UNITED STATES v. BORDEN CO.

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Case Basics
Docket No. 
439
Appellant 
United States
Appellee 
Borden Co.
Decided By 
Advocates
(argued the cause for the United States)
(argued the cause for The Borden Company)
(argued the cause for the Bowman Dairy Company)
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Facts of the Case 

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

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

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

Question 

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

Conclusion 
Decision: 7 votes for United States, 1 vote(s) against
Legal provision: Clayton

No, Justice Tom C. Clark, wrote the opinion of the Court reversing and remanding the lower court’s decision. Writing for himself and five other justices, Clark maintained that the cost studies submitted by the two dairy companies did not satisfy their burden of showing that their respective discriminatory pricing plans reflected only a due allowance for cost differences. Clark recognized that eliminating class pricing would be impractical, but emphasized that customer classifications could not be arbitrary and that members of a class must have such similarity as to make the averaging of the cost of dealing with the class a valid and reasonable indication of the cost of dealing with any specific member of the class. Since Borden and Bowman did not show sufficient homogeneity within the class of chain groceries or within the class of independent groceries, the price discrimination between the two classes was illegal under the Clayton Act.

Justice William O. Douglas voted with the majority and wrote a concurring opinion, which emphasized the purpose of the anti-trust acts. Douglas stated that the Clayton Act should be read in a way that preserves as much of traditional free enterprise as possible, by controlling practices such as unfair discounting, which could lead to unfair competitive advantage and monopoly.

Justice Marshall Harlan dissented. Harlan stated that the cost studies submitted to the district court were adequate under the accepted principles of the law in this field. He agreed with the District Court’s conclusion that the studies were conscientiously prepared and appeared to justify the price discrimination arising from the discount practices. As such, Harlan would have affirmed the lower court’s opinion.

Justice Felix Frankfurter took no part in this decision.

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UNITED STATES v. BORDEN CO.. The Oyez Project at IIT Chicago-Kent College of Law. 25 November 2014. <http://www.oyez.org/cases/1960-1969/1961/1961_439>.
UNITED STATES v. BORDEN CO., The Oyez Project at IIT Chicago-Kent College of Law, http://www.oyez.org/cases/1960-1969/1961/1961_439 (last visited November 25, 2014).
"UNITED STATES v. BORDEN CO.," The Oyez Project at IIT Chicago-Kent College of Law, accessed November 25, 2014, http://www.oyez.org/cases/1960-1969/1961/1961_439.