

Justice John M. Harlan: -- would you take two or three minutes?

I know -- I don't want to interrupt you anymore.

Mr. John T. Chadwell: Yes, sir.

Justice John M. Harlan: What should we do if it's one thing to construe this statute on its face that presents one set of problem?

Mr. John T. Chadwell: Yes, sir.

Justice John M. Harlan: And the Government shies away from it in their argument.

It's another thing to construe the statute as applied and my ultimate question, if that is the approach we should take, how in the world can we construe this problem of vagueness at all on this record?

Mr. John T. Chadwell: I think, Your Honor, that it has to be construed on the statute itself.

Justice John M. Harlan: Yes.

Mr. John T. Chadwell: Now, we are indicted under this statute that contains this unconstitutionally vague language and this -- and the indictment charges us in the words of the statute with selling at unreasonably low prices.

That is the indictment and that is as Mr. Friedman stated is in the first paragraph of the charging clause.

That is the charge against us.

Now it says, pursuant to and in effectuation of the offense charged in paragraph 22 confining the charge to that in paragraph 22.

We are -- we have intentionally sold below cost.

Now, the lower court, and I'm not going to labor at this point in the oral argument but the lower court construed this statute -- this indictment to mean not only selling below cost but also -- but otherwise -- otherwise selling at unreasonably low prices was not confined to selling below cost.

The lower courts so construed it.

The Government lawyer in presenting this matter to the lower court so argued the matter and that is the record before this Court.

Now, I say under those circumstances that this Court must construe this as the lower court did, as charging an offense and must pass upon this statute, the constitutionality of this statute on the basis of the words of the statute itself must do so on the face of the statute namely construing the words unreasonably low price to be charged -- construing indictment as the lower court did to charge unreasonably low price sales.

And so, I contend that the Court does not have to apply it.

It is not necessary to have a trial here to determine what the cost were or to determine what the facts were because as the Court will know, Mr. Wise, who was indicted here was entitled to have the statute under which he is indicted, entitled to have that statute specific, have -- and contain within itself in the words of the statute an ascertainable standard of guilt the statute must do so.

It does not protect his rights under the Fifth and Sixth Amendment to be advised for the first time in this indictment as to what the statute means.

The Congress didn't advise him, the words of the statute don't advise him and I say he's entitled to be advised by the statute itself or we ignore the requirements of the Fifth and Sixth Amendments and he was not informed in the words of the statute itself as to what unreasonably low prices mean.

And I think, therefore, that the lower court was amply justified and should upon our motion to dismiss the counts of the indictments based upon the statute for that reason.

Now, I don't know that I have been directly responsive to Your Honor's question.

I've tried to explain our position on it.

Perhaps I've gone too far.

But if Your Honor means -- if Your Honor meant to inquire whether we -- whether there's got to be a trial (Voice Overlap)

Justice John M. Harlan: Now, what I'm thinking of is this.

Why is Congress into -- you were a lawyer and he says, here is the statute and am I violating the law if I do this?

And then he says, I want to put this fellow out of business and I'm going to sell at 2 cents where my cost -- direct cost is 50 cents.

Is that illegal?

And any lawyer would tell him of course it was under the statute.

Now, what I'm getting at is that if the statute is a question of notice we're dealing with.

Mr. John T. Chadwell: Yes, sir.

Justice John M. Harlan: And therefore, the proof in the trial shows that extreme situation.

Why hasn't he had sufficient on this that what he's doing is illegal?

Mr. John T. Chadwell: Well, because if Your Honor please, I do not think that this statute bears any relation whatsoever to the term cost.

Let us assume -- let us assume that there might --

Justice John M. Harlan: But it includes it (Voice Overlap).

Mr. John T. Chadwell: May or may not --

Justice John M. Harlan: My hypothetical case would certainly fall within the statute.

Mr. John T. Chadwell: Well, it may or may not.

The -- there could be circumstances, I would say, under which he would be amply justified in selling at 2 cents instead of 50 cents taking the extreme case.

There certainly could be.

They would not necessarily be unreasonable low -- unreasonably low.

Let us assume, let us assume that he was -- that he found it necessary to do so in order to meet competition of the defendant.

Let us assume that -- our competitor, let us assume that he found it necessary to do so in order to close out a line.

Let us assume that he had founded -- that he found it necessary to do so in order to make any sales at all.

Justice John M. Harlan: But isn't that the risk?

That doesn't go to the question of notice, that's the risk that Mr. Justice Holmes is talking about when he said you're going to take -- calculate the risk of this.

Mr. John T. Chadwell: Well, no sir.

I believe that it goes to the question of notice because I think we're entitled to have the statute specified that if you sell below a defined cost that you then are violating the first element of the offense and I don't think the statute does this.

And I urge -- (Voice Overlap) excuse me.

Justice Arthur J. Goldberg: (Inaudible) code of practice under the statute, that type in the field of definition.

Mr. John T. Chadwell: Your Honor, I don't think it should necessarily mean a code of common practices.

Let us assume that contrary to the legislative history, the Congress did want to legislate in this field of selling below cost, I think that Congress should establish some kind of a standard as to the meaning of cost which a businessman would be enabled to follow intelligently in determining whether he was violating the law or not.

Now, Your Honor knows cost as well better than I am and Your Honor knows very well that there are so many debatable arguments, debatable points as to whether certain indirect cost should be allocated and how they should be allocated.

Justice Arthur J. Goldberg: Doesn't that settle everyday in ordinary business practice as well understood and defined in the Court in Small case and where the course of business very well-settled and understand the practice that that is read into the statute?

Mr. John T. Chadwell: Well, Your Honor, it is certainly not a well-settled practice.

Let me take an illustration.

Chief Justice Earl Warren: Well, you give it after lunch please.

Mr. John T. Chadwell: Yes, Your Honor.

Chief Justice Earl Warren: -- Chadwell, you may continue your argument.

Mr. John T. Chadwell: Mr. Chief Justice, may it please the Court.

At adjournment, Mr. Justice Goldberg, I was attempting to comment upon the question that Your Honor asked or a comment which Your Honor made which was in effect that the Congress doesn't have to write a detailed code of accounting in the statute, and of course I think that is correct.

We do have -- I do -- I would like to make two or three comments on that.

First is that if Congress meant to outlaw below cost selling, they didn't do so, that is they didn't specifically refer to below cost selling at any time nor does the legislative history indicate that they meant to do so.

And the second is that if the Congress did mean to outlaw below cost selling, I think we're entitled to some specification as to what is meant by a cost.

Now, that doesn't mean in any way a detailed specification of course, that would be out of place in the statute.

But assuming that it is meant seller's own cost which is what the Government contends over here, seller's own cost even if you look just at the seller's books and nothing else, doesn't define what the Congress meant by cost but for the reason that got into my answers to Mr. Justice Black's question that is, it is very, very questionable as to what cost should mean or would mean unless Congress defines it in a situation of this sort as was said in this Small case.

There is no general understanding as to what a reasonable or unreasonable price is so that the Lever Act will struck down both in its civil aspects and in its criminal aspects in the Small case for that reason.

Likewise, we say here, there is no general business understanding as to what a sale of below cost would mean.

Does it mean the invoice price that the seller paid for the goods?

Does it mean production cost in the case of a manufacturer who has labor cost, material cost and all the rest in his plant?

Does it mean in addition to that that the seller should include overhead cost of the type that are quite controversial which would include general administrative and the like?

Now, the Congress would not have to specify all that but we say they could give some guidelines that would make it reasonably clear what the statute was meant to cover as indeed the states have done and the states had have sales below cost provisions.

But basically, I want to state and reiterate that our position is that there's no word -- nothing about cost in the statute.

Justice John M. Harlan: If this case comes up in the merits --

Mr. John T. Chadwell: I beg your pardon.

Justice John M. Harlan: If you lose it, it comes up in the merits.

You said, this still be in front of the (Inaudible) Congress meant.

Mr. John T. Chadwell: Yes, sir.

Justice John M. Harlan: (Inaudible)

Mr. John T. Chadwell: Well, yes sir, it does.

And if Your Honor please, on that connection, I would like to call the Court's attention to our brief, pages 82 to 83 in which we have collected all of the cases that have raised the question of vagueness of the statute under the Criminal Appeals Act.

And we state there that so far as we have been able to determine in every case brought to this Court, on direct appeal under the Criminal Appeals Act, after the District Court had held an act of Congress unconstitutional for vagueness.

This Court has looked to the face of the statute and has determined the matter on the face of the statute otherwise, otherwise and we list the cases in there.

The constitutional doctrine of vagueness, it seems to us, could never be decided except after trial and that has not been the case because we are entitled we say to a specification in the statute rather than in the indictment as to what we must do to comply with.

And following what I said to Mr. Justice Goldberg a moment ago when a client consults counsel on a matter of this kind, you're unable to tell him.

Well, you've got to go below production cost.

I mean you've got to stay above production cost but you don't have to worry about fully distributed cost and all of these problems of allocating to particular products.

It is true as Mr. Friedman said that many corporations make a great variety of products.

What sort of overhead must be allocated, some specification in the statute as in the statutes of the states, we contend, should be specified if the Congress meant to outlaw sales below cost.

I would also like to comment for a moment on the rule of reason question which I believe was brought up.

I think Mr. Justice Goldberg referred to it.

+Inclined, the Court, Cline against Frink Dairy, the Court there distinguished the holding of the Nash case which upheld the constitutionality of the Sherman Act.

From Cohen and the price cases, holding that the there has been no ascertainable business standard for the meaning of unreasonably low prices or as there has been a standard for many years both in the common law and of course in the statute law or -- and the case law here as to the meaning of the rule of reason in antitrust cases.

That distinction was pointed out clearly in the Cline case and we think it is applicable of course to the situation in the case at bar.

The unreasonably low price clause requires the alleged transgressor to know from the statute what his price ought to be in dollars and cents.

He must be able to determine it whereas under the rule of reason the question is whether competition has been reduced and that is an ascertainable matter which of course is submitted to the jury in those cases where the rule of reason is invoked.

I think the problem we have here on this cost question is illustrated by the position the Government has taken here.

The contrary positions they have taken with respect to cost in their brief.

They say at one point, the Government brief 40, all appellees had to do was to sell above cost being the question as to the meaning of cost, if so they would be safe.

At another point, at Government brief page 37, they say that certain borderline cases may arise where the selling price is above the seller's cost.

But it is argued that the property is too small for the price to be reasonable which would indicate that the Government itself is uncertain as to whether there could be situations arise where a sale above cost would be claimed by the Government to be at an unreasonable price.

I think I should -- I would like to comment in closing that the nonuse of this statute for the 26 years since it has been in effect is it seems to me noteworthy.

The fact of the matter is that this is the first case contested in the courts that has been brought under this statute, the second indictment that has been brought under the statute in the 26 years of its existence.

The first one having been settled and having been brought in 1959, 23 years after the statute was adopted.

To say the least, the fact if its nonuse would indicate that it has not been an important part of the antitrust law.

I also want to make this observation in closing that the cases upon which we rely starting with Cohen, required seems to us, that this statute should be determined on its face to be invalid, to violate the rule against vagueness and that we and Mr. Wise, the individual defendant here as well as the corporation, are entitled to the protection of having that action taken so that he will not be put to trial on an indict -- on a statute, the meaning of which at this time and at no time had been made clear to him or to anyone else.

I thank the Court.

Justice Byron R. White: Mr. Chadwell.

Mr. John T. Chadwell: I beg your pardon, sir.

Justice Byron R. White: You -- you don't suggest that Section 3 hasn't been an important consideration in counseling the businessmen in --

Mr. John T. Chadwell: It hasn't been an important consideration to the Department of Justice or in courts.

Justice Byron R. White: Well, how about the lawyers and businessmen?

Mr. John T. Chadwell: Are you referring to the third clause?

Justice Byron R. White: Yes.

Mr. John T. Chadwell: I don't think that anyone has been able to counsel very well on it.

I know I haven't been because it has been very uncertain as to what it means.

That has --

Justice Byron R. White: Which means it probably has been a very important matter in counseling business --

Mr. John T. Chadwell: Well, we've had to do our best, as Your Honor knows.

I -- of course we do.

But the fact of the matter is that the Department of Justice hasn't considered it to be an important part of the antitrust laws as my position because they haven't filed proceedings under it.

It hasn't been an important part of the antitrust enforcement procedures since its adoption in 1926.

Justice Byron R. White: But can you say -- and you suggest that selling below this statute really gives no businessman or no lawyer a clear message that selling below cost for no reason of it and to destroy competition is a crime.

Does it -- you say that you get no notice out of the statute that that is banned?

Mr. John T. Chadwell: Get no notice that selling below cost is in and of itself a violation of the first clause of this clause three, the first element of this clause three, because there are so many instances where selling below cost is perfectly prosecuted.

Justice Byron R. White: Yes --

Mr. John T. Chadwell: That is --

Justice Byron R. White: Yes, but I just -- but that isn't my question.

My question is -- just what I said it was --

Mr. John T. Chadwell: Yes, sir.

But I am following what I've just said, if Your Honor please.

Let us assume that a businessman is -- wants to do a number of these things which anyone would say in and of themselves, a perfectly innocent sales below cost such as selling a large stock of merchandise of below cost and let us assume he is doing so for the purposes -- for the purpose alleged in the -- in the statute for the purpose of eliminating the competitor.

Can he be sure under the statute or is he -- does he receive reasonable notice under the statute that the sale below cost is an unreasonable -- is an unreasonably low price under those circumstances.

I --

Justice Byron R. White: That's similar to the question I asked about meeting the price of the competitor.

Mr. John T. Chadwell: That's another case, that's another instance where he could go below cost for the purpose of -- for the predatory purpose and yet could he say that that is an unreasonably low price.

He must be enabled to say that in order to form a judgment as to whether he has violated the statute.

And I say that he cannot say that under so many instances including the one of meeting competition, which Your Honor suggests, that the first clause which has to be separated from the intent clause in determining its constitutionality --

Justice Byron R. White: But -- so your answer to the question is apparently that the statute does not give you ample notice that selling below cost for the single and only purpose of destroying a competitor is a crime?

Mr. John T. Chadwell: Yes, sir.

Because there are so many instances where --

Justice Byron R. White: Well, but your answer is that it gives you no ample notice.

Mr. John T. Chadwell: Correct.

Chief Justice Earl Warren: Very well.

Mr. John T. Chadwell: Thank you, Your Honor.