UNITED STATES v. BORDEN CO.
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.
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?
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.
Argument of Richard O. Solomon
Chief Justice Earl Warren: Number 439, United Sates, Appellant, versus The Borden Company, et al.
Mr. Richard O. Solomon: I'm afraid Your Honors that this is the day for cost accounting matters because we have another one here, all be at a relatively modern case since this only started in 1951.
This is an appeal from a decision by the Northern District -- District Court of the Northern District of Illinois which dismissed the Government complaint charging the Borden Company and the Bowman Dairy Company with violation of Section 2 of the Clayton Act as amended by the Robinson-Patman Act.
Section 2 of the Clayton Act is set forth on page 2 of our brief and as I'm sure, I don't have to inform this Court, it general -- it proscribes price discrimination by a seller between different purchasers of light commodities where the effect will be to injure competition substantially or to tend to create a monopoly in any line or to injure or destroy, prevent competition between a person receiving the benefit and somebody who's competing.
In this case, the Court found that the price systems of both Borden and Bowman did prima facie violate this prohibition, did involve price discriminations injurious to competition.
But the Court found that in both cases, discriminations had been cost justified under the proviso which is at the bottom of page 2 here, which reads that nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale or delivery resulting from the differing methods or sales or quantities in which such commodities are to such purchases sold or delivered.
Now, we have brought this appeal to this Court because we believe that in so finding, the Court has seriously misunderstood the nature of a proper course justification and specifically because we believe the Court has incorrectly allowed types of classification of customers which if permitted will allow this cost defense to be broadened out again into the broad defense it was prior to the passage of the Robinson-Patman Act.
Let me state at the outset that although there are two defendants here and although the Government thinks that the difficulties with their cost differences are the same, this Court has ordered that there will be separate briefs and separate arguments with respect to the two cases, and therefore today, I will be focusing my attention on this problem as it relates to the price policies and the cost justification of the Borden Company, and tomorrow, we will get into the difficulties as we see it with the Bowman Company.
But of course there's some background which are common to both of these cases.
As the Court will --
Chief Justice Earl Warren: For the benefit of the Court, would you mind stating the order of your arguments, so we can separate these two cases Mr. Solomon.
Mr. Richard O. Solomon: I am arguing today the case as relates to the Borden Company.
Chief Justice Earl Warren: Yes.
Mr. Richard O. Solomon: And we have a separate brief with respect to Borden.
Chief Justice Earl Warren: Yes.
And then Mr. Hall is to follow --
Mr. Richard O. Solomon: Mr. Ball.
Chief Justice Earl Warren: Ball, rather.
Mr. Richard O. Solomon: Mr. Ball will follow me.
If I have any time, I will rebut and then I will start over again with the Bowman Company.
Chief Justice Earl Warren: Yes.
Mr. Richard O. Solomon: That's correct.
Justice Potter Stewart: So you're on the Borden case now?
Mr. Richard O. Solomon: I'm on the Borden case now; yes sir.
But there's a common background to the two cases let me stretch that in very briefly.
In United States v. Borden, 347 U.S., this Court had before the previous decision of the same court which had dismissed the complaint.
At that time the complaint involved Sherman Act counts as well as Clayton Act counts and the dismissals for the Sherman Act counts was affirmed; so that's out of this case.
The District Court had dismissed the Clayton Act counts not because he thought there was no prima facie case but because he thought that there was no need for an injunction since there was a private antitrust case which had resulted in an injunction against these two parties.
And the Court thought that was sufficient.
This Court in its decision in United States v. Borden disagreed and said, that was not good grounds for denying injunctive relief and the case was sent back.
When the case got back to the District Court --
Justice John M. Harlan: What year was that?
Mr. Richard O. Solomon: I think 1953 or 1954
Justice John M. Harlan: I don't know where it was taking too long in this case.
Mr. Richard O. Solomon: Your Honor, part of the explanation is because of the nature of the course justification but part of it frankly is at my understanding, the matter was subjugated before Judge Campbell for I think, over a year.
Justice William J. Brennan: Am I correct --
Mr. Richard O. Solomon: Quite a long time.
It was just before Judge Campbell just without action by the District Court.
Justice William J. Brennan: But it's all on facts back in what, 1953 or 1954?
Mr. Richard O. Solomon: The facts in this case relate to 1954 and some of 1955 where --
Justice William J. Brennan: Had Borden make it a dead horse or so?
Mr. Richard O. Solomon: Well, I presume that the cost -- certainly the cost justification would be different today and I presume that their pricing system may be different today.
But it's not a dead horse at all in the sense that this case as it now stands, stands for a proposition that this type of priced discrimination can be justified by this type of study and for the standpoint of the effect of this decision on the Clayton Act is very much of a live horse.
But we are dealing, like the last case, with dead facts in that sense of the word.
When the case got back, the Judge said, I still don't know why there is any reason for an injunction in view of the Grant case.
And the Government said, well we will be able to prove if we're allowed to.
That these people, despite this private injunction, have been discriminating in price between their wholesale customers and this is what we are allowed to try and prove in the second case.
This proves to perform, there was no oral testimony, there was no oral argument either.
This case took the form of agreed stipulations of facts which were put into pretrial orders.
Plus depositions of expert witnesses and plus trial briefs and on the basis of that, Judge Campbell reached this decision.
Now, I like to briefly discuss that decision because I think it sets up pretty well what our problem is.
The decision appears in page -- in page 557 of the First Volume of the record and it's not a very long opinion for reason which I will go into very shortly.
First thing that Judge Campbell does is to point out --
Justice Hugo L. Black: Is that the one that's printed in your jurisdictional statement also?
Mr. Richard O. Solomon: Yes sir it is, but I'm afraid I won't know the pagination on that but yes.
It is that in there too.
The judge first points out that the pricing system that he was dealing was one, which for both Bowman and Borden, involved a fixed percentage discount irrespective of volume taken to the two chain customers that both of them had.
And at the same time, in so far as the independent store customers are concerned.
In both cases, graduated discounts based upon the volume of products that they took which in no case, in no case could approach or equal the discounts given the two chain customers.
In the case of Borden, the one we're dealing with today, there was more than twice as large.
The two chains automatically got 8 1/2% discounts off list price.
The independents in the highest category which involved everybody over 150 points a day, could only get 4%.
Now, first thing the judge did was to face up to the question of whether this was -- whether there was a prima facie case because that's the Government's burden, and on page 563 of the record, considering the objections to our prima facie case made by both Bowman and Borden and I must apologize but this decision does not segregate Bowman and Borden and therefore in discussing the decision, I have to discuss both.
Having described on 562 the objections to the prima facie case, the judge finds that in fact, the sales made by the defendants were in commerce, the defendants discriminated the price, the customers and defendants were in competition with each other and there may be injury to competition.
I find that the published discount quotations of the defendants which on their face show discrimination so constitute prima facie violations of Section 2 of the Clayton Act and you will note both the purposes of this case and for the case tomorrow that he doesn't say that there was a prima facie case with respect to any few stores.
He's talking here of the Government having met its burden of proof of showing that this system was prima facie in violation of the Act.
Then he turned to the cost studies which have been submitted by both Bowman and Borden to justify their discrimination.
But he felt that in view of what he thought was a mandate that this cost study should be liberally construed that it was necessary in his opinion to go into detail and now I'm reading over on page 569 of the record.
The reason, he said, that it wasn't necessary to go into detail, this is the top full paragraph here, is because for purposes of this memorandum, it is sufficient to find as I do, that the studies of both Bowman and Borden are the products of extensive investigations of many customers within given areas and reflect the bona fide efforts of these defendants what?
To determine differences in cost between various classes of their customers.
Now, he recognized at the bottom of this page, first full paragraph there, last full paragraph there, that one of the major Government objections made to this study, was that this classification was a seemingly arbitrary inclined because of the fact that customers who are classified in chains got a fixed percentage discount; whereas the customers who are independents could only get it depending on the volumes they took and he goes on to recognize in the sentence beginning at the bottom of the page, that the Government had in fact demonstrated that at least some cases, these are pre seemingly arbitrary classification results in percentage discounts which do not bare a direct ratio to differences in volume of sales.
But, the judge answered, this mode of classification, I'm reading from the top of page 570.
This mode of classification is not wholly arbitrary.
After all, most chain stores do purchase larger volumes of milk than do most independent stores.
And on the basis of that analysis, he was able to conclude the paragraph later that the defendants have made a bona fide effort to allocate their cost between different types of wholesale customers and therefore the cost studies provided an adequate justification of their discriminations.
Justice John M. Harlan: Were there figures in the record to show the volume of sales that chains as against sales of the non-chain customers?
Mr. Richard O. Solomon: There were figures in the record to show the aggregate sales to the chains and the aggregate sales to each, I'm talking about Borden now, each of the four categories of independents.
Justice John M. Harlan: What was the relative order of magnitude?
Mr. Richard O. Solomon: The relative order of magnitude is set out on page 217 of the record and is that you would imagine quite significant.
You'll note at this very bottom, that page, there's a schedule there, the chain stores during this particular week, had dollar sales of $195,000; that was for 254 chain stores.
The independent stores had total sales of about half as much $98,672; which was for a total number of 1322 independent stores and you'll see that they also have the breakdown for the various stores in these various branches.
Justice Potter Stewart: What are the points?
Mr. Richard O. Solomon: What?
Justice Potter Stewart: What are the points?
Mr. Richard O. Solomon: Points are merely a device in which in this business, you can translate the difference between cream and milk into one convenient unit.
It's just another way of saying the same thing.
In other words, Mr. Justice Harlan as we will get into it a few minutes, there's no question that there are major volume differences between various of their customers here.
And there's no question that there are cost savings involved with that but that is not problem that I intend to raise.
The problem that we have with this is we think first of all let me say that we think that the Court's opinion is a fair reflection of what Borden did.
We've set out in our brief at pages 11 to 19, a detailed analysis of Borden's cost study here.
It would not profit either me or I think, Your Honors for me to attempt to go through at least at this time.
Basically, what Borden did was to take its two chain customers and put them on one side and take its four categories of independent store customers and place them on another side and then allocate by various methods, what they believe were the proper cause to these various categories.
And on the basis of this comparison, it said, comparing the cause we have allocated to these two chain customers and their 254 stores, as against their dollar volume; comparing that cost for a $100.
With the cost for $100 of serving the four categories of chain stores, we find and we attempt to show, that the price differential, the discount differential is more than justified.
Now, it's at this threshold point, this classification problem that we disagree both with Borden and the lower court.
Let me state my point as clearly as I can, we do not believe it's sufficient for Borden to show that the cause of dealing with its chains, chain store customers as a group, its average cost per hundred are sufficiently less than its cost of dealing with the various categories of independents as a group, to justify the differential between them.
We don't think so because unless Borden can also show that the cost saving factors which account for these differences are inherent in the fact that one group are chains and the other group are independents.
Unless, the classification reflects the cost saving, the result is that some independent stores maybe discriminated against, irrespective of the volumes that those stores may purchase in; and irrespective of the methods in which they may deal with the chains.
Section 2 of the Clayton Act, we believe, is not a class statute; it's a personal statute.
If you look at it you'll see that what it precludes is discrimination in price between different purchasers of commodities and specifically, more specifically the cost justification proviso says, nothing herein shall prevent differences resulting from differing methods or quantity in which such commodities are two such purchasers sold or delivered.
We set out at page 27 of our brief what we think is the obvious explanation of this language taken from the Senate Report on the Robinson-Patman Act, which makes perfectly clear, the individual rights of customers to fair treatment and it said that the bill limits the differences in cost which may be honored in support of price differentials to those marginal differences demonstrable as the between the particular customers concerned in the discrimination; then it goes on to say, that the test of a permissible differential depends upon the question if the more favored customer were sold in the same quantities and by the same method of sale and delivery as the customer not so favored, how much more per unit would it actually cost the seller to do so is other business remaining the same.
And on the basis of this individual right, an individual customer who feels he's discriminated against by a seller can and often does bring trouble damage actions.
Certainly, it would not be a defense in such a trouble damage action for the seller to say, yes, it is true that I cannot cost justify the differential between you and your competitor but I can cost justify the discrimination between you and a group I placed you and your competitor and a group I placed him.
Obviously, that would not be a good defense and yet as I will attempt to show that's what Borden has done.
Let me make myself clear, we're not arguing here that cost justification under the Robinson-Patman Act in every case requires exhaustive analysis of each customer of the seller.
The practical matter that would just mean that cost analysis was out and in will be half fact of the impossibility situation of the last case.
Cost justification based upon reasonable classifications is an accepted practice and is used all the time.
But unless the classification, I know I'm repeating myself but I think it's important.
Unless the classification which is utilized for cost justification purposes reflects a cost saving applicable to all members of one group and none on the other and unless this cost saving is sufficiently substantial to account for the price differential itself, the result will be that the classification instead of clarifying will obscure.
This isn't a new idea of ours.
We cited on page 30, I think, of our brief, some five or six FTC cases which well, we're not discussing this particular problem, all stressed the fact that classification -- has to be a proper classification or the whole of that as well.
Not only that, but at the request of the Borden Company that was included in this record, a report prepared by a number of accounting experts for the Federal Trade Commission, the so-called Target Report, Cost Justification Report which appears in the second volume of the record.
If you would look at what this report of these experts says about classification, it appears on page 776 and 777, you'll see in the paragraph at the bottom of page 776, they start out and this is the paragraph which our friends on the other side cite.
They start out by recognizing that reasonable classification is absolutely necessary as a practical matter in Robinson-Patman cases.
But, in the paragraph of the top page 777, look what they say, at the same time the privilege of classification is not a license to disregard sound business and accounting concepts.
In order to become the basis for cost justification of price differentials, the classification should be logical and should reflect actual differences in the manner and cost of dealing.
Great care should be taken in establishing price classes to make sure that all members of the class are enough alike to make the averaging of their cost a sound procedure.
And we've attempted on pages 31 through 34 of our brief and I won't attempt here to take time to go over it; by various examples to explain what happens when you operate under improper classification.
Let me be specific about this case.
Justice Harlan properly raised the fact that there are wide differences in the volumes of different purchases here.
The average chain store purchaser takes a very small volume of purchases and this averaging, of course, Borden hasn't quite done that, they have included all of the independents in one group, they have four categories of independents.
But look at the biggest category, what Borden did, it started out with a category of 0 to 25 points and 25 to 75 and 75 to 150; going up by fairly reasonable incomes, when it got to 150 points, period, as far as the independents are concerned.
Independents who took more than 150 points, still only got the 4% maximum.
Now -- if no independents got very more than 150 points, maybe this wouldn't be very serious.
But we know, we know that at least one independent got 750 points; six times as much so --
Justice Hugo L. Black: But where is that in the --
Mr. Richard O. Solomon: What?
Justice Hugo L. Black: Where is that in the record?
Mr. Richard O. Solomon: The fact that they got 750 points is not in the record.
The fact this one independent got a great deal is conceded in his brief.
He doesn't do it in 750 points a day, but on page 38 of his brief, he admits that the Schubert store got 4801 points a week and we just divided it by six, with six day week; and he conceded that there were at least five other big stores which got very much more than the average number of points of even this biggest of the independent group.
Because what Borden have in this largest group, the people who would be most affected by any discrimination, the people who were building up their independent stores into independent supermarkets to compete with pricewise with the chain; where 80 stores, some of which I presume quite a few which were very close to the 150 breaking point.
But some of which got substantially larger and they were all thrown into the pot and averaged in.
Quantity, I suggest is very important here and probably the most important fact here.
I think that's conceded by Borden.
In fact, most of these other problems probably would have been obviated if Borden had extended its discount up higher that arbitrary 4%.
But this discrimination by classification is not limited to quantity.
For example, Borden has lumped this group of 80 independents all those who took or needed to take services beyond the outside rear platform inside the store with those who either didn't take it or wouldn't have taken it if they had known as they didn't know that they could have gotten a cheaper discount if they did.
Similarly, although Borden claims it costs more to do business on a cash basis than on a credit basis, it's lumped together in the same category of 80 independent stores, those that paid on the cash basis and those that paid on the credit basis.
And I could continue this but this is the problem we have.
Now, it suggest -- it suggested that it's all very well for us to talk about proper classification but when you get right now down to it, what we're insisting upon is such a complicated myriad of subclasses and part classes in what have you that we're really asking Borden to cost justify individually again.
In our opinion, that's nonsense.
Justice John M. Harlan: You don't -- you don't claim that -- you don't claim that that is the limit to proper cost justification if you happen to do it customer by customer?
Mr. Richard O. Solomon: No sir.
We certainly do not.
We do claim this.
Most of the price differentials in this type of business of selling milk to the wholesale groceries flows from quantity either directly or indirectly because of methods which in turn reflecting one.
Now, most of these problems we think would be obviated by the discount system which didn't cut-off the independents at 4%, which allowed the independents to get what quantity discounts they could qualify for.
There may be some other cost savings which are applicable to chains as such and not to independents as such which don't really reflect quantity and to the extent that there are such of course, Borden would be entitled to give a differential for that and to cost justify for.
But to suggest that would have to be 40 or 50 categories is really very unrealistic because most of these distinctions -- most of the distinctions that may exist are so infinite decimal in price.
In the actual saving, one classes against the other that nobody certainly not Borden which is in business to make money and not to put out cost studies, nobody is going to have differentials that they have to even justify with respect to that.
Of course, if they want to, if they want to get credit for every conceivable possible differential, then they're going to have a complicated cost study, but that's their choice not ours.
And as far as we can see, by a simple pricing system which attempts to allow everybody to get the benefits of the volumes they're entitled to and which make such differentials as might be appropriate for any other major item.
Both the pricing system and the cost justification which will follow will become relatively easy.
Justice John M. Harlan: Is there any attack on the -- any attack on the on the bona fide on these cost studies?
Mr. Richard O. Solomon: It depends, what you mean by bona fides.
We have no attack on the cost studies as doing what they say they're doing.
We certainly don't -- well they say the figures are such and such, we don't say they're not such and such; of course not.
They're bona fide in the sense that if this is a valid theory, if what Borden has done -- if Borden's theory of classification and allocation is a valid theory, we don't dispute that the facts.
No, the facts are stipulated.
Justice John M. Harlan: Do you say that these were just a front or you don't say that, do you?
This is just a front to --
Mr. Richard O. Solomon: I wouldn't think of using such terms.
I think Borden had established a price system which in fact was discriminatory.
They did not attempt, unlike Bowman and I'm not saying they're wrong about this but Borden's cost study happens to be a post facto, after the event analysis of what have happened.
I'm sure that they were obviously attempting to apply what they thought were valid accounting techniques to see whether they could justify this differential.
I certainly do not say they were not operating in good faith but I think that what they in fact did would necessarily lead to breaking down the limitations on this cost justification and having it right back to where it was under the 1914 Act.
Now, in the brief time I have because I would like to reserve a little for rebuttal, let me make two other points.
Their suggestion in Borden's brief -- suggestion in Borden's brief that as a practical matter, they don't cut-off the independents of 4%; that independents who have substantially higher volumes of purchases can and as a normal case do get more than 4%.
This just has no support in the record whatsoever.
Not only that it had no support from the record, it's contrary to the stipulation of facts upon which the record is based because Borden stipulated and this is why the Court so held, Borden stipulated and I'm reading from page 76 of the record, that Exhibit A and that is the price schedule.
That's the public price schedule which is the only the thing that anybody saw.
Exhibit A was used as the basis for computing discounts upon all sales of all fresh milk products including fluid milk made by Borden to independently-owned customers in the Chicago area during the period June 1, 1954 to August 28, 1955.
There's an exception if you read on there; the exception is for three stores.
With the exception of three stores, Borden stipulated that this was the price system which was used for all stores.
And accordingly, that's the way the decision is written and if you will read Borden's over 100 page brief -- trial brief from the court below, there is no suggestion that as a general policy, they allow independent stores more than 4%.
And if you read their cost study, there isn't a suggestion about this --
Justice Hugo L. Black: It says more than what?
Mr. Richard O. Solomon: 4%.
This whole argument which is a bladed afterthought in which I consider as a compliment to us because it indicates that they recognized the difficulties in having cut off the 4%, this whole argument is based upon the fact which appears on page 80 of the record that three stores which the Government happen to use in illustrating its prima facie case.
The public store, the Schubert store and the Cartman store did in fact receive an additional one and a half percent discount.
It's suggested that that shows that the large stores usually or always got extra discounts particularly since Schubert happens to be the biggest store.
But if you just look at these charts, you'll see that can't be true.
If you'll work it out, you'll find out that the public store far from being a large independent store actually has less average, less volume of milk than the average independent in the 4% bracket.
And if you'll look just ahead of the public store, you'll find that a store which apparently is two or three blocks away and which had a volume within $20 of the public store's volume of milk during that week, got 4% discount.
The fact is that this just doesn't prove anything and this case was tried on a completely different basis, the basis which they are stipulated to.
Now the other thing I want to say, because I do want to reserve a little time is about the argument they've made in their brief that they have cost-justified with respect to the Schubert chain, the Schubert store.
We will use that as an illustration and they attempted to come back and say, in Point 4 of their brief, Look, we've taken your biggest store and we've proven that an individual basis that it's cost justified.
Well, there are two things wrong with this.
In the first place, they have cost justified this Schubert store at five and a half percent that it actually got, rather than the 4% which this case is about.
So, if they were correct and had proven that the Schubert store is cost justified at five and a half percent, all they would show I submit is that, if they had not cut-off at 4% and allowed people to go on up, they wouldn't have had these problems.
But more important than that, let me refer you to page 57 of their brief and the chart there which purports to show how Schubert was cost justified.
When you read their brief, you'd think maybe that these figures from Mr. Henry Schubert on the right-hand column there were figures from this underlying material they had.
But that isn't --
Justice John M. Harlan: I didn't get the page, sorry.
Mr. Richard O. Solomon: 57 of their white brief.
Justice John M. Harlan: Thank you.
Mr. Richard O. Solomon: The text implies that these figures come from the Rootman's chart, et cetera.
But this isn't so except for the first two figures there.
All the rest of those figures on this page are calculated figures.
Now the importance is, all of the minor calculations, the $1.34 for branch office clerical salaries, the 1cent for the accounting department, the 11 cents for Robert White, the tabulating department 5 cents, the $2.32 on lost and returned products.
All those figures used a calculation which is a perfectly reasonable one that Schubert was one-eightieth of the number of stores in this category and therefore its cost for this factor should be one-eightieth.
But when you get to the salesman and the solicitor's salary figures, this is very, very far from the truth.
Suddenly, instead of $6, which would be one-eightieth of 287, you get $21 more than three times as much.
If in fact, they calculated salesman's salaries on the same basis as they had calculated all the other costs which weren't actual costs, the cost per hundred of sales to Schubert would've been $5.84 or $5.89.
And instead of Schubert being almost, not quite, cost justified at this five and a half percent figure, it would be $1.5 not cost-justified.
There are other difficulties that I could point out but I really think --
Justice Potter Stewart: I don't -- I didn't quite follow this last annotation on page 57.
Mr. Richard O. Solomon: Yes sir.
Justice Potter Stewart: You say that up and until you get the salesman increase their salaries, why that's reasonable; it's one-eightieth of the total, that is for accounting department, tabulating department in lost and returned products.
Well, it's an estimate -- it's a reasonable estimate of one-eightieth of the total of that interest --
Mr. Richard O. Solomon: That's right.
We don't object to that.
Justice Potter Stewart: Now, what is it that you object to about this 21.38?
Mr. Richard O. Solomon: When they got to salesman and solicitor's salaries, it was a pretty big figure which is a figure which they claim doesn't relate to volume in the same way that the others do.
Instead of doing it at one-eightieth, they said, Schubert's -- the cost of salesman and solicitors and these figures, Your Honor, are figures for -- men to go around selling to these stores, although Schubert's been solo already and servicing in the sense of answering complaints.
Justice Potter Stewart: Schubert's was the biggest of the independents?
Mr. Richard O. Solomon: He was the biggest of the independents.
But they said here, We will assume that this figure should be based on a volume basis that somehow the amount of time that a salesman spend in going around to these various Independents is proportional to volume and there isn't any support for this in the record or whatsoever and we suggest that it doesn't make sense.
What this means is if you calculate it out, that they are arguing is that the Schubert store has 13 times as much money spent on it by salesman and solicitors as the average Independent store.
Now, maybe Schubert has a few more complaints because it's bigger than some of the smaller ones, I don't know.
Maybe it does.
But certainly, to say that this figure is proportional to volume doesn't make any sense.
Certainly, in saving a chain, it wouldn't make too much difference.
They say the chains are served by executives and therefore we don't have anything for them but in serving a chain, I don't think we'd make much difference whether the average chain store had 500 points a day or 300 points a day.
Similarly, we don't think that it really depends as to how much time they spend in the Schubert's store, whether it has 800 points a day, 700 or 600.
Chief Justice Earl Warren: Mr. Ball.
Argument of Stuart S. Ball
Mr. Stuart S. Ball: May it please the Court.
Certain resemblances between the facts and the argument but there are a number of conflicts between the statements made in the actual record.
For the history of this case, after this was remanded on February 2nd of 1955, the Government moved to reopen.
The Government then put in a schedule, listing in the case of the Borden Company in two schedules, something and total of 13 stores and said, "This is our prima facie case, a distinction between these 13 stores."
Three of the stores -- four of the stores were A&P stores, one was a Jewel store.
The other eight were independents.
The prima facie case of the Government related to the price discriminations between those particular stores.
The stipulation we agreed with the Government with respect to those eight independents showed that the A&P and the Jewel stores were receiving eight and a half percent discount.
Three of the eight independents were receiving five and a half percent discount.
One was receiving four and the remainder only 3% discounts.
Those were the only discounts that were involved in the Government's prima facie case.
Attached to these exhibits, were certain schedules which showed that there had been a general offering to all groceries based upon four classifications of volume.
No percentage, 2%, 3% and 4%.
That was offered to all.
It also showed a separate letter to A&P giving them for all of the stores in the area, eight and a half, a separate letter to Jewel, giving them for all of their stores eight and a half and the face of the record that separate deals had been made with these three out of the eight independents giving them five and a half percent.
Now, the implication here is and told you all the way through that we prohibited independents from getting more than 4%.
Let me read you the section that counsel read on page 76 of the record which was the stipulated facts.
Referring to Exhibit A, which was the general schedule, the March 1955 and December 1954 discounts, paid to the independently-owned store customers listed on schedules one and two attached and that refers to the eight independent customers were computed and paid in accordance with exhibit A, with the exception of the discounts paid to customers (Inaudible) Schubert and Arthur Cartman listed on schedule 2.
We never stipulated that these were the only three independents.
They got more than the 4%, in fact, there are more, the question never arose in this case.
The only question with respect to this -- this -- there is nothing in this record to show that we ever limited independent stores to 4%.
This is a gratuitous assumption made for the first time in the briefs in this Court and not presented by the record below or argued in the court below.
Justice Potter Stewart: Your point is?
Mr. Stuart S. Ball: The point is that the prima facie case dealt with eight Independent stores and two chain store customers.
Justice Potter Stewart: And of those eight, three of them are getting prima facie --
Mr. Stuart S. Ball: And out of those eight.
Justice Potter Stewart: No indication out of the balance of the independent stores how many was getting --
Mr. Stuart S. Ball: Nor was it relevant because all we had to justify were the discriminations which were the Government's prima facie case.
We never assumed the burden of trying to take care of all of the special discounts that might be given in this community because that was not what the Government deliberately cited for their prima facie case.
Now, on the time element, these facts with these schedules were first stipulated at the request of the Government in November of 1955.
Before that, these lists had been given with us.
We undertook a cost study which I will describe tomorrow and it's an entirely different one than is -- what was discussed in the brief or in argument in detail.
Because it is a cost justification customer by customer and cost as much as possible ascertained customer by customer and merely lumped on certain general purposes for the convenience of the Court in respect to some of the classifications which were imposed merely for convenience of competition and do not represent any policy of classification.
There's no evidence of any policy of classification of customers nor was there any evidence in this record that the cost study was predicated upon justifying only between classes.
The cost study not only justifies customer by customer but provides the facts by which the reasonableness of any classification inherent in the facts as they appear in this record, may be tested, were tested by the District Court and may be seen by this Court for reasons that I will outline tomorrow to have been entirely reasonable.
Now, on this cost -- this prima facie case being given, a cost study was presented because we have to cost justify the discount schedule shown in the prima facie case with regard to these four classes of independents which was part of the Government's claim of discrimination, a part of now they do not mention at all.
We also had the problem of cost justifying the five and a half to Cartman.
If various reasons the Government stipulated that the Cartman did -- (Inaudible) and Schubert discounts of five and a half would not be used as evidence of violations of the Act that was stipulated.
Chief Justice Earl Warren: We'll recess now, Mr. Ball.
Argument of Stuart S. Ball
Chief Justice Earl Warren: Number 439, United States, Appellant, versus the Borden Company, et al.
Mr. Ball, you may continue your argument.
Mr. Stuart S. Ball: May it please the Court.
To sum up what I've covered yesterday, the issues in this case were not those raised by the 1953 evidence, but by the new prima facie case that was presented in 1955.
Second, this prima facie case required Borden to do two things, first, cost justify the general discount schedule volume class against volume class; and second costs justify the special discounts to A&P and to Jewel against those granted the eight independent stores listed by the Government.
Now, these issues were never broadened.
The counsel for the Government in the trial below, for example attack this shows at record 93-94, attacked the Borden cost study because it was made and I quote, “After the particular costumers had been -- who have been discriminated against, have been singled out by the Government”.
It was these eight particular stores that were shown to be in commerce and in competition with each other.
And this is exactly the prima facie case that Judge Camel described at record page 563 were he summarizes the evidence as follows, that the sales made by the defendants were in commerce, that the defendants discriminated in price, that the costumers or defendants were in competition with each other.
In reference, it was only made to the showing with respect to the eight independent stores and the five stores of A&P and Jewel and that there may be an injury to competition.
He also found that the published discount quotations on their fees showed discrimination, and that is between the volume class against volume class.
Now, Borden having the 13 stores, selected by the Government before it, then made its cost study in defense, because the discounts to A&P and the Jewel were based on total sales to all of those stores in the area.
And because we have to justify the volume classes -- volume class against volume class on the published discount schedule, it was necessary to make it an inclusive study.
This was done in this way, time study man were placed for one week on each of the trucks on each of the 134 wholesale routes operated in the Chicago area, where that I mean the routes that serviced primarily grocery stores although they have discovered small restaurant and some other costumers.
Now, the time spent by the drivers on the routes and at each store or other location were recorded as to more than 40 kinds of activities.
At the end of our brief, there is a copy, you will find, of sheets that are photos stand -- these are the actual sheets that cover the time study records made with respect to the deliveries to the Shubert store.
Now there were over in 1900 locations.
There were four sheets of -- of which this is the set of four for this one location.
Four sheets covering the week's deliveries to not more than 1900 locations and the covering sheet, covering each of the 134 routes.
These sheets with all of these materials became bulk exhibit number four, that was over 8000 sheets of paper.
Similar studies were made with respect to the special deliveries that were made.
Those are recorded; they became other bulk exhibit number six of that case.
Bulk exhibit number five was the tickets made for each delivery which again was a very bulky exhibit.
All of these and then cost studies, time studies were also made of clerical activities in the branches and in four different departments in the central office.
All of these -- these documents were then assembled together in bulk exhibits and bulk exhibits four though 13 were identified and became part of the record, they are massive in character.
Now, in addition to gathering of this detailed material, a stipulation was drawn out and submitted in draft form to the Government.
This made certain information out of the accounting records of the company available.
It made certain error for medical -- basic error for medical calculations and tabulations from the basic data.
And it also contained extensive information about the operations of the various Borden trucks and of the way in which the Borden Company conducted its business, and various information about the ways in which various of the costumers conducted their business.
On the 1950, costumers surveyed in this way, there were 254 stores of A&P and Jewel.
There were 1322 independent grocery stores, 374 non-store costumers and the analysis was complete so that with the information in the stipulated sheets in the stipulation with the basic data in this bulk exhibits, a cost analysis could be made costumer by costumer, including the non-store costumers.
In other words, costumer by costumer for 1950 costumers and all of these -- all of these basic data is in the record.
Now, the -- as I've said, you can find out from this basic data the direct cost of sales and delivery to each costumer on the costumer by costumer basis.
You have in the descriptions of the operations the rational basis by which measures can be fixed and selected by which indirect cost can be divided in accordance with sound accounting principles.
You can also tabulate from that the total cost of sale and delivery to entire groups of costumers such as those within the four discount brackets in the published discount schedule.
And you also have available in this massive material in the record, the facts showing whether any group was properly classified together, whether they have dissimilar characteristics in fact.
Now, all of this data was in the record and made available to the Government.
The document was treated as if it were the direct testimony of Mr. Malone under whose supervision the study was made, and it was verified by Haskins and Sells.
Mr. Malone was then offered to the Government for cross-examination.
All of the materials that they asked from Malone both factual and questions about details of operation were then added and added paragraphs to the stipulation which are identified in the record with the letter MD meaning Malone Deposition.
But the deposition dropped up because all of the material that the Government's request was included in the stipulated material.
Justice John M. Harlan: Where is that in the record?
Mr. Stuart S. Ball: The stipulation here begins at page 119 of the record and runs to 226 covering all of this material.
That was then finally embodied and signed by the Court on September 19th, 1957 as a pre-trial order, and that is the one that identified the bulk exhibits.
Now, I want to stress the fact that all of this data was available, because so much of the Government's criticism is based on theoretical instances, hypothetical costumers, not on actual costumers and they make assumptions about hypothetical questions that are contrary to the facts that are shown with respect to the actual costumers in the record.
Now, in presenting this case to the District Court, the material was summarized in the form of four summary schedules.
You have two kinds of costs those that are very direct and assignable on time or other direct basis.
You also have in accounting what you may call direct or joint costs.
And the problem there is to allocate by selecting a proper measure of allocation.
And incidentally, the best statement of all the principles applicable is in this cost justification study which is in this record which was prepared by a committee appointed by the Federal Trade Commission.
The chairman of which and two members were the three experts that the Government used in the case below.
And those experts were on -- by the statement of the deposition of Mr. Willy are shown to have been picked by the Government after a counsel and Mr. Willy their economist went to the Federal Trade Commission and these were pointed out as the best witnesses they could have.
I think that gives some validity to the cost justification study and points that in following that, we followed the best authority for one due that we could possibly have.
Chief Justice Earl Warren: Mr. Ball --
Mr. Stuart S. Ball: Now --
Chief Justice Earl Warren: -- may I ask you --
Mr. Stuart S. Ball: Yes.
Chief Justice Earl Warren: -- is the issue are you when the Government agreed that the issue -- one of the issues here is whether under any circumstances the independents would get the same percentage of the credit that the chain stores do or not?
Mr. Stuart S. Ball: That is not the issue in this case.
Chief Justice Earl Warren: Well, I understood the --
Mr. Stuart S. Ball: The Government is trying to force a general legal issue on the spec setting that doesn't support or raise that issue.
Chief Justice Earl Warren: So you -- it's your position that that is not before us?
Mr. Stuart S. Ball: We have a special set of facts, the only problem is whether the special discounts granted to two costumers, A&P and Jewel, were shown to be cost justified as against the specific costumers selected by the Government and whether the classes in the quantity discount schedule generally available were justified one against the other.
And there is no general principle involved.
It's a pure question of factual justification.
Justice Hugo L. Black: How -- where was it limited in their books?
Mr. Stuart S. Ball: Well it's limited -- it's -- it is not limited, it's limited by the nature of the factual limits.
There was no policy of selecting chain stores as a class; there was no policy of limiting independents.
The question of other delimits -- the independents were so limited never arose.
And so I've pointed out the record shows that at the eight stores select -- the eight independent stores selected by the Government, the three largest independent stores got more than the schedule.
They've got 5 1/2% as against the 8 1/2% given to the A&P and Jewel.
The record is completely silent because the Government never asked how many other stores -- independent stores receive special discounts, or what the amount was.
The record is completely silent as to whether they were or were not independent stores had gathered much as the A&P and Jewel store.
That is why the record doesn't raise the question.
There is no showing that Borden ever intended to place a ceiling upon the discount available to any independent on the face of this record.
Justice Hugo L. Black: Is that the issue raised by the plea?
Mr. Stuart S. Ball: That is the issue raised by the prima facie case submitted by the Government.
Justice Hugo L. Black: But does the -- to the pleading was limited to a prima facie related to eight stores -- its not --
Mr. Stuart S. Ball: The pleadings do not limit, the pleadings were filed in 1951.
This case after remand was reopened at the Government's request and then the Government submitted as their case a selection of 13 stores.
And they limited their prima facie case and that was so regarded all the way through as a question of justifying those 13 store discounts between each other.
And that is the way the prima facie case and I assume that when you go to trial, the issue as framed by the way that the Government presents its evidence is the issue by which -- which you are called upon to meet.
We never undertook to meet a broader issue nor was any broader issue ever raised by the facts.
Justice Hugo L. Black: You mean the entire question of the interpretation of the act regard has to be decided by what happened in connection with the state to all these eight stores?
Mr. Stuart S. Ball: I don't think that it was ever intended if the court, if Justice Black please, I don't think it was ever intended when the Government presented this prima facie case to raise any broad issue such as is now raised in the Court here.
I think the Government said “We have a burden of showing differences of prices which is the burden upon the Government under the Act.
We have the burden of showing that those costumers receiving these different prices and they could've selected two costumers or 10.”
We have merely the burden of showing that those customers are in competition that this different surprise on the face of it indicates a difference or discrimination that they are in competition with each other so that there could be the likelihood of an injury to commerce.
That is what the Government's prima facie case is under the literal and undisputed meaning of the Robinson-Patman Act, Section 2 (a).
Justice Hugo L. Black: I suppose it's much the same as if the Government has given you to fill a particulars saying which costumers involved.
Mr. Stuart S. Ball: I would -- I think the pre-trial order which embodied the stipulations with the two schedules of costumers which the Government selected had exactly the effect that you have suggested.
It was an answer; it was a narrowing of the issues by a judge who is very conscious in the extended trials of trying to reduce the issues to the simplest issues.
And the Government stipulated its case just as if it had defined its case by a motion for bill of particulars or answers interrogatively.
Justice William J. Brennan: May I ask you this, my trouble which is wholly I'm sure you can claim, am I wrong in thinking if one of the purposes of the chief purposes of this Act, maybe I am, was to prevent the chain store combined goods cheaper than the independents?
Mr. Stuart S. Ball: That was not the purpose, and it was expressly stated in the reports to Congress, of the Senate and the House Report.
Because we have quoted in our brief the passages from those two reports that said that “Nothing in this Act is intended to prevent a seller from passing on to a list of people including mass distributors others buying in groups and the rest of it the benefits of the economies produced by mass buying and mass distribution.”
And there is a passage both in the House Report and the Senate Report to that effect and Congressman Utterback who was the floor manager in the House for the Act -- bill expressly again referred that “Nothing in this Act was intended to prevent those economies which result from mass buying from being passed on so that the public, the consuming public can get the benefit.”
The cost proviso was inserted to benefit the ultimate consumer, and as Congressman Utterback said, “It is intended to permit, to be passed on to the ultimate consumer any economy no matter how produced by differences of method in which businesses are conducted.”
Justice Hugo L. Black: May I ask one other question about --
Mr. Stuart S. Ball: Yes.
Justice Hugo L. Black: I understand that the Court's provision and I did not mean to say that the Act was drawn in a way so it would say that no sales shall be made to a chain store cheaper than the independent --
Mr. Stuart S. Ball: Yes.
Justice Hugo L. Black: -- of course it didn't urge it.
He has the provision about cost; I haven't been quite able to follow either of your arguments on this accounting that --
Mr. Stuart S. Ball: Oh, yes.
Justice Hugo L. Black: May I ask you this, what you're saying is that you have fixed the classification as I understand, in which classification you put all of the chain stores or independent who are getting sales cheaper on account of volume to that other thing?
And if so, what other things?
Mr. Stuart S. Ball: Well, I'm -- I've been have misstated the case.
We published one schedule only, one discount schedule that said to all stores in different volume branch, we will give you no discount, we will give you 2%, we will give you 3%, we will give you 4%, that was the only published discount schedule, the only discount policy or system.
Now, over and above the published discount schedule more than individually gave certain costumers special discounts.
The A&P, Jewel T and of the list of eight independents selected by the Government, three of them the three largest also got discounts in excess of the maximum provided in the schedule.
Justice William J. Brennan: Does that depend on volume?
Mr. Stuart S. Ball: The exact reason why these discounts were granted to the special costumers was undoubtedly a combination of I think this is the fair inference from the facts, a combination of two things of volume and of the economies due to the method by which the milk could be delivered to these costumers.
Now, the -- you see there were two costumers had 254 of the stores out of the -- roughly 1600 or 1700 independent stores.
Those two costumers' aggregates purchases to those stores were twice the dollar aggregate of the 1900 or 1800 whatever the figure is of the independent stores in Tony.
The Schubert store which there is a great view -- are talked about in the Government's brief was as the record shows not the record brought up to the Court by but the portions that we have checked for this purpose from the bulk exhibits that the Schubert store was by far and away the largest independent in volume.
The volume of Schubert, the volume of the chain stores combined was 190 times the volume of the Schubert.
The Schubert store -- the counsel made the statement if there were --
Justice Hugo L. Black: That's one store.
Mr. Stuart S. Ball: What?
Justice Hugo L. Black: That's one store.
Mr. Stuart S. Ball: That's one store.
We have no policy of classifying chain stores or such.
It happened that we only had two costumers in the Chicago area were one more than one store was operated under a common management.
Those two costumers were A&P and Jewel.
That was the happenstance of the study.
There wasn't the classification of chain stores was not a classification ever published or announced anywhere.
It happened that these two special discounts in the same amount happened to be given by independent separate arrangements to the two costumers.
Now, hence where the so-called classification of chain stores came up, they accuses of pacifying costumers irrespective of volume, they accuses of classifying costumers because of the form of ownership, there is not a scintilla of evidence so that's what we did.
The evidence is that we took these two costumers.
A&P was 75 times the volume of the largest independent, Jewel was 120 times the volume of the largest independent, we took these two costumers and we gave them a discount.
Now, there are other factors that were economic in selling those two costumers.
Justice Hugo L. Black: Were they the only one there that gets the discount?
Mr. Stuart S. Ball: Are the -- the only ones that the record showed got 8 1/2% but the record did not go into what other special discounts there might have been --
Justice Hugo L. Black: May I --
Mr. Stuart S. Ball: I test -- I can tell to the Court, although it's not in the record unless it's hidden somewhere in the sales tickets that I've not check.
There were other independent stores getting other special discounts.
How many they were and what those discounts were, I do not know.
It never was inquired into --
Chief Justice Earl Warren: You mean --
Justice Hugo L. Black: May I ask you --
Chief Justice Earl Warren: -- up to, 8% or --
Mr. Stuart S. Ball: What's that?
Chief Justice Earl Warren: -- up to 8 1/2%?
Mr. Stuart S. Ball: I do not know, I doubt of any of them got 8 1/2% because there were economists inherent and certain things with respect to the chain store.
Justice Hugo L. Black: May I ask you to get a concrete data?
Mr. Stuart S. Ball: Yes.
Justice Hugo L. Black: I don't know many other stores but I have seen two very large stores in Florida and I'm wondering how would you go about to determine whether a store like those two, one at St. Petersburg and one at Miami tremendous volume of purchase of sales that was just having good --
Mr. Stuart S. Ball: Yes.
Justice Hugo L. Black: How they would -- how would they be classified?
What elements or factors you'd take in consideration in determining whether they would get the same discount to the chain store?
Mr. Stuart S. Ball: It varies in communities.
I am in a Federal Trade Commission case representing Borden; I know instances in some communities where somebody as independents get as more as much or more than of that A&P or the other chains get because of their volume in the particular circumstances.
Justice Hugo L. Black: The circumstances mean more than volume --
Mr. Stuart S. Ball: The circumstance --
Justice Hugo L. Black: -- have you said the --
Mr. Stuart S. Ball: Yes.
Justice Hugo L. Black: -- amounted cost to deliver that various according to different costumers?
Mr. Stuart S. Ball: That's right and you see here were you have -- now if you have a community in which you have three A&P stores and you have one store and I know of a situation where the one store in that community got more milk than the three A&P stores combined, and it gets a bigger discount.
Now, those are the -- because in that there were no economies and mass buying.
Here you have 254 stores which the contacts in selling were altogether at the joint buying level.
Little executive time even if you charged it all, it was be de minimis, we've got the exact figure stated in out brief.
However, in order to solicit the 1800 and some independent stores, we have a force of about 30 what we call salesmen and solicitors who were pounding the streets, whose time was devoted to the independents.
Now, the record shows and I'm going to cover this now because this was a point that was raised in allocation yesterday and I want to explain how you find this cost.
It is obvious that for the week, the $2000 that was spent in salesman and solicitor's time, none of it could be charged against these chain stores all had to go against the independents.
Now, it would have been possible to have made a time study of saying what stores those men spent their time in.
But unlike deliveries where weeks are repetitious and the week can be a proper sample, you would've had to take a month to two or three months of time studies of those salesmen to balance out and find where they spent their time.
Now, these men were not only salesmen.
The sales work, and it's all described in the stipulation covered a number of activities.
They covered what we called maintaining the accounts.
They went into the stores, they listened to the stores complaints, they checked on the kind of service that was being given, they put the in store promotions in the right place, they delivered the point of sale material and so that was mounted, they made helpful suggestions to the sales of the store.
Now, we have that 2000 is a cost that we bore with respect to independents and not with respect to chains.
It would have been possible to solicit by sending the president of the division around to visit the 1800 independent stores and there would've been no point in having these salesmen calls on the managers of the A&P and Jewel stores who had no right to buy.
So there have to a difference in dealing right at that point.
Now, this 2000 a week, Mr. Solomon's last point yesterday was that he had found out that we have allocated that he thought improperly.
May I call attention to the study of page -- opposite page 13 in the brief which is the summary of our brief, yes in Borden's brief, its opposite page 13 and it folds out.
Chief Justice Earl Warren: Mr. Ball, may I clear up just one matter before we study that.
Mr. Stuart S. Ball: Most likely to it.
Chief Justice Earl Warren: When was your study made as to the differential in these accounts that you gave?
Was the -- when you decided to give Schubert 5 1/2% as you say it is in some other independent 4% and the chain stores 8 1/2, had you made your studies --
Mr. Stuart S. Ball: --(Voice Overlap) -- this study at that time.
Chief Justice Earl Warren: No, no, that wouldn't what I asked you.
I was asking you if you had made any study as to those particular stores to indicate that one was entitled to 5 1/2% and other 4% and that the sale -- and that the chains were entitled to 8 1/2% depending upon the economy's effect.
Mr. Stuart S. Ball: In the stipulation which I have referred to, in connection with the cost study, it was stipulated that Mr. Malone in charge of this study and who was the district comptroller, had participated in a number of cost studies in different communities including two made in the Chicago area, which had been made prior to this discount schedule, and which gave to the management general information and specific in certain respects with regard to the differences of cost between different types of stores.
Now, there -- I was not -- I do not have the details of those studies, whether in that material there would have been enough to study them store-by-store, I don't know.
But the point that had brought it is that the general characteristics of different types of stores have been studied and the cost difference is made before the discount schedule was given.
Now, this is the same problem of whether you have post litigation justification, the cost justification study and here is a -- of course the Bowman and the Borden situations here are entirely different or a cost studies were independently but not overlapped here on different theories and the details are entirely different.
To a certain extent, they had a pre-justification study.
We only have ready to submit the post litigation study.
Discount schedules in these situations changed from year to year, sometimes from month to month in a community.
It would -- when it's figured that this study cost is over 50,000 to mean, it is obvious impossible that every time you shift it made different discount arrangements.
And every time you shift to new schedule, you're not going to spend 50,000 in a community and make a cost study to find out just what that discount schedules will be.
Management operates on good common sense.
Now, the problem comes up if you're in litigation you have to justify it.
The experts called by the Government, the cost justification study itself says, “Post litigation studies are perfectly accurate because you can draw the -- you're always dealing in a lawsuit with what the cost justification study calls historical costs.”
Chief Justice Earl Warren: I can understand that, but what I'd like to know is this, did you have enough information from your cost studies so that if Schubert have been operating exactly as a chain store, if Schubert had dealt directly with your president instead of your salesmen, and if it required no more services, then the chain stores would have gotten that it would likewise have received 8 1/2% discount as did the chain stores.
And would it -- and would you have recorded to it 8 1/2%?
Mr. Stuart S. Ball: It would -- the facts about Schubert being the largest independent --
Chief Justice Earl Warren: Well I just take that --
Mr. Stuart S. Ball: -- were well known to the management --
Chief Justice Earl Warren: Yes.
Mr. Stuart S. Ball: -- because they were.
Now let me distill the facts about the Schubert store, because they have all occurred in these documents.
And these -- these are does away with this myth that there are in-store services that an independent can dispense with.
Even chain stores got all of the services to some extent, a man has to walk in and put the milk somewhere, whether he goes farther in one case and another depends in a various store-by-store.
There are over 40 of these time factors each representing what the Government wants to follow, in-store or service.
These 40 activities that were performed vary in time individually.
But there are certain out of the permutations, there are certain general characteristics that are inherit in the nature of an independent business.
Now, let me take Schubert, if you will look at the sheets at the back here, you will find on the third sheet, no the second sheet a little diagram --
Justice Tom C. Clark: Of what?
Mr. Stuart S. Ball: What's that?
Justice Tom C. Clark: The back of what?
Mr. Stuart S. Ball: At the back of the Borden brief --
Chief Justice Earl Warren: That's on what page?
Mr. Stuart S. Ball: This is at the very end --
Chief Justice Earl Warren: -- by the very end --
Mr. Stuart S. Ball: -- of the Borden brief.
Chief Justice Earl Warren: Yes.
Mr. Stuart S. Ball: We have attached, as an appendix, these three sheets covering -- the four sheets covering Schubert.
Now, in the second of those fold out sheets, you will see a diagram of the store arrangements, you will also see that there is indicated up above the fact that he have both -- he have two again, this is under item 76, he had a display case and a walk-in cooler.
The walk-in cooler, the entrance was at item number one on the diagram, the displayed case at 17, and the walk-in cooler at 12.
And in this case, these independents generally operate the store at -- the owner had his brother running this huge store and it was huge for the quantity of milk.
This store, if you will also notice, had a very peculiar situation.
This was a split stops that means if this store like most independents had two dairies in it, which meant that there was a problem of display -- relative display of two milks.
In the Chicago area, there were no split stops among the chain stores that we certain.
So this is a characteristic difference between independents.
Now in this case, there was 20 feet from the entrance to the display case, 50 feet from the entrance to the walk-in cooler.
This store was served six days this is also shown in this -- and it also shows that there were 11 stops which meant that the truck have to come almost twice a day to the store.
The average stops for each A&P and Jewel store, the average was only nine and a half.
This required more stops of the regular truck to service this store.
Schubert required more stops of the regular truck per week than the average of the 80 largest independents which involve a lot of intangible as well as tangible cost, all of these being known.
Also, you will notice on the first sheet under item 63 that on five different days, they have to call for special deliveries of milk in addition to these 11 irregular calls.
The record at 194 shows that, all of the 254 chain store locations and the aggregate required only 99 special deliveries that the 80 largest independents only required 27 and this store took five.
Now again, you conceive the services, this was a large split stop having two kinds of dairies in there, the frequency of delivery and all of these factors came up.
There -- you would see that that effect is not only the direct labor cost of the time area but the indirect burden of the special delivery trucks which are expensive to operate and the trucks going back.
Now what --
Chief Justice Earl Warren: Mr. Ball, that would lead me to ask this question, before this action was filed, did you have -- did Borden have any formula that an independent might be able to meet that would enable it to get the same discount as a chain.
In other words, if it so condition its business that it would eliminate these things that you're talking about to the same extent that the chain stores eliminated these costs to you, could it -- could it by such elimination obtain this 8 1/2%?
Mr. Stuart S. Ball: All of the special discounts that went above the published schedule or manners of individual negotiation.
Schubert was an individually negotiated discount based on his pitch to the Borden Company of what he could accomplish or how he could handle it.
Now, those things have to be studied.
Now, there was --
Chief Justice Earl Warren: I thought those things were not specially studied though you said?
I thought you said they have been general studies and observations and --
Mr. Stuart S. Ball: No, the general studies reveal this kind of facts about stores not about Schubert individually --
Chief Justice Earl Warren: I see.
Mr. Stuart S. Ball: -- but about these types of stores.
Chief Justice Earl Warren: Yes, yes, alright.
Justice Byron R. White: Mr. Ball.
Mr. Stuart S. Ball: Yes.
Justice Byron R. White: Were any of your special discounts to the independents is said to be justified as meeting competition?
(Voice Overlap) --
Mr. Stuart S. Ball: The Government tries to discount this whole 5 1/2% on the ground that we did have faced with this problem on the prima facie case.
One, as Mr. Solomon pointed out, one of the special discounts was to a store that only got approximately more than one who'd only got 4%.
Justice Byron R. White: But did you in Court attempt to --
Mr. Stuart S. Ball: No --
Justice Byron R. White: -- testify in the --
Mr. Stuart S. Ball: -- and I would explain why.
Justice Byron R. White: But as a matter of fact, were they as --
Mr. Stuart S. Ball: The record is silent as to whether they were or not, we were prepared to present as to those three stores a second defense a cost defense and a meeting competition to that.
Justice Byron R. White: And isn't this in a normal occasion for breaking your published --
Mr. Stuart S. Ball: The matter of fact is part of the reason that you give special discounts is that the independent comes to you and wants more money and he uses everything including competitive office.
Justice Byron R. White: Including the fact he's got another dairy in the store.
Mr. Stuart S. Ball: That's right, including the fact used a split stop.
Justice Byron R. White: Did either A&P and Kroger has a house brand of milk?
Mr. Stuart S. Ball: No.
Not in Chicago this time, there were no split stops in the A&P and Jewel stores.
Justice Byron R. White: They didn't have their own --
Mr. Stuart S. Ball: They did not have their own brand.
There were only Borden Milk in those stores.
Now, what I'm trying to say at that time there, the stands to reason that if they want more discount and Borden feels competitively you want to give him and Borden could suggest to them.
And this is the answer I think to the basic inquiry, it stands to reason Borden have no policy against giving special discounts to independent stores and no limit as to the amount that they would give.
There is not a scintilla of evidence they did.
The answer about it is it stands the reason that if Borden people could make suggestions to the independent as to how he can operate.
Remember that Borden more than makes the difference.
This cost study show that on -- as you go out, the over justification tends to increase rather than decrease.
So, from the economy of Borden operation, there was every incentive for Borden to suggest to this man here is the way you can reduce our cost and I think you will have to assume that from that, the inference can be drawn that if it had been possible for the independents to do these things the problem would've been offered to them, and they would have been given the discount.
There's nothing --
Justice Byron R. White: Would you say that it was -- that where you gave independents higher than 4%, the cost factor was really irrelevant?
Mr. Stuart S. Ball: No, I do not.
I think the cost factor was definitely.
Schubert, the volume was definitely a factor.
He was the biggest independent we have --
Justice Byron R. White: Aside to the fact that you were -- that the occasion was to meet competition?
Mr. Stuart S. Ball: The record does not show the occasion.
We were prepared to show that as a second defense.
Justice Byron R. White: I see.
Mr. Stuart S. Ball: The Government stipulated they weren't going to make a battle over the difference between 5 1/2 and 4.
Therefore, we never introduced any evidence in the record is cited as to whether we did or did not need to do it for that purpose.
The fact is that we are prepared to justify on both grounds if we had to do it.
Now, to sum up, I could -- I don't know just what Mr. Solomon may want to point out.
Well, I want to cover this matter of the allocation of salesmen's time.
The cost justification study points out that you do not even on matters on your subject to exact measurement, have to do that if the cost is great if there are other measures that are equally accurate by which you can divide the time up.
In our various accounts, the salesman time was allocated between independent stores for the salesman's cost on the basis in proportion to their volume purchased on the ground that the salesman would be in the store like Schubert.
With a split stop with the problem of getting Borden milk in a maximum display, he would probably be there in that store far more often than he would in the average store and in really direct proportion or more to the amount of volume.
So volume which is -- and I can -- we can -- the use of volume and all that was -- is justified by several bits of the testimony of the expert witnesses.
Volume was a perfectly proper measure by which a cost may be spread.
These costs were spread of solicitor's time on that basis --
Chief Justice Earl Warren: Mr. Ball your -- your time --
Mr. Stuart S. Ball: Excuse me --
Chief Justice Earl Warren: -- is up but I'm going to give you five minutes --
Mr. Stuart S. Ball: Thank you.
Chief Justice Earl Warren: -- more to conclude what you want and you may have --
Mr. Stuart S. Ball: Yes and thank you very much.
I wanted to say on that point that as far as Schubert is concerned, if you will turn to page 60 -- 63 of our brief, you will find a study of the Schubert costs in which we take the direct labor on the route man, the direct labor on special delivery.
And then we have allocated the indirect -- direct labor accountant for about two thirds of the cost of the route man's time.
We have lift the other third follow which is on accounting method approved in -- by the Government's own experts under many circumstances of letting indirect cost follow direct cost.
In this case, we have let wholesale truck cost special delivery indirect in route man's indirect labor follow the direct cost in proportion.
If you look at line 10, you will find that either was Schubert, the largest independent and may I say there were not unique independent because, counsel said there were five others beside Schubert and had as much volume as the average A&P store.
The answer is there is only one other store, not identified because not part of the eight, that have a volume as much as the average to the A&P and Jewel stores.
That -- and that were -- Schubert was third lower in volume than the next largest store and on the selected eight, he was three times as large as the next largest store in the selected eight.
Now, if you look at line 10, you will notice a cost of $7.21 just on delivery cost alone on this allocation to the A&P and Jewel and $11.20 to Schubert which means 3.99 or 399 100s of a percent of discount difference that could've been justified on direct cost alone forgetting the solicitor's time.
When you look at these others, down below including salesman solicitor's time, you'll find a cost justification an excess of a 5% difference between this largest of the independents.
Now, I think it's the very inferential that the cost to stores, the others on the selected list, the nearest of which was only one third of the volume of Schubert were fully cost justified.
I want to submit again, there is not a scintilla of evidence in the record that Borden have a policy of favoring chain stores and we are looking solely at the economies of volume and the economies of inherent method of which we've describe in some detail and given the figures on the brief.
In the second place, the argument of classification if you have to define as counsel wants you to do classes on them that you have to show as to each member of the class get a subject to exactly the same cost factors to justify the entire cost difference between classes, that means you've got to have a cost study by costumer-by-costumer study which defeats the purposes of classification.
But, if you are required to have that under the act, in this case, the Borden cost study mean such a costumer-by-costumer justification, it was up to the Government with this information before it if they were going to take these hard examples instead of dealing with hypothetical cases as they have on their brief to demonstrate that there were independents being unfairly treated.
They made no such demonstration.
By giving you Schubert we have shown I think that that demonstration was impossible for them to make.
There wasn't any way that Schubert could change his method of operation.
Now under all of those circumstances, the issues in this case are not a broad issue of law as the Government would like to have you believe, it is that whether the discriminations covered by the Government's prima facie case were as a matter of fact justified by a cost study that was as exhaustive and detailed as any that have been submitted and a cost study that was in accordance with the principles that have been recognized by the decisions of the Federal Trade Commission and of the experts called by the Government.
Thank you very much.
Justice Hugo L. Black: One other one -- one question.
Mr. Stuart S. Ball: Certainly.
Justice Hugo L. Black: I was looking at this Schubert and the other --
Mr. Stuart S. Ball: Yes.
Justice Hugo L. Black: Do I understand correctly that Schubert's volume as compared with the volume of individual A&P and stores in Chicago is equal or superior to it?
Mr. Stuart S. Ball: Schubert's volume was about 15% more than the average delivery to the A&P and Jewel stores in the Chicago area.
But even with that --
Justice Hugo L. Black: But you have there is a -- question of whether there's a sufficient additional cost delivered to Schubert --
Mr. Stuart S. Ball: Yes.
Justice Hugo L. Black: -- over the A&P although you deliver each one to the individual stores or do you deliver to A&P at a central point?
Mr. Stuart S. Ball: No.
We deliver to the individual stores.
The answer about it is that you can have the same truck delivering in the same way to all kinds of stores.
But the time taken because the way the independents operate as against the way the chain stores operate and much of that inherent in the nature of being an independent work shop by yourself and needing certainly help but you can't otherwise get.
In that, it causes more to deliver to the independent store getting the same volume with the chain store than it does deliver to the chain store and the cost of their -- the kind of cost that are inherent in the type of the economies that Congress intended to be preserved.
Chief Justice Earl Warren: Mr. Solomon.
Argument of Richard A. Solomon
Mr. Richard A. Solomon: I gather from Mr. Ball that my main task here is not show that we have correctly stated our theory as to why the decision below was wrong, but to show that the decision below properly reflected their cost study, because he hasn't really attempted to defend the decision below which I think fairly reflects what Borden put up to the court below as their cost justification.
If you gentlemen will read the Borden cost justification which is fully set out in their brief and in the record, and if you will read their trial brief which is mostly set out in the record, you won't find any of this discussion that we had here this morning because what Borden attempted to do below and what the court below said was correct was to cost justify by these averaging techniques of all independents in one class as against the chains.
Now, it suggested here that really all we were attempting to show was wrong were eight stores at all they were attempting to cost justify were eight stores.
And Your Honor Justice Harlan said that was a kind of a bill of particulars and that was what we were limiting ourselves to.
But with all due respect, I think that's nonsense.
Under the Morton Salt case of this Court, that's 334 U.S., this type of cost discrimination is almost per se a violation at one of defenses can be made.
In the Morton Salt case, this Court said the Federal Trade Commission was going away outside what it had to do when it tried to prove and reprove and reprove what is pretty much an obvious fact and when you have a group of retail stores in the city like Chicago competing with one another and some get one price and another get another price, this may tend to substantially lessen competition because after all Clayton Act is a “may” act.
But in order to nail this down because we suspected that there would be some objections that they weren't really in competition, objection was made by Bowman not Borden.
We, in each case, took a sampling and we use this sampling in course approving our prima facie case to prove what we thought was obvious in the first place but to nail it down to show that where you have independent stores and chain stores within a compact area of a mile or so, some of those customers who go into A&P store shop and go into independent stores sometime and vice versa.
And that's all these eight or nine exhibits were used for.
They were used as what I can think what's probably an unnecessary nailing down of a prima facie case and this was recognized.
Judge Campbell, when you read his opinion does not say we made a prima facie case as effect to these nine stores you don't even mentioned.
He recognizes we're making a prima facie case with respect to area.
Now, there's been some talk here about this bulk exhibits being part of the record and we could approve everything from this bulk exhibits and leaving out the question of who had the burden of proof of proving a cost justification.
It is not a coincidence that these bulk exhibits are not before this Court.
In fact it's my why understanding that they were never physically before the District Court.
What these bulk exhibits were, were the work papers, the work papers which the Borden people used in making their cost study.
They worked as Mr. Ball quite properly said, Bulk up and made available to the Government in checking their work papers.
But they were never submitted to the Court either by the Government or by Borden because nobody thought they were relevant except in checking the general figures that Borden was doing because Borden wasn't before that Court making a justification on a store-by-store basis.
And that's why those work papers are not before this Court and --
Justice Hugo L. Black: Is that the basis of your contention?
That what you have -- what you insist on is that the law requires that they make a cost justification for each store?
Mr. Richard A. Solomon: No sir, I do not insist --
Justice Hugo L. Black: You do not --
Mr. Richard A. Solomon: I want to make it perfectly clear that I am not insisting if they make a cost justification in each store.
As I try to point out yesterday, all we are insisting on is before they classify stores and then make a cost justification by groups that they make sure that the classification reflects the particular cost savings they're talking about specifically as Your Honor said perfectly clear from his whole case that there's a great deal of cost saving as the result of volume.This is particularly true in delivery.
Obviously, on a per quart basis or per hundred dollars of sale basis, it cost less to serve big stores and small stores.
Well, to the extent that there are volume savings, we don't say that they can't classify for cost justification purposes stores with equivalent volumes.
But what we do say is you can't do what Borden did and take all independent stores that have anywhere as from a 150 points a day to 750 points a day and classify them while your classifying the chains separately who as Mr. Ball admits take on the average less than the 750 to the extent of volume as a factor.
Justice Potter Stewart: But that's only one factor.
Mr. Richard A. Solomon: That's only one factor.
Justice Potter Stewart: There are --
Mr. Richard A. Solomon: That's right.
Justice Potter Stewart: -- factors of billing and of solicitation and what were these other factors?
Mr. Richard A. Solomon: All these other fact -- really here, you have about three or four factors.
If you read this thing through, what you have here is quantity which is the main factor.
Justice William O. Douglas: You say -- before you finish, what about the decree at -- I wonder what kind of an exposure right, I wonder what kind of a decree would -- would it be a decree written in terms of the statute?
And if so, how would you enforce it and what standards was that the --
Mr. Richard A. Solomon: We think of it --
Justice William O. Douglas: -- respondents have to how they -- how they can debate intelligible?
Mr. Richard A. Solomon: We think a decree which would require the Borden Company to make whatever discount brackets they wish to set up based on whatever differentials they want to set up available to anybody who can qualify.
Fairly simply decree of that nature would do the trick.
In other words, we -- and this I think I can answer both your question and Justice Stewart's question at the same time.
If Borden thinks there are savings and quantities which there obviously are and that's the major one.
They can set up a quantity discount which is open to everybody and the decree should say that if they want to have discounts based on quantity, it has to be open to Schubert as well.
Now, to the extent that there are other factors, they can also set up their discount on that basis.
In store services which Mr. Ball talked about, it's quite true that if a store whether it be an independent or a chain requires the truck driver to bring the milk into the store and deposit it in thing that takes somewhat more time and would be as far as we know, for a fully justifiable basis for having a differential.
Now, if they want to say people will take in-store services will be paid, will pay ex -- extra or say the others that don't will get a discount they can do that.
We will allow that in the decree.
All we're saying is that on these two or three of four major factors which are the only factors Justice Stewart that anybody would really want to set up with discount for, they want to set up as discount for, the decree should simply state that these discounts are to be specified and be available to everybody is eligible.
And that's all you did in a decree and that would eliminate all problems, we think.
The classification difficulties that we got in cost justification, is merely because they didn't do this in their original method of giving discounts here.
Justice Hugo L. Black: May I ask you of this formula?
I don't understand the complete consequence as yet in which you say, does it result in giving a discount of 8% to all chain stores?
Mr. Richard A. Solomon: I think -- well, maybe I can take it up on my next argument but --
Justice Hugo L. Black: But I was just asking if you then -- I was asking if you can take it all and if the result it was denying that discounts to all independent or if not something about what the sum total of the actual practical consequences of the way it worked?
Mr. Richard A. Solomon: I think the actual consequences of formula that I suggest is one; that the chains will presumably get about what they are getting now.
Two, that the bigger independents would probably immediately got a larger discount and three, those bigger independents, the type of people who were trying to compete with change who wanted to take advantage of it could get even larger discounts.
Now, it may very well be for example with respect to the Schubert chain but under the present system where it doesn't know and was never been told that the -- it gets a higher discount if it doesn't take in-store services that they are taking in-stores services.
But under my plan, of course, they would be told if you take in-store services will cost you a little bit more and they would have the choice of deciding whether they want to take advantage of cost that way you are not.
Now, I'm going to sit down and stand up again if you gentlemen don't mind because under -- oh gee, I forgot -- procedures has been established and now going to discuss the Bowman case.
Chief Justice Earl Warren: You may proceed, Mr. Solomon.
Mr. Richard A. Solomon: Our problems in Bowman are, we think some similar to those in Borden.
Mr. Ball is quite right in saying it's a different type of cost study of I what showed you that this is the same thing.
Let me state our general thesis at the beginning again.
If you want a class -- if you want to cost justify discrimination between types of store and do so by a cost justification which classifies stores.
This classification has to be based upon cost saving factors which are applicable to all of one class and none of the other and which account for the differentials -- a very simple basic position.
Now, the Bowman discount schedule appears on page 67 of the record.
This is the Bowman discount schedule.
Actually there are several Bowman discount schedules in this record they were variation as they went along but I think for present purposes we can stick with the one took in June 1954.
There are minor variants and one additional factor which is thrown into the pot and the later schedules to account for somewhat greater differential.
But, for our purpose so we can stick with this Exhibit 1 on page 67.
You will note that -- this is the published discount schedule unlike the Borden discount schedule in terms applies to everybody but in fact, supplies only to the independents and you'll notice that it's similar to the Borden discount schedule and that for the independents they have a graduated discount except that it's much broader and starts lower and goes by more minute percentages and actually they calculated within these figures.
For example, somebody getting 135 points, I gather, would get 6.7 or something in between this and which have more detail breakdown of the independent discounts up until 200 points on page 67 it only goes up to 150 points, but if you will turn over the page on page 68, you'll see that within a month and a half after this discount schedule was put into effect, they actually raised it to 8% for up -- for over 200 points.
Now, this was the published schedule.
The only published schedule that grocers in Chicago got.
But if you like at the letters on page 69 and 70, which are letters to their two chain customers in this case A&P again and the Kroger Company.
I gather Justice White that these must be different A&P stores and that much be wide closet there is no split thing.
I don't think that these are the same A&P stores, is that correct?
Unknown Speaker: Yes.
Mr. Richard A. Solomon: These letters indicate that the chains here we're giving an 11% flat discount irrespective of the amount of stuff they took.
Now, the critical point I want to make is Bowman had a fairly good quantity discount schedule for independents starting it zero and going right on up 200.
When it got to 200 points, that's all apparently cost saving stop there but it still -- the independents stores didn't stop there because the record allow its justice we gone this subject as the Borden record, the record has certain indications of how big some of these independent stores are.
If you will turn to page 481 of the record, you will find a chart which pulls out half across the page.
This is called Table 12A and it was done for a completely different purpose whether to illustrate my point.
This is a one-third sample -- this is a one-third sample of the Bowman routes and therefore recognizing it, it is only a sample into what be an accuracies you can multiply these figures roughly by three.
Well, you will note that as you would expect most of the Bowman stores are under 200 points.
But, in this one third sample, there were 16 Bowman stores that had over 200 points and four them that had over 400 points, more than twice as much.
And if you'll look over to the column under a number of stores South division, you'll see there were two of them in the south division that had over 400 points and if you will go back to the average points delivered daily to the South division, you'll see that the average of those two stores in the South division was 647 points.
In other words, assuming if they both got exactly the average at least two stores of this one third sample were not getting 200 points but were getting over three times to this and yet they were cut off -- they were cut off when they reached the 200 point level.
Justice Potter Stewart: -- about 325 points, am I right with --
Mr. Richard A. Solomon: Pardon me.
Justice Potter Stewart: Or presumably we're getting 325 points of these were you think?
Mr. Richard A. Solomon: No sir.
Justice Potter Stewart: Two or more were getting 647.95.
Mr. Richard A. Solomon: No.
I calculate just the directly opposite.
They're both over 400.
It's the average of these two over 400 was 647.
Justice Potter Stewart: I think the average per store.
Mr. Richard A. Solomon: Yes.
So, I assumed that one of them was over 647 and one is under 647.
Justice Potter Stewart: And that's the average per store?
Mr. Richard A. Solomon: Yes.
The figures as to the chains by the way in the Bowman settle deal, I can't tell you the breakdown of Kroger and A&P because there was nothing in the record that indicates it.
For all we know, Kroger was getting several hundred points on the average more than A&P or vice versa.
The record is just silent but the average chain store and so on the next page was, there is no point, no thing the -- a lot of thing to look at it.
The average chain store was 500 points more than most independents but less than the some of the independents.
Justice Potter Stewart: And then they showed up that average was 500.
Mr. Richard A. Solomon: Average for all of the chain both Kroger and A&P.
Justice Potter Stewart: Average
Mr. Richard A. Solomon: Right.
Justice Potter Stewart: How many users were there?
How many stores?
Mr. Richard A. Solomon: I don't know.
There is somewhat larger number -- how many A&P store there was?
Mr. John Paul Stevens: Three are plenty of A&P stores about 45 Kroger stores.
Mr. Richard A. Solomon: There -- well I don't know.
I can't find --
Justice Potter Stewart: Well, it's probably not important.
Mr. John Paul Stevens: About 66, 67, I think below the average.
Mr. Richard A. Solomon: Well, I don't know.
But we are -- I can't point that out for you.
Justice Potter Stewart: To show what the -- how big the largest chain store units were?
Mr. Richard A. Solomon: No, but --
Justice Potter Stewart: How many points to get up to?
Mr. Richard A. Solomon: No, but we can assume that the -- the essence -- I think it does show bigger up to much bigger than any of them the -- it does show --
Justice Potter Stewart: Well, here to say, out under Table 12B, there are several --
Mr. Richard A. Solomon: Yes.
Justice Potter Stewart: -- thousands of --
Mr. Richard A. Solomon: Some of them got over two of them or three of them got two of them got over a thousand points.
Justice Potter Stewart: Yes.
Mr. Richard A. Solomon: Yes.
And how big, how much over a thousand points, we don't know.
Now, Bowman's cost justification before the Court was quite a different animal than the Borden cost justification because Bowman before the Court of Appeals didn't really make any attempt for reason which I do not understand to distinguish volume-wise.
Their basic pitch before the Court of Appeals, were there were two essential differences in method of delivery.
They said, what they did was they calculated by time studies and other allocations what they figured was a cost per quart of serving the chains and a cost per quart of serving the independents at any given volume level for cost per quarter saving the chains of that volume level and the cost per quart at saving the independents at that volume level.
And they compared these two costs per quart of serving these two groups at any volume level and their comparison showed according to their calculations in each instance that there was a sufficient difference of the cost for selling into the chains was sufficiently less to account for the 3% differential between the highest bracket or in fact to account for whatever differential that would be at that volume level for independents.
At least this was true above 160 or 180 points.
This difference in cost per quart at any volume level was at each case entirely due, entirely due, to two factors which were allocated entirely to the independents and not at all to the chains.
But first and the major one of these factors was what they call optional customer services.
The word “optional” I suggest gives the game away but we'll get into that in a second.
Optional customer services, and there are old friends that we had yesterday and earlier this morning in-store services -- services beyond the back platform and the theory upon which these services are allocated to the independents and not to the chains is that they have an agreement.
They've worked it out with the chains were barred they will just drop milk off from the back warehouse and most independents like these services and therefore they will charge them to all the independents.
Now, this is really a startling remark so maybe I better read a little bit about what Borden's -- I mean, Bowman's says show that I'm not just making this up.
Let me refer you to page 272 of the record which is the basic Borden manual for setting up this cost justification.
Justice Byron R. White: The Bowman?
Mr. Richard A. Solomon: Bowman.
I may misstate myself, but I'm talking about Bowman.
And you'll see a paragraph about Wilson next to the last of the last full paragraph.
How are these differences created?
Once the driver arises at the customer's stop, there are some necessary work elements he must perform.
Beyond this, there are some optional delivery services that the driver may be requested to do, may be requested to do, such as to deliver the order inside, place the containers in a refrigerator, rearrange the containers so that any product remaining unsold from yesterday will be sold first today, leave case of products at different spots in the store et cetera.
The type of service performed varies greatly as does also the extent of the service requested.
Very few stores are rendered exactly the same services.
But yet, this extensive pool of services must be available for all the drive.
In addition, most store customers pay the driver in cash daily rather than paying him by check monthly or semimonthly and the last sentence is the other special factor charged to independents and not to the chains.
The independents are all charged with flat fee for the time spent in cash payments daily plus something called delay to collect which I do not understand which is part of the same business whereas none of the chains are because the chains are on a credit basis.
Although, admittedly here, all of the chain, all of the independents are not on a credit basis.
If you look on page 275, they explained this a little further and they say nearly all stores require the optional delivery services in daily cash payment and therefore have the most expensive type of delivery.
A relatively few numbers of stores, require only the necessary work elements and consequently have the cheapest type of delivery.
Experience has shown that the independently owned stores generally want the optional services which may include some of the following work elements and then they list this stop again.
And if you look over on page 278, I won't take time to read it, you will see that they expressly and explicitly say that it is this customer service element and the collection elements which are responsible for the entire difference in the cost per quart of serving the independents at any volume and the cost per quart of serving the chains at any volume.
Now, what kind of studies did the accountants for the Bowman Dairy make to see about these customer services?
Let me say that these customer services were charged on a per unit basis.
I haven't found much in the record to explain to me why these customer services were supposed to vary with volume particularly since they say that the -- which customer services people take vary from customer to customer but Bowman charged these customer services to the independents on a volume basis with the result that an independent taking 600 points was charged three times as much for these customer services as an independent taking a 200 points even if he -- either did not take any of them or just took a very minor one, or if he had known about this business which of course they never did know, he wouldn't have taken any of them.
Now, what type of survey did Bowman's technical expert made to find out about this customer service?
Did he speak to the customers and see whether they were taking them?
He did not.
Justice Potter Stewart: Was this Mr. Bergfeld?
Mr. Richard A. Solomon: Mr. Bergfeld.
Justice Potter Stewart: Was this -- this is that you've been referring to 272 and so on, material that was prepared then for the purposes this lawsuit.
Mr. Richard A. Solomon: As I understand that it was -- yes.
He did not.
He made no story.
They asked him, "Did you speak to the customers?"
And he said, "I certainly did not."
This is all on page 1238 of a second volume of the record.
Do you see?
We didn't talk of Bowman customers at all.
What did they do?
We asked the Bowman Dairy staff and employees what service arrangements were and asked them to arrive at a considered standard practice which would be the thing to be expected to be done most of the time and most of the cases.
Now that's how this cost study was set up.
Did you ask any official at the Bowman Dairy Company whether or not any of the independents have been notified that if they do not want the services that they could get a discount comparable to the chains if they took comparable volume?
We didn't ask that question.
Do you know -- have you ever seen any bulletins or communications to independents that they did not desire the services listed in paragraph 2 (a) which is the service that they would be submitted the same discount as chains provided they took a comparable volume.
We did not ask for such bulletin, we did not ask to see them.
In other words, this entire business is pure speculation based upon advised to the alleged accountant in setting up the service from the Bowman officials as to what they thought was a standard practice.
And this was the entire basis except for this collection cost which they also admit are not applicable to some of the independents.
It's the entire basis for these difference and cost per quart upon which they then base their entire discount schedule and cost justification according to their theory.
Now, in view of all this --
Justice Hugo L. Black: May I ask you if that argument is any more than the argument that although you can see that there can be categories and classification?
They're not sufficient evidence to support a particular classification which they made.
Mr. Richard A. Solomon: Our entire argument sir is that, there can be classifications if they are based upon actual cost differences between the types of people put into a class.
But we do not say there is not sufficient evidence here.
We say that they have conclusively proved in this case that what they have done is flown independents who are taking these services into the same part with independents who are not taking these services.
They have thrown independents who wouldn't think of taking these services they knew it's going to be -- the result is going to be that they won't have to face 3% more for their milk into those who would necessarily have to take it anyway.
Our problem is that, they have cost justified on a classification which includes all independents in one group.
Although the facts make perfectly clear that all independents don't belong in this group.
Justice Hugo L. Black: And somehow, the sum total of your argument that is that they have discriminated against independents as such, is that it?
Mr. Richard A. Solomon: Well, the sum total of --
Justice Hugo L. Black: Is it what I think?
Mr. Richard A. Solomon: The sum total of our argument is that if they have discriminated against independents who are in a position to take in the same volumes by the same methods as the chains.
They have precluded them from getting the same discounts because they have charged to those independents whether or not they take them and whether or not they would take them if they knew about this system.
They have charged to these independents cost which are true of a group, of a class.
Justice Hugo L. Black: In this case, what is the practical result of reference?
Mr. Richard A. Solomon: The practical result is -- the practical result is that if one of these large independents which I pointed to which has the same volume as a chain or a higher volume of chain, were tomorrow to come to -- the were tomorrow to say to the truck driver, “We have decided that we don't want to take any of these in-store services and we're already paying by credit or we go by credit.”
Under the Bowman system, they would still get 8% rather than 11% which their competitors, the chains were getting.
Justice Hugo L. Black: Your argument being then -- it is or is it not that under this as it functions, no independent can get 11% discount while all the chains can.
Is that it?
Mr. Richard A. Solomon: That's exactly right, exactly right.
And these gentlemen, unlike our friends in Borden, don't claim that the independents were getting special deals that there is no such claim here, but that's exactly right.
Justice Hugo L. Black: The argument that the basis being for that -- that the systems are so different that an independent cannot possibly --
Mr. Richard A. Solomon: Well the system is a very simple --
Justice Hugo L. Black: -- (Voice Overlap) --
Mr. Richard A. Solomon: The system of how they pay is very simple.
They have a system which cuts off 200 points up to 200 points as you take more volume when independent gets a higher discount, but when he gets 200 points, that's all.
But as to the chains, they simply give them 11% which is 3% higher than any independent to get.
The system is that the justification is improper in our opinion because it justifies by throwing into the pot these extra cost which the independent some of them don't take and many others wouldn't take if they knew that this was the basis upon which they are being discriminated against.
Justice Hugo L. Black: Suppose they've been able to prove that all no independent is entitled the more than the critical number of points you suggested at least 200, suppose they may be able to prove that, would you say then they could be classified this way?
Mr. Richard A. Solomon: If they can prove that this was an inherent aspect of cost savings to independent as a group, as against chains as a group, of course they can do it.
If they can prove that there are something inherent in the fact that you are a chain which makes it cheaper to sell than to an independent because of your type of ownership or because you are a chain or an independent, then under the statute, they are entitled to have a discount.
But what we are saying is they can't prove it this way.
They can't prove that it's inherently cheaper to sell the chains than the independents by factors which are not true of all the independents and wouldn't be true of many more independents if they knew what was going on.
Justice Hugo L. Black: Would that impose the duty on a court trying one of these cases to look to see if justification for the classification is supported by evidence in that case?
Mr. Richard A. Solomon: Absolutely.
It poses upon the Court the duty of looking at the classification and saying now, does this classification reflect cost savings which are applicable to one class and not applicable to the other or does it merely reflect groupings which are not applicable class against class but are mixed between the classes.
Justice Hugo L. Black: But that different -- different community?
Mr. Richard A. Solomon: Of course, it could.
Of course, it could.
What is true in Chicago may not be true on some other places.
But the importance of this Justice Black is that, the Court here has approved a system of cost justification which if this opinion has approved, will mean in the future, they won't have to worry about rational classification as long as things average out, that would be good enough and this will mean in the future that this type of system can be used by all sorts of chains to persuade big sellers to gets them real advantages.
And with all due respect to Mr. Borden, I always thought the Robinson-Patman Act was passed primarily to make sure that chains don't get unfair advantage of their large buying power.
Justice Hugo L. Black: Upon which part of it that burden risk in connection to that proof?
Mr. Richard A. Solomon: Perfectly clear on Section 2 (b) of the Clayton Act that the burden of proving cost justification rests with the seller.
The burden proving a prima facie case rests with the Government.
A burden then shifts under 2 (b) expressly to the seller.
Justice Hugo L. Black: Do you mean the burden of proving prima facie that that has been a difference in cost?
Mr. Richard A. Solomon: The burden of proving that there's been a price differential which may tend to lessen competition is on the Government.
The burden of proving that that is cost justified is expressly made upon the defendant.
Justice Hugo L. Black: Under that classification, what is the cost differential?
What is the amount to on a quart of milk?
Mr. Richard A. Solomon: Well, a quart of milk costs 20 cents and they give the chain 11% discount from that 20 cents and they give an independent 8% discount of fees in the highest bracket.
Justice Hugo L. Black: Difference of 3%.
Mr. Richard A. Solomon: -- if that's they were doing on this study, then it varies to some but there is a differential.
In fact, this is one of the lesser of the differential.
Justice Hugo L. Black: Is there any claim that that would not be a factor of importance of selling in the price in which they could sell competitively?
Mr. Richard A. Solomon: Yes, there was a claim and that gets back into this prima facie case which I'd like to discuss if I may.
Because Bowman even more than Borden argues that the prima facie case that the Government made here was limited to a similar list, I think it's nine stores in this case and that's all we prove and they claim that they cost justified these nine stations on an individual basis.
Justice Hugo L. Black: That in fact, if it's on in individual basis, that would mean that you have to decide in each case on an individual basis?
Mr. Richard A. Solomon: No sir.
It wouldn't mean that all.
They claim that -- they claim that they did something was unnecessary because they wanted to prove beyond doubt that their general classification, which I've argued, was improper actually works out in practice to be proper.
I'll get in to the fact of their alleged proof of these nine stores in a few minutes.
But I just want to make perfectly clear that -- as in Borden, these nine stores were not the prima facie case.
But Government here wasn't wasting its time bringing an action against these people to have fairness with respect to nine stores, two A&P stores and five or four, eight independent stores.
What we are interested in -- what we were attempting to get and what everybody recognize below was this entire differential broken down for the Chicago area.
What we did with Bowman as with Borden is have an example of a nine stores in two parts of two routes stores close together.
For the same purpose and doing the same thing to show, again, what we thought was obvious and what we think is unnecessary under this Court's decision in the Morton Salt case that these stores were in competition because our friends in Bowman argued vociferously that they weren't in competition, that this whole business of competition was beloning that people don't shop from supermarket to supermarket, that they have their own favorite stores and that they extent of competition and therefore the effect of this price differential was meaningless.
Well, as again, we thought that was unnecessary to really prove but to prove it conclusively, we took a sampling.
We could have taken the whole city of Chicago if we want and done and made a much broader sample but that would have been exactly to fly into the phase of what this Court said in Morton Salt, the Federal Trade Commission we shouldn't do and just wasting time in doing.
But we took a small sample of two routes and said, “All right now, you say that they're not in competition, here is the people that go into both stores” and that all there to this alleged fact that we prove this case -- we proved a prima facie case solely with respect to nine stores.
The Court didn't think so and we didn't think so.
You'll read the Government's trial brief which is not printed in the record but which is before this Court.
You'll find that our prime facie case discuss this primarily as our prima facie case the discount schedule and then uses these nine stores as an example to prove it.
And you'll find that Bowman's reply to these things treats it the same way.
Let me say briefly about the alleged proof store to store with respect to the nine stores.
This appears in Exhibit 14.
Exhibit 14 starts at page 328 of the record and chapter one of that is what purports to be a test of these individual stores.
Now, let's see what Mr. Bergfeld who is making the report here, says he did and remember that Mr. Bergfeld is that he never spoke to any of the individual store about anything, and I just got this information from Bowman.
Now, what did he do in this test?
Did he speak to people or didn't?
Well, reading at the bottom of page 329 here what he said he did, “Well each store on this route, all deliveries during the week of March 14th to 19th were included in the study.
This accounted for a variations and order of size throughout a weekly period.
Each store -- each customer's actual volume and product mix were used as the basis for computing delivery cost, platform cost and list prices.”
In other words, they did find out what the average actual volume and product mix of these stores were.
Did they make a survey of their customer services?
They did not.
Turn to page 330.
Delivery cost was based on a regular service available and generally provided to the type of store.
Since the driver and its equipment must be prepared to perform any or all the group of services setup for independent stores.
The cost of that group is calculated as part of delivery cost and it's incorporated into the discount schedule.
This includes daily cash payment, any optional services, beyond a sidewalk on floor delivery, conversely only of the essential element, services are provided for chain store outlets.
It is understood that additional time is considered unavailable to them and further that the store manager will expedite delivery.
In other words, this alleged store to store survey is no more a valid in their general store to store survey because it's based on an assumption with respect to these customer services.
And my time is --
Justice Potter Stewart: All the independents were on COD basis, were they?
Mr. Richard A. Solomon: All of the independents were.
Justice Potter Stewart: Well, did they pay cash?
Mr. Richard A. Solomon: Do you mean in these nine or in the entire independents?
Justice Potter Stewart: Entirely.
Mr. Richard A. Solomon: No.
All independents were not on the COD basis.
Justice Potter Stewart: Were these nine?
Mr. Richard A. Solomon: What?
Justice Potter Stewart: Were these nine?
Mr. Richard A. Solomon: I don't know.
But all the independents were not.
Justice Potter Stewart: They were not?
Mr. Richard A. Solomon: Definitely not admittedly.
Justice Potter Stewart: How many were and how many weren't?
Mr. Richard A. Solomon: Well, the only figures I can give you sir are and this definitely is not too accurate but the nearest thing to accuracy on this I have is Exhibit 4 on page 286 which Appendix A there has a standard time allowances for 1949 time study.
This is before this particular case but I think these are the time studies upon which a lot of these calculations were based.
Not on whether this proves anything but you'll know that, when they are talking about number of customers at the top here on this other items, they mentioned 1265 and 189 look at that (Voice Overlap) 943.
Now, whether that barely reflects the situation or not, I don't know.
Justice Potter Stewart: This is 1949 that you point out.
Mr. Richard A. Solomon: Yes.
All I can say is it's admitted in the record that all do not and beyond that I don't know.
Justice Potter Stewart: All the chains or that rather the two chains were on a billing system.
Mr. Richard A. Solomon: That's right.
But the main factor here Your Honor actually the main differential is this customer service.
The collection cost are an additional factor but at least the collection cost were charged on per store basis, it didn't have this volume factor which made them out off as the stores got bigger and bigger.
Justice Potter Stewart: I suppose, this delay to collect, is part of this collection, isn't it?
Mr. Richard A. Solomon: I never understood what delay collect was.
Justice Potter Stewart: Probably was waited to see the man for whom they collect.
Mr. Richard A. Solomon: I guess so but --
Justice Potter Stewart: It took 13 one-hundredths of a minute and I guess it took their minute 19 one-hundredths to actually make their collection.
Mr. Richard A. Solomon: Now, my friend here I'm sure is going to say that the record indicates although a lot of the independents didn't take any customer services.
But the record -- the one-third sample which is the only thing we have in the record does indicate that the very biggest independents took some customer services.
I have two things to say to that.
I think that's probably true as long as this discount system doesn't distinguish between what they can get and what they can't get.
But there isn't any indication that these biggest stores would take these services if they knew that this was going to be the difference between 8% and 11% discounts.
Moreover, again, it doesn't really mean anything to show that a store took collect a customer services.
Because this customer service category includes so much which they say vary so much from store to store.
But a big store may take a very minor item and yet they will be listed as having taken customer services in charge for the entire business.
The fact is that 32% of the stores didn't take any customer services and we suggest many more wouldn't if they knew this was going to be the basis.
Justice Potter Stewart: Well this business has taken customer services to these customer services, the various ones, something that varied in a store from day to day?
Mr. Richard A. Solomon: That's what they say.
Justice Potter Stewart: That some day it wants this --
Mr. Richard A. Solomon: That's what they say.
Justice Potter Stewart: -- and then the same store would not want it?
Mr. Richard A. Solomon: I should imagine so.
I should imagined --
Justice Potter Stewart: That this was a cost, the very cost of keeping this available having this available is it continuing cost, wasn't it?
Mr. Richard A. Solomon: Well, I think that -- I think that's a right --
Justice Potter Stewart: It's fully fair, isn't it?
Mr. Richard A. Solomon: I think that's a fair statement of their argument.
Their argument is we don't know what this going to be, what we make this available to everybody, we don't tell them we're making available to them our charging point.
We make them available to everybody and I guess their theory of why it should be on a volume basis is that theoretically since these services are available to people to people in the biggest stores who would ask for huge services because they have more problems.
But there is not any showing if that's what happens and --
Justice Potter Stewart: Did they have different route men serving the independents?
Mr. Richard A. Solomon: Oh no, oh no, (Voice Overlap) oh no, these were all both Bowman and Borden.
The trucks on these roads --
Justice Potter Stewart: The same driver would call on both.
Mr. Richard A. Solomon: Right.
Justice Potter Stewart: Is this idea that all independents will want this more expensive service all independents are the same and their efficiency and their desires to cut down cost.
Mr. Richard A. Solomon: As I told you Your Honor, it's based upon the assumptions made by the Bowman executives of what they thought was the standard practice and not based on anything else because nobody ask the independents.
Obviously, a large independent can set himself up if he wants in a matter to a very close to A&P and the chains deal.
Small corner grocery man I presume would be very difficult.
A Mom and Pop store, he may have to use some services.
But a large independent can, if he wants, set himself up to operate exactly like A&P and Kroger.
No he doesn't have to -- and they can make a differential on this basis too if they want or say we're going to charge so much per quart if you take in-store services and less if you don't.
And then they can give these large independent supermarkets a choice and they could either try and compete pricewise getting the full discount that the A&P and Kroger chain do, or they can try to compete service-wise and try to forget about the price differential take these extra services so they could cut down on the people they hire, but they don't give them that choice and that's our problem.
There's one other point which I haven't enough time to reach which is whether this whole case is here or whether we stipulated the case out of Court.
I can only say that we've explained that thoroughly in our brief and that if you read the colloquy between the judge and the United States in this case, it will be perfectly clear that, two things, First of all, the judge thought he was only stipulating as to admissibility in information.
And secondly, that the United States stressed over and over again that it was going to raise these basic points as well as technical points which we haven't bothered this Court with and we did raise.
We raise this very point with respect to the falsity of this classification based upon the customer service and collection which didn't apply to all independents.
We raise this in our brief below and Borden responded and they did not suggest to the court below that we stipulated this out of Court because of course we hadn't.
Chief Justice Earl Warren: Mr. Stevens.
Argument of John Paul Stevens
Mr. John Paul Stevens: Mr. Chief Justice, may it please the Court.
The issues which were raised by the Bowman cost study are materially different from those raised by the Borden study.
For that reason, I shall, of course, be talking only about the aspects of the case which are unique as to Bowman.
To start with, I'd like to call the Court's attention to the first graduated discount schedule which Bowman put into effect in January of 1953 which is found at page 311 or the record.
The record shows that the time studies on which the independent cost experts employed by Bowman calculated their cost curve were conducted in 1949.
I think, I thought it was clear in the District Court that there is no dispute over the fact that our basic cost studies had anticipated the litigation that made in advance and the cost curves were subsequently developed.
I think that shown in the colloquy at pages 97 and 98 of the record, if we need documentation of it.
Justice Potter Stewart: It is true, isn't it, however that the Exhibit number 4 was prepared for the purpose of --
Mr. John Paul Stevens: Subsequently, that's correct, Your Honor, and of course our specific studies of March 1955 differentials were had to be made after March of 1955.
They gave a specific comparison and we then applied the principles which had been developed previously and showed the cost differentials which related to those specific price differential.
Those studies were naturally made after the fact because they are based on actually transactions.
Justice Hugo L. Black: May I ask you one question --
Mr. John Paul Stevens: Yes sir.
Justice Hugo L. Black: -- before you start.
So I could understand your argument further, do you agree that -- or disagree with what I understood to be the statement if your formulization works out and certainly that no independent I gets the benefit of the full discount?
Mr. John Paul Stevens: No Your Honor, I do not agree with the statement and I would like an opportunity to explain that and --
Justice Hugo L. Black: I just want to --
Mr. John Paul Stevens: -- that the appropriate point I'm trying to show that our cost study specifically differentiates between the classes of stores taking extensive delivery services which include for the most part independents but it says also in any other group and therefore it include the chain.
And on the other hand, the classes of stores taking the less extensive delivery services which are simplified by the chains but the study makes it perfectly clear that if other stores met that standard, it would fall into that class and I will direct Your Honors at page 328 of the record.
It is said in so many words that that is the differential.
So I violently disagree and as I go along I would like to point out that with respect to the actually comparisons which were made, there were in fact these differences and they again as I interpret the Government's position, the actual cost differences fully justify the actually price differences which have been shown.
Justice Hugo L. Black: Do you believe that such a result would be proper under the Act?
Mr. John Paul Stevens: Such a result Your Honor?
I want to be sure I understand the question.
Justice Hugo L. Black: As he said that your comment they result in excluding all independents and that giving discounts greater than to all chain stores.
Mr. John Paul Stevens: I would agree that if there are in fact two stores which are equally costly to serve and if my client adopted the policy of saying you're a chain and I'll give you a better discount from the other even though you are alike in all respects, I would agree that it would violate the statute.
Justice Hugo L. Black: Therefore, it --
Mr. John Paul Stevens: But I said that did not have to be.
Justice Hugo L. Black: It could be shown in some ways that such a result is not necessarily under your formulization.
Mr. John Paul Stevens: That's correct, Your Honor.
That our -- our study was made in advance and that the arrangement of the cost is such that in any store regardless of whom who might own it could qualify.
And I also would like to point out as I go along that I think Government counsel doesn't have the proper respect for the acumen of the independent businessman who run these stores and the knowledge which they have of the cost factors which are involved.
Unfortunately, as I also point out, the record is thinner than I would like on this point because it is a point which is really being argued here and was not developed during the trial.
But I'd like to bring that out as I go along.
We are somewhat limited by the record we have because of the manner in which the case developed.
As I first indicated at page 311 of the record is the first discount schedule which Bowman put into effect adopting these principles and it was put into effect in January of 1953 about a month after the entry of the Dean decree which the Court will recall Judge Campbell relied on when the case was previously up here.
Probably after the Dean decree relying on the time studies which had previously been made Bowman adopted it dramatically new type of discount schedule.
And I think it's significant to note that this schedule avoids a problem which is frequently present in classification cases of whether the person who buys 99 points and gets into one bracket is being unfairly treated as against someone who buys 101 points because sometimes you get a sharp, you have the problem of drawing the line.
Now, we don't say that we are by law compelled to do this, but I say that we were advised by our independent experts it would be good business and it would be a lawful way to do it.
So that, you'll note there are these probably 40 different would appear to be brackets on the schedule.
But even within the schedule, for example, if you'll note between 210 and 220 points, the percent of discounts is 6.1 to 6.2 which in turn means that there is variation even within that range.
So that if the volume was increased to 215, for example, with discount would have been 6.15% or 217, 6.17% every additional quart of milk because of the paralleling of the graduated scale would cost curve entitled the customer to a slightly larger discount.
Justice Hugo L. Black: That's customer per store?
Mr. John Paul Stevens: Per store.
Per store, Your Honor and I might say that our entire study is based on delivery expenses, based on individual store analysis with no aggregation of different units because -- simply because of multiple store ownership.
That doesn't involve in our case at all.
Now, this is significant for this reason which I think goes to the integrity of the entire system and I also would like to say, that it had been my understanding that no challenge was made to the good faith our system.
I interpret Solomon -- Mr. Solomon's remark as perhaps suggesting the contrary, but it's my understanding that the position of the Government throughout the litigation has not doubted the good faith of the manner on which the Bowman Dairy Company attempted to comply with the law.
Now, the reason this is significant, the reason I want to stress it before the Court is that, Bowman had hundreds of customers and it is almost literally true that every customer receive a different net price.
They were -- because of these graduating changes and discounts, you have literally hundreds of different net pricing being charged to the Bowman customers.
And therefore, there was a myriad of prima facie price differentials and price discriminations which was incumbent upon Bowman to be in the position to justify.
And with respect to that myriad of price differentials ranging all the way from no discount at the very bottom level all the way up to 8% at the 400 and over level which was in effect at this time, there is no question raised by the Government as to the integrity or validity of the system by making all of these price differentials.
The case which is presented is solely relating to the possibility that there may be a few extremely large independents who should have got an even larger discount which would have made them exactly equal to the chains.
So they were concerned not with the large body of customers served by Bowman but rather with the possibility of a few independents who have been denied to fair opportunity to qualify for the same discount as a chain.
And I'll try and show that they have been denied any such opportunity.
Justice Hugo L. Black: If they had been, what would you say?
Mr. John Paul Stevens: As I said Your Honor, if the cost of serving them were the same as the cost of serving a chain, you could not -- unless there was some other defense under the statute like good faith meaning of competition.
If the costs are the same, certainly the price has to be the same.
We don't dispute that in the slightest.
Now, so our discount schedule is rather dramatically different.
We believe that it's the kind of bracket discount schedule which is usually presented.
Now, I'd also like to show the prima facie case which the Government developed in this connection and again, I said it doesn't matter when I talked about the prima facie case whether I'm saying they proved nine stores and nine price differentials or whether they are taken as illustrative of the problem as a whole because either way, we met their case.
First of all, bear in mind that this schedule went into effect in 1953 and after this Court remanded the cost to the District Court, on January 11, 1955 the Government moved to reopen the record for the taking of additional evidence.
And the Court granted the motion and advised the Government they would have wide latitude in presenting such case as they needed.
I might say parenthetically, the Government in effect abandoned the evidence that had been involved before which related to many years previously.
The case really started all over as a new lawsuit.
The Government then took the period from January of 1955 to November of 1955 when the pre-trial order containing their prima facie case was stipulated and entered.
And that entire prima facie case is found at the record and the record beginning at page 57 and it runs through page 61 with some schedules and exhibit attached thereafter.
The heart of the case is in the two schedules on pages 62 and 63.
And I'd like to point out that during this time, the Government at an ample opportunity to select stores which would fairly present the problem which they felt needed to be presented to the Court.
And what kind of stores did they select?
They selected two delivery routes, each of which contains examples of chain store units and independents store units.
The independents as it would be natural presenting the plaintiff point of view on the independents in which they particularly rely are among the 2% of the largest stores served by Bowman.
The -- a rebuttal exhibit put in subsequently by the Government in its own -- when it came to rebuttal time and I might say all the evidence relating to average cost and average classification is the Government rebuttal exhibit evidence, our evidence is not based on any kind of averaging of the size of the stores or anything of that character.
The stores which they selected, as I say, excuse me, this rebuttal exhibit shows that 98% of the independent stores purchase less than 200 points per day.
So naturally, they selected independents which purchase in excess of 200 points to present their case.
Justice Potter Stewart: The structured points, it's your maximum discount stops you get, is that right?
Mr. John Paul Stevens: Well, it varies from time to time, Justice Stewart.
The schedules, the different schedules which have been in effect have a different top correct it might presume the reason for that is it varies with the customers then being served.
Justice Potter Stewart: What are we just looking at?
I can't find -- what page is that?
Mr. John Paul Stevens: The one on 311 goes up to 400 points.
Justice Potter Stewart: So 400 points.
Mr. John Paul Stevens: The most recent one I believe goes to 355.
Justice Potter Stewart: 400 points.
Mr. John Paul Stevens: The one which was in effect at the time the case was brought originally went to 150 and then there was an amendment on page 68 carrying it up to 200.
In fact, I believe although the record doesn't show this that that should be up to 300 because if one performs the arithmetical calculation in the bracket between 150 and 300, that require to show up the discount should have been for Charlie's Market in (Inaudible) and the record on page 62 and 63, it will be seen that the discounts granted would only make sense if the top bracket were 300 obviously there is typographical error.
Justice Potter Stewart: Why should it stop anywhere?
Well I guess you're going to tell us that because that's the basic attack that the Government makes, isn't it?
Mr. John Paul Stevens: That's correct Your Honor.
Justice Potter Stewart: But there's any ceiling at all.
Mr. John Paul Stevens: That's correct.
Well, this is the discount here.
I should answer that directly right now I believe, Your Honor.
There is no purpose in publishing a discount schedule containing brackets in which no one falls.
And a logical reason for stopping is this is the group of customers who buy pursuant to this published discount schedule distributed throughout the markets.
And these particular customers, the best examples the Government could find in the Chicago area and I might point out the Government's complaint is limited to Chicago area as specifically defined.
I assume where this particular stores, I would assume they would go out in this year in which they had to developed their case and find the biggest stores and the best examples to support their position.
It is true and I might jump ahead a moment to point out that the rebuttal exhibit which was put in three years later, the day the record closed identified some stores purchasing over 400.
But it doesn't show where those are.
And that rebuttal exhibit applies to the entire area served by the Bowman Dairy Company.
It is not confined to the Chicago area about which the price stipulations and other stipulations relate.
So that we don't know on the basis of this record whether there is a single additional store in the Chicago area larger than those identified in the Government's prima facie case.
And we hadn't -- there were just not an opportunity to go into that because that wasn't considered to be part of the lawsuit.
Chief Justice Earl Warren: And what were those largest ones?
Mr. John Paul Stevens: The largest ones are those referred to on the exhibit of page 481, I believe it is, of the record Mr. Chief Justice.
And Mr. Solomon did correctly point out.
Chief Justice Earl Warren: 600 and some, wasn't it?
Mr. John Paul Stevens: Pardon.
That there were --
Chief Justice Earl Warren: 647.
Mr. John Paul Stevens: There were two stores in September of 1955 whose aggregate purchases the two stores average out to 647.
Chief Justice Earl Warren: That was in what year?
Mr. John Paul Stevens: In September of 1955.
Chief Justice Earl Warren: Well, why wouldn't -- why wouldn't they have been considered in this because there the various stores that would have competed with the -- for the chain stores, wouldn't they?
Mr. John Paul Stevens: Well, Your Honor we do not know for this reason.
As I say this was exhibit was put on the record the day that the case was close.
We don't know whether these stores are within the area described in the complaint.
We, therefore, do not know whether they were charged a different price than the chain stores.
There is no evidence as to what price these stores paid or what discount was given to them.
The record does show that all large stores which are -- which were considered, all stores over the 160 points level way down the line took the customer services.
So there is a cost factor which differentiates all large stores, all large independent stores, from all large, from all chain stores.
So we have two points of doubt here.
One, I assume they fall into the category of those that took the customer services and I also we don't know what their prices were.
Chief Justice Earl Warren: We'll recess now.
Argument of John Paul Stevens
Chief Justice Earl Warren: Mr. Stevens, you may continue your arguments.
Mr. John Paul Stevens: Thank you Mr. Chief Justice, may it please the Court.
As I was pointing out the prima facie case submitted by the Government included these relatively large chains, independent stores.
It also included examples of chain store units which were smaller than the average chain store unit.
The chain stores identified in the case were those purchasing 360 points or less.
The rebuttal exhibits submitted at the end of the proceeding showed according to the Government's calculations that the average chain store combining them altogether purchased approximately 500 points so that their case, we would submit, was selected for the purpose of putting us to a fair test of justifying this price differential.
Justice William O. Douglas: Where is the rebuttal or the exhibit?
Mr. John Paul Stevens: 481, Mr. Justice Douglas is the one which pertains to show the purpose of that exhibit as the title will show us to show the relative usage of glass and fiber containers by independent stores and then on the second page 482 pertains to chain stores.
The only significant figure that is mentioned in that entire exhibit now is the one at the bottom of the first column on 482 where the totals average of 500.48 is given and as I say that's a Government calculation of from data which they had.
Justice Hugo L. Black: That's not argued here -- do you?
That the Government picks out eight to ten, 11 to 12 cases or objective cases, showed there's none a difference in cult that if it is shown that you can fully answer the differential simply by showing at the reference of the particular ones picked out, it might have been a justification or that there was.
Mr. John Paul Stevens: Yes, Your Honor.
We do may take that position.
Justice Hugo L. Black: Even though you're basing the whole thing on a classification of all?
Mr. John Paul Stevens: But we're not basing on a classification Your Honor.
Justice Hugo L. Black: But you're not doing a, "Store to store basis?"
Mr. John Paul Stevens: Your Honor, as I try to point out when I describe the discounts schedules, practically every store we serve gets a different price so that we have the -- we run the risk by doing that on being put to the test of comparing any two stores we serve because practically everybody pays a different price with this continuous sliding scale discount so that we feel we have this burden.
Whenever the differentials are put forward as to our system, we will have to justify the particular differentials that are there.
I don't mean to say that if out of two or 3000 stores and we went to the task of trying to justify all 3000, we justified 2900 and fail to justify on100, that that would mean the whole system should fail, I think there has to be some area reasonableness but it seems to me Your Honor, that the Government or the plaintiff should have the burden of picking examples which would put us to the fair cast.
If they want to predicate their case on the assumption that somewhere in the population of stores which we serve, there is an independent store who is identical to a chain store in the volume which he purchases and in the methods of delivery to him.
There's no great problem in there identifying that store and putting in evidence pertaining to that store.
We submit --
Justice Hugo L. Black: But that still bothers me about that argument is number one, I do not understand that either argument take the position that you must determine it on a store to store basis; that's number one.
Number two, I would suppose that when the Government shows that there have been price differentials made within the classification, that you will have to show that the whole classification was just -- with that regard to those particular eight to ten stores.
Mr. John Paul Stevens: It would be Your Honor but our problem is just what classification are they talking about?
Perhaps I should address myself to them right now.
They suggest that the classification which we have made is chains versus independents.
Now, it's true that in the prima facie case they took some examples of independents and examples of chains and there's frequent talk about the chain stores under one hand and the independents on the other, it's throughout the study, but that is not the principle of classification which is laid down in the cost study and may I direct Your Honor's attention to page 200 and -- I believe it's 78 -- no, 84 of the record which is the basic description of the Bowman Costing System in which the expert suggest in comparing the two classes at various volume levels --
Justice Potter Stewart: From what volume are those?
Mr. John Paul Stevens: 284, the full paragraph beginning at various volume levels.
Calculate the maximum available margin for an independent store (or for any other group receiving equally extensive delivery services so that --
Chief Justice Earl Warren: Is that maximum available margin, 400?
Mr. John Paul Stevens: Your Honor, the margin -- I should pause to explain this for just a moment.
The margin is the margin available to the dairy after all of its costs have been incurred in performing the service and paying for the milk and so forth.
There's a margin left out of which it pays its overhead, its taxes and derives a profit and the study shows that if the margin available on one transaction is equal to the margin available on the other then the cost would be -- necessarily be equal.
So this -- this phrase here is sort of stated in reverse -- it's a -- but the margin refers to the profit margin I might say although that's not entirely accurate, so that you calculate the margin for the independent or anyone else receiving the extensive delivery services and this is done at each volume level and I must stress, that it is not an accurate statement that Bowman relies only on a difference in method of delivery that the method and the volume are -- always work together.
The method -- there are separate cost course and affect which take into the account the volume differentials and also the method differentials; but you calculate for an independent store any other group will be receiving equally extensive delivery services and that goes on in a chain store or any other group receiving equally limited delivery services and certainly that contemplates that if another store was -- did not take the more expensive form of delivery, that it should be -- the costing would be the same as per chain and it would follow the price should be the same so that --
Justice Hugo L. Black: That sounds like a store-by-store basis.
Mr. John Paul Stevens: That's -- well, the procedure which is set up Your Honor.
We don't say that the law requires store-by-store classification -- store-by-store justification, but if a specific case is -- a specific differential is called to our attention and said, you must justify that.
It would seem that a sufficient justification would have been made.
If you have showed that comparing the cost as between those two stores, you can justify the price differential and it is true this procedure makes it possible to calculate on a store-by-store basis and that is exactly what our cost study did.
It was not based on an average of everyone in the group but rather the cost for the particular stores depending on his particular volume and the particular method of delivering to that store; so that it is -- the procedure does permit this kind of defense of because we followed that I don't think that raises the legal question of whether we had to be that detailed but we thought we had gone just as far we could possibly be required to go in defense of the price differentials which were identified by the Government.
Justice Hugo L. Black: Suppose you had in this group that he claims which in reference to one or the other I forgot which, but I'm asking you this because I want you to do an instance where he admitted that they had not been a study made of all the people in that group or that classification.
It was based on the assumption which I understand you would simply say that in independent, one who is inefficient as the other, that he wouldn't deliver it and he wouldn't meet those requirements and your classification still included them.
If you think that because you could show that particular stores the Government have to pick out after make up its prima facie case of discrimination or differential in sales because you haven't been able to prove that that particular store that man was not as efficient would justify your classification.
Mr. John Paul Stevens: Well, Your Honor I'll try and answer that question as directly as I can.
First, let me perhaps correct one thought that I see in the question.
It isn't a question of the efficiency of the store.
It's a question of whether the seller derives efficiency in his own operation by means of the method of delivery to the store and perhaps I should identify where in this cost-saving lies.
The customer services it is true, include different elements but with respect to the large doors and all of the large stores the evidence shows took the customer services.
What we're talking about is the function of taking the milk from the back delivery platform and placing it into the showcases in the interior of the store and rearranging it for sale the next day where they put the milk which is left over from the last state of the front of the case so that'll be sold first and adjust the merchandise taking anywhere from 15, 20, 25 minutes in a large supermarket for the milkman to do this.
If he does it or if the milk driver doesn't do it, then the storekeeper has to employ his own personnel to perform the work because the work must be done.
It's that he can't just dump the milk off.
Now, there is quite obviously a substantial difference in the time required to make the delivery if the milkman goes in and does this work in the one case or in the other case if the storeowner says, "No, you stay out of my store.
I don't want you parading up and down the aisles and I want to keep the aisles free for the customers.
I want it do have that done by my own personnel and I'll absorb that cost to my own operation."
So, the cost and of course the difference in the time he's taking to do it affect the costs to delivery per unit.
Now so -- I'm trying to get to your question.
Justice Hugo L. Black: Alright, well I can see that.
I -- maybe I used the wrong word efficient.
Mr. John Paul Stevens: I'm sorry, sir.
Justice Hugo L. Black: What I meant was that all chains -- all independents would use the more costly method instead of the less expensive method.
Mr. John Paul Stevens: Well, if we would agree and I intended to say this before if I failed to so we would agree that if an independent used the less costly method and this is something that's obvious.
The independent knows whether he's putting a milk away himself or whether the driver.
If he uses the less costly method and there is no other cost saving factor present and our study doesn't rely on any others except differences in volume and this point and the relatively minor point of cash collection which is very -- very trivial importance in the large stores.
If he uses the same method as the chains and buys in the same value -- volume under our study, he's entitled of the same price.
Now, I can't give a legal opinion on whether every independent would always be entitled to it because some other dairy might have other cost savings that we don't rely upon.
Our study does not go into the savings which result from central building -- doing.
We don't analyze the central office savings.
We merely relied on the savings which resulted to the particular units in the delivery methods asked of them together with the increases in volume asked of them.
I hope I've answered your question Mr. Justice Black.
Justice Hugo L. Black: I have difficulty in seeing particularly because it seems to me that Borden takes the different position.
Your position seems to be that you should do this on a store-by-store basis.
Mr. John Paul Stevens: Well, Your Honor our study is prepared for that kind of defense.
Justice Hugo L. Black: Store-by-store basis.
Mr. John Paul Stevens: That's correct.
Justice Hugo L. Black: Showing each particular instance, do you think the act authorizes or either requires or authorize of that?
I'm not sure.
Mr. John Paul Stevens: I don't think it does, Your Honor.
No, but I think it certainly permits that kind of justification because certainly it is a more complete justification than a classification system would and I think that the Government has acknowledged although I must detect some inconsistency in their-- in their -- the papers they filed.
I think they have acknowledged that classification is proper and that we perhaps did more than was required by the statute.
But I would certainly hope that going too far would not prejudice our defense.
I would think that we had done what would be required under any standards of cost defense.
Justice Hugo L. Black: Are they too not inconsistent?
Mr. John Paul Stevens: Pardon me, Your Honor.
Justice Hugo L. Black: Are they too not inconsistent?
Mr. John Paul Stevens: Our defense in the board and defense?
Justice Hugo L. Black: I'm not talking about that.
I don't get it.
The idea that you decided on a store-by-store basis, the idea that you did on a classification basis which includes the number that may have be approximately the same with the same but different in respect.
Mr. John Paul Stevens: No, Your Honor I would not think they're inconsistent.
I would they're all alternative and let me submit why I believe so.
It would seem to me that if you can justify an individual basis you don t reach a question of classification but it could well happen in the bracket system for example, that somebody of the 99 point level gets one discount and somebody at the 101 point level gets another discount and if you couldn't possibly justify on an individual basis, it might nevertheless be true in such a case that considering all the problems of operating a large business that this was a reasonable line to draw and that therefore you should permit the justification on a class basis but I say, we don't -- we don't reach that issue in our case but -- I would feel that these are alternative ways of defending price differentials either by suggesting classification and then you have the -- then you have the question of whether the classification is reasonable but we, as I say Your Honor, don't have that question because we have justified them the particular differentials which have been identified and we would submit that having justified the ones they picked out, that if they are representative for the purpose of the developing a prima facie case equally, our defense of those particular differentials should be representative for cost defense purposes.
If we meet them on the ground which they choose, which deliberately selects large independents in the neighborhoods within a mile and not very close by, but within a mile of the chain stores that they identified so that we would feel that -- that -- that we have carried our burden with respect to the stores they've said unless they did show there were some particular story that does not fit your classification and that particular story sufficiently representative to show that you have a genuine problem.
Justice Hugo L. Black: But they have to show that or would you have to show that?
Who -- upon whom is the burden of proof, the cause (Voice Overlap) --
Mr. John Paul Stevens: The burden is on the defendant -- the burden is on the defendant to justify the cos -- the cost of serve -- to justify the price differentials identified in the prima facie case but we don't conceive our burden to be to justify every conceivable differential that we may have granted to every customer that we serve merely, because they've identified nine cases.
Justice Hugo L. Black: Wouldn't that require the Government to do just that which is an indicator that you said not necessary to do and go on the whole field and try to test out every differentials to every customer in the whole United States.
Mr. John Paul Stevens: No Your Honor, we -- we -- we serve only in Chicago area, it's a local --
Justice Hugo L. Black: And in Chicago, there --
Mr. John Paul Stevens: All they would have to do is find what they believe to be with the test cases that would sufficiently put us to a test; find this large items --
Justice Hugo L. Black: And find it case-by-case.
Mr. John Paul Stevens: No, they would pick them as representative examples.
They don't -- wouldn't have to try everyone but if they -- they had wrap ups available in all the records that it's -- it's no great burden to ask them to find this example that they assume exists somewhere, this is not a -- an un -- unusual burden to place upon a plaintiff.
Say now here, we're talking about someone purchasing 500 points and we say he doesn't take the delivery services.
They're only -- we're talking about four stores in the entire number that Bowman serves that this rebuttal exhibit shows purchased more than 400 points a day.
And as I say, they are not -- it is not shown that they were located in the Chicago area but the number of stores in the independent group that purchases in this volume range can be identified on one hand.
There's no problem about having an FBI man go out and interview the store and say, "does he put the milk away or do -- do you do it, how does it done?"
This and we -- we -- we would submit, they had a fair chance to develop their case and having done so if we meet their case that should satisfy our statutory burden.
Justice Byron R. White: Well, Mr. Stevens, is it your suggestion that if you deci -- if the lower court's opinion is affirmed, that your entire price system is a -- is upheld or do you say that just these particular stores which are involved in the Government's prima facie are disposed of.
Mr. John Paul Stevens: Well, Your Honor, I would -- I --
Justice Byron R. White: I get the suggestion from what you said in the last few minutes that if you meet these representative instances which the Government has presented that you would think that the Government would be barred --
Mr. John Paul Stevens: No Your Honor.
Justice Byron R. White: -- from relitigating any other store?
Mr. John Paul Stevens: I did not mean to suggest that Your Honor, I merely meant to say that certain issues were framed in this lawsuit and all of what happened if the judgment --
Justice Byron R. White: Are you saying all that's involved in this lawsuit are these particular stores and that nothing else about your pricing system is involved in this lawsuit or would be disposed of or decided upon or passed upon?
Mr. John Paul Stevens: Your Honor, let me suggest that this is the proper answer to that question; I'll take it either way.
Either this is the case involving nine stores and we've defended those nine stores or in the alternative, the Government has picked nine stores as representative of our entire customer group and if it's looked at that way if we defend as to those stores, our defense should be as broad as their case.
Justice Byron R. White: Yes, but which way do you look at it as -- as -- as to those to either way, you say look at it either way but which way do you look at it?
Mr. John Paul Stevens: As I say it -- it doesn't -- I haven't thought that it would make any difference how I -- how I look at it, we would not contend that they were barred from bringing another case in any way from attacking the discount schedule by saying, well now we found the different store or something like that.
There's certainly no -- nothing in an affirmance of the judgment below which would preclude the development of a different case in a proper manner if they felt it needed to be developed.
Justice Byron R. White: Do you say that a fair -- fair reading of the opinion below is that only these nine stores were considered?
Mr. John Paul Stevens: I'm not entirely clear although it is not correct to say that Judge Campbell did not refer to the nine stores.
And I think it's five --
Justice Byron R. White: But if the lower court's opinion is affirmed in it's -- in its present form, would you say that -- that-- let's just assume that we're affirmed for per curiam, would you say that -- that the entire pricing system -- your pricing system was --
Mr. John Paul Stevens: No.
Justice Byron R. White: -- was being approved?
Mr. John Paul Stevens: No Your Honor; I would assume that the judgment would only dispose of the litigation which is before the Court which I -- unders-- I understand were just praying certain issues and if the issues are narrowly limited to nine stores it would only relate to those nine stores.
If the Government wishes to argue that it's representative, perhaps they would contend that has broader effect but I would not think so.
I would think that the Government certainly would not be barred from bringing in another proceeding on a broader base or with different examples.
Justice Hugo L. Black: You mean we'll take it tomorrow if this case should be affirmed, if I understand you.
Mr. John Paul Stevens: No question about it.
They could start --
Justice Hugo L. Black: -- start and all the other price differences and the cost wherein this was not a res judicata at all with reference to them or reference to the system you used.
Mr. John Paul Stevens: I would think not Your Honor and we -- we must accept that as the rule for this reason.The market is constantly changing.
There's an exhibit in the record which shows the number of changes on the two delivery routes which are involved here.
The Kroger store --
Justice Hugo L. Black: With that regard to the change of the market, suppose it hadn't change, could they litigate with reference to the difference in prices with reference to other than these nine stores tomorrow --
Mr. John Paul Stevens: Yes.
Justice Hugo L. Black: -- if this should be affirmed?
Mr. John Paul Stevens: Yes your -- in my judgment there's no question that they could.
Justice Hugo L. Black: So that all they can yet decide it and that may be right.
All they can yet decide it is on a case-by-case basis whether it's justified by court.
Mr. John Paul Stevens: I don't believe that's correct, Your Honor.
I didn't mean to -- to state that.
It seems to me that if they, by their examples, have shown a fundamental defect in our price system, that then the Court could grant appropriate relief and it will -- which would be broader than the specific case presented and the relief need not be confined to the nine stores and I don't suggest that.
But it seems to me that if the judgment is affirmed, I would not understand that the government would be barred from going forward in this -- in this area and the reason I -- I would not think they'd be barred is because the market conditions are constantly fluctuating, prices are changing, discounts are changing.
We would have to meet whatever --
Justice Hugo L. Black: But that would not --
Mr. John Paul Stevens: -- question they raise.
Justice Hugo L. Black: -- be based on the idea that you had only adjudicated here between -- as to nine stores.
Justice Byron R. White: Is that the only reason you wouldn't be barred because of the same conditions?
Mr. John Paul Stevens: Well, another reason Your Honor is that there'd be a time differential also.
This is something that happened back in March or 1955, the situation today may present problems which require reexamination.
But I don't know what exactly -- what the effect of the judgment would be.
I can't imagine they're bringing another case involving March of 1955 when they already took a year to get their best possible case.
Counsel were dilident -- diligent and skillful in the trial court --
Justice Hugo L. Black: Then this demonstrates that there's really a problem about whether this can be done on a classification basis throughout the large parts of the economy or that maybe it has to be done on a case to case basis.
Mr. John Paul Stevens: Well again, Your Honor, I don't know because I don't think our case presents that problem.
I think our case presents a problem of some specific price differentials which we believe we have had justified.
Justice Byron R. White: Well, Mr. Stevens, didn't the -- wasn't a part of the Government's prima facie case a -- your entire discount schedule?
Mr. John Paul Stevens: That's correct.
Justice Byron R. White: And included at the two letters to the chains which represented a goodnumber of stores?
Mr. John Paul Stevens: That's correct.
Justice Byron R. White: Wasn't that part of their prima facie case?
Mr. John Paul Stevens: That's correct.
But they also went in to put in -- they put in maps as exhibits showing the location of the nine stores because there's an obligation as far as the affirmative case to show the competitive injury element and they did show what the court found was sufficient competition although we disputed that, there's elaborate evidence in the competition point.
They had no evidence of any actual injury or actual complaints by any customers or anything of that character.
Justice Byron R. White: Well in those issues are (Inaudible)
Mr. John Paul Stevens: I think only in so far as they're relevant to the equitable relief question.
Chief Justice Earl Warren: Mr. Stevens, may I ask you if before this complaint was filed if it was known throughout the industry and particularly among the independents whether they could, by conforming to the same business practices in the same volumes of purchases, obtained the same percentage of deduction.
Mr. John Paul Stevens: Mr. Chief Justice, the record is not developed on that point so that there isn't evidence one way or another as to what conversation -- certainly these stores in the 1500 point bracket, an area would know that they aren't going to get the same discount as the very large one, that would be obvious; but the question is whether these four or five stores that may have been of comparable volume, knew what they had to do to get the chain discount.
Chief Justice Earl Warren: Did you put out any bulletins of any kind on prices?
Mr. John Paul Stevens: There's no evidence of any -- of any bulletins or of any communication whatsoever between the few large independents and the dairy.
Chief Justice Earl Warren: No, I mean to the general public.
Were there any bulletin -- price bulletins from Bowman to the independents generally?
Mr. John Paul Stevens: Only the discount schedules.
Chief Justice Earl Warren: Well at discount schedules, yes.
Mr. John Paul Stevens: That's correct.
But there is not any -- any bulletin --
Chief Justice Earl Warren: And it stops at 400?
Mr. John Paul Stevens: That's correct,Your Honor.
Chief Justice Earl Warren: Now, is -- was there anything to indicate in that bulletin that you put out that -- that -- the -- although the chain stores got 11% deduction that that was because of their difference in doing business and that these others could by conforming to business -- same business practices, obtain the same discount --
Mr. John Paul Stevens: No.
Chief Justice Earl Warren: -- because I understood you to say, that that was the fact, did you not?
Mr. John Paul Stevens: The discount is available if the recommendations of the cost experts are followed.
Now, the discussions which were held in our -- the Bowman Dairy Employee Solicitors who deal directly with the large independents and the small independents; the record does not contain evidence of what was said by either party back and forth as to whether the Solicitor suggested to them.
Well now if you will employ your own personnel to put the milk away and to do these other things, then the discount will be different.
There isn't evidence one way or another on that because it was not an issue in the trial court.
And I would like to point out very -- Excuse me, sorry --
Chief Justice Earl Warren: No, no, go right ahead.
Mr. John Paul Stevens: -- very hastily that these costs studies were submitted to the Government prior to April 20 of 1956; less than five months after the prima facie case was put in.
They were in the hands of the Government for a year and a half while they made a thorough analysis of all the premises on which the studies were based.
The deposition to Mr. Bergfeldfrom which Mr. Solomon read was taken in September of 1956.
Some eight months later in March and May of 1957, the Government made the objections which they felt were valid to the cost studies.
They did not include any of the matters which we're discussing now, and the -- it is true that Mr. Bergfeldhad relied on data submitted by Bowman to him for the purpose of making his study, but it's equally true that all of that data was given to the Government made available for their analysis and review.
They did not find any -- there were literally dozens of types of foundation proof that could have been incorporated into the record to establish admissibility and the like.
The procedure on the trial court was quite different.
It was submitting all these material informally, having the government then identify the objections that they felt were valid to the -- to the studies.
This was done in Bowman; then came forward with additional evidence on these specific objections.
No question was raised about what discussions were had between Mr. Somacas (ph) or Mr. Goldenstern, the large independents and Bowman as to whether or not the services should be withdrawn on a discount granted.
The Government didn't ask those people, they didn't put them on testimony, they didn't develop this point, so that's why it's difficult to give a complete answer.
It's our position, simply stated, that the cost study show that there were actual differences in cost between the people involved.
They fully justified the price differences then that is what the statute required whether this additional burden of going forward in showing to each independent.
I can show you how you can rearrange the operation of your business so that you can take -- qualify for a different discount.
First of all, we say, the statute does not require that and secondly the evidence in the record doesn't enable the Court to determine what was done on that issue because the question was not raised on the trial court and there are many, many factors involved and it would be incorrect, I respectfully submit, to come to the conclusion that independents will automatically decide they wanted the discount which might save them a dollar or two a day rather than employing their own -- and employ their own personnel with some extra cost, that they would automatically do that rather than having the driver for the dairy company put the milk away and then pay the discount under the schedule
Chief Justice Earl Warren: Mr. Stevens, if you'd like five minutes more to sum up, you may have it --
Mr. John Paul Stevens: I would very much Your Honor, if I may --
Chief Justice Earl Warren: -- (Voice Overlap) -- take it off your time.
Go right ahead.
You may have five minutes too Mr. Solomon.
Mr. John Paul Stevens: Well, I'll just quickly state that the studies as has been indicated, were not involved in the averaging of any kind, they were store-by-store, and that was true even as to the study made of the A&P discount as a whole and the Kroger discount as a whole.
What was done there was to analyze the cost of serving each Kroger store in the Chicago area and it was found that if those had been priced independently, individually rather than as a chain, 47 of the 49 stores would have earned the discount of 11% or more.
Two of those would have earned less, but it was our position that the excess that was earned on the 47 stores more than offset the -- that which was the deficiency on the two stores.
Similar procedure followed on the A&P where 42 out of the 43 stores were found to be justified on an individual basis.
There was no averaging as between the chains or of all the units within a chain.
I would like to mention very briefly on the question of equitable relief.
The evidence doesn't contain any showing of any competitive injury of any kind.
The market has changed, Bowman has lost the A&P account and no longer serves it and it no longer serves it.
It no longer serves the Goldblattchain which was receiving an 8 1/2% discount at the time of the prima facie case, so that there is no -- and there's no evidence in the record of any independent coming in and saying, well they wouldn't give, they arbitrarily excluded me from this family that gets a differential.
There is no suggestion of any independent having been made any complaint.
The Government doesn't put in -- they put in no testimony of that kind and made no representations of that kind of -- that kind of proof.
The evidence on which the Government now relies, as I believe I've indicted, is found in the rebuttal exhibits which were put under the record in December of 1958.
Three years after the Government rested its prima facie case.
After during which period it was the most thorough analysis of all of the premises on which our study was based.
The particular stores which were selected for as representatives for testing purposes in fact took the customer services.
I don't understand there to be any dispute about that.
The volume differentials along with the difference in method of delivery fully justified the cause -- the price differentials which are involved here.
The rebuttal exhibit which is now the foundation of the entire government argument, as I say, related to a different issue the question of the percentage of use of glass versus percentage uses of fiber, glass being more expensive to handle because you have to pick up the empty bottles and chain stores use relatively less glass than the independents was shown by their own exhibits which they put in.
That rebuttal exhibit is not confined to the Chicago area, so the large stores identified or referred to in that exhibit are not shown to have paid a different price than the chain stores did.
The classification on which Bowman predicated its entire cost study drew a distinction between chains on the one hand or included in that proof, any other stores receiving limited services and independents or any stores receiving equally extensive delivery services, and if we assume that Bowman would follow the advice of its cost experts which they did when the put into effect these all discount structure, presumably, they would have followed that advice and permitted access to either class as the particularly cost dictated.
I respectfully submit that the Bowman cost defense is sufficient.
Chief Justice Earl Warren: Mr. Solomon.
Argument of Richard A. Solomon
Mr. Richard A.solomon: I think I can be very brief.
I don't want to relitigate this question of whether we were trying to show a price discrimination with respect to a system or nine stores, I think it's perfectly clear that we were showing a discriminatory system based on the entire discount schedule which Bowman had generally applicable throughout Chicago in which nobody has suggested throughout the entire argument below or here was ever deviated from.
Nobody suggests that any independent store ever got more than the maximum of 8%.
There's no suggestion of any deviation and it's perfectly clear that what this case was about as Judge Campbell recognized, was whether this system could be cost justified or whether it could be cost justified.
More than that as I pointed out before on his alleged proof about this nine stores as I read you from page 330 when you looked on how they proved that, that again was based on these assumptions as to this customer services etcetera.
Basically, as far as we can see, this case is a very simple one and illustrates very well --
Justice Potter Stewart: Just before you leave that it -- it's just been stated by opposing counsel that there's no argument about the fact that these nine stores, these independent stores did take the services, didn't it?
Mr. Richard A.solomon: Well without relitigating my argument, I can only say I don't read the first two paragraphs on page 330 to mean that there is no argument.
As I read what they say, they make it perfectly clear with respect to this study of these nine stores that they were again based on assumptions and we're not doing it on any basis of any study.
I read this to the Court before, I can only say read the last paragraph on page 329 and the top two paragraphs on page 330 and then of course it's not a question who -- what Mr. Stevens or I think, is what Your Honor thinks.
Justice Potter Stewart: This record shows.
Mr. Richard A.solomon: Basically, this case is I think very simple one and particularly simple with respect to the problems that Justice Douglas mentioned before.
We have the start of a very reasonable system by moment I agree.
It was counsel for Bowman that there are methods of discounts up to the limit they cut off that for the independent stores is a very reasonable one, very fair and equitable.
All we have to do -- to do -- make this a fair system, the type of system much can be applied in the future defendant, irrespective of where the actual figures are, are three things one, don't cut it off, let it continue on to its natural resting place depending on what the stores actually take in volume.
Two, if there's a differential as there undoubtedly is for in store services, say that the price to stores taking in stores services will be this much more than the stores, then don't take this in store services.
And three, if there's a difference admittedly a small difference with respect to cash customers as against credit customers, charge the cash customers more.
To simple as that.
If you set up your discount on a rational basis which is open to everybody who wishes to qualify for it and can, you don't have to worry about any classification problem and cost justification.
You don't have to worry Justice Black about the details of whether you can do this on an individual basis or a general basis because the whole problem won't arise.
The difficulties here, the inherent difficulties here are not that Bowman has got a false classification as a cost justification, that I suggest is unnecessary consequence of the fact that their discount system was a false discount system and that can be simply taken cared off.
Chief Justice Earl Warren: Very well.