FEDERAL TRADE COMM'N v. SUN OIL CO.
Legal provision: Robinson-Patman
Argument of Robert B. Hummel
Chief Justice Earl Warren: Number 56, Federal Trade Commission, petitioner, versus Sun Oil Company.
Mr. Robert B. Hummel: Mr. Chief Justice, Associate Justices, may it please the Court.
This case is here on writ of certiorari to the Court of Appeals for the Fifth Circuit.
The judgment of the Court of Appeals set aside an order, cease and desist order, of the Federal Trade Commission.
The issue is, under Section 2 (a) of the Clayton Act as amended by the Robinson-Patman Act, is a violation to discriminate among customers where the effect may be to tend to create a monopoly, to tend to eliminate competition, or to injure competition.
Here, the question is, does the Section 2 (b) proviso to the Section 2 (a) violation which I have just related which exempts such a discrimination, having the proscribed defect, where the discrimination is made “to meet an equally low price of a competitor” apply to a special price made to aid a customer, meet his competitor’s price.
In brief, the pertinent facts here are, the Commission found that the respondent, Sun Oil Company, have violated Section 2 (a) of the Act by giving price concessions to one Gilbert McLean, an operator of a retail service station in Jacksonville, Florida, which was not given to other Sun stations in the area.
The examiner and the Commission found that this caused competitive injury to other stations, and specifically to the operators of four other Sun stations located in the immediate area within less than a mile to three-and-a-half miles away.
The finding of competitive injury which was made by the examiner and confirmed by the Commission was not appealed.
What was appealed arose out of the fact that the price, the lower price given to McLean was given because he was losing business to a cut rate station across the street, a Super Test station.
It was claimed that this was a price made to meet an equally low price of a competitor within the meaning of the proviso to Section 2 (b).
The Court of Appeals held that this was within the meaning of the proviso, overruling the Trade Commission’s finding that it was not, and we’re here to contest that ruling.
I propose to discuss the issues in the following fashion.
First, I will discuss the statute as applied to just the limited facts which I have related and then I will propose to discuss the statute as applied in the economic setting and in the light of all the facts of this case.
Turning to the statute on the limited facts, the Robinson-Patman Act was designed to assure equality of opportunity among customers, and by that means, to promote the health in small business and of the free enterprise system.
Thus, the House Report which we quote in our brief at page 27, states at page 8, the existing law has in practice been too restrictive in requiring a showing of general injury to competitive conditions in the line of commerce concerned, whereas, the more immediately important concern is an injury to the competitor victimized by the discrimination. Only through such injury, in fact, can the larger general injury result.
It was pursuant to this philosophy that the Robinson-Patman Act was enacted, and to this extent, the proviso is an exemption or an exception to the major purpose of the Act for the Act reflects Congress’ judgment that the way to promote competition in this area is to assure that so far as possible, there will be equality of opportunity among the customers of a particular seller.
The Act itself reflects dissatisfaction basically with the scope of the old “meeting competition” defense which had been in the Clayton Act.
And to that extent, if I should use the expression meeting competition, it seems to me that I am not properly stating the content of the Section 2 (b) proviso, although I admit that it’s easy to slip into this expression.
We have reviewed the history of the Act detailed and at length in our brief and it is reviewed at considerable length in the decision of this Court in the Standard Oil decision in 340 U.S.
That decision reflected the judgment of this Court that the Section 2 (b) proviso was a defense, an absolute defense, three justices dissenting on the ground that it was a fact -- a factor which the Commission could take into consideration, but need not accept as an absolute defense.
This Court decided that it was an absolute defense, but the Court concluded, I refer now to the majority opinion at the conclusion of its opinion, that the proviso to Section 2 (b) is understandable as “continuing in effect a defense which is equally absolute but more limited in scope than that which existed under Section 2 of the original Clayton Act.”
Now from this, we make just the simple point that the Section 2 (b) proviso was meant to limit the scope of the so-called meeting competition defense.
It was added as a limited exemption to the main purpose of the Robinson-Patman Act.
Now here, we are not arguing that the words to meet an equally low price of a competitor need be construed narrowly.
We are simply arguing that they be construed in accordance with natural, normal usage.
In natural, normal everyday English, reference to a competitor means ordinarily someone who is at the same functional level, a manufacturer against the manufacturer, a wholesaler against the wholesaler, a retailer against the retailer.
I don’t intend to dwell on this point too long, but it seems to me a point that we have not hitherto given sufficient attention.
In normal usage, the corner jeweler selling Elgin watches for example is not a competitor of the Bulova Watch Company nor is the butcher who sells Swift & Company meats ordinarily considered a competitor of the Armor company.
Now I'm not saying that the word competitor cannot have the vertical as well as horizontal meaning, which the expression clearly has in the statute.
Simply said that in these examples, normal understanding is that it has a horizontal meaning and I point out to the Court that the examples I give are cases where there is a direct appeal by the manufacturer to the consumer.
There is brand or loyalty at work and this is not a concept which is a concept which is new since the passage of the Robinson-Patman Act.
Yet neither party to this proceeding nor the amicus or either the friends of the Court has submitted any examples from the legislative history of the Robinson-Patman Act, indicating debate, reports, or otherwise that any members of the Congress considered the words -- the word competitor to have this vertical impact that a manufacturer selling a branded article could be in comp -- could be a competitor of a retailer.
Now, we're not saying that there could not be circumstances under which this would be so and under some concepts under the antitrust laws, this might very well be so, but we're dealing here with a limited exception to a broad policy provision.
Justice Potter Stewart: This is a -- this is a peculiar kind of a business.
It's certainly not like a jewelry store which sells a variety of brands of watches and many other items manufactured by many manufacturers and sold by -- probably by many wholesalers.
This is a -- this automobile -- I mean these service stations, gas stations although setup as independent entrepreneurs sell one product and have no choice, isn't that correct?
Mr. Robert B. Hummel: Yes, this is different.
It is true that the --
Justice Potter Stewart: I don't know that it's unique but it's certainly quite different, quite different from the ordinary jewelry store or dry good store or department store.
Mr. Robert B. Hummel: Well, I could perhaps give you the example of a shirt store specializing in handling a particular brand of shirts and very often it carries the name of the manufacturer of the shirts, Arrow Shirt Store, Manhattan Shirt Store, and it is its primary article of commerce just the retail gas -- service station sells other things besides gasoline and it sells accessories, tires, batteries, and well, it carries the name of the supplier of gasoline on the station. It is not under the Clayton Act required to carry all of the products of the station -- of the oil company.
Justice Potter Stewart: But those -- that is the fact, that those are the facts of life generally, they do carry the products of only one manufacturer, do they not?
Mr. Robert B. Hummel: Yes, they do and we say, our position is that out of that -- the extent to which that station is tied to a particular manufacturer is the result of the choice of the manufacturer basically.
For example, the Sun Oil Company, there's a prior United States Government proceeding against Sun Oil, arising out of the coercive tactics which it used to require its dealers to carry the tires, batteries, and accessories of Sun, but here, we have a service station in a position of subservience to the supplier.
We submit that this position of subservience ought not to be the occasion for bypassing the injury against which the dealer cannot protect himself because he is the titled supplier.
He can't go out and find an alternative source readily because that's not the way the majors do business.
Arising out of that fact, it seems to us not to be a conclusion that he ought thereby just suffer the lost which the four particular service station operators here suffered as a result of the discriminatory price given to the McLean.
Justice Potter Stewart: Of course -- I suppose a fortiori, it's quite clear that had this price reduction not been granted, McLean would've gone out of business very quickly?
Mr. Robert B. Hummel: Well, there is a conclusion to this effect.
I would suggest that --
Justice Potter Stewart: Small businessmen who have just been destroyed very quickly.
Mr. Robert B. Hummel: Well, there were six price cuts in -- with respect to McLean that were deep over a period of six months in the price war which ensued when Sun gave a price cut to McLean which he did not give to its other dealers, there was a period of more than six weeks when all of the dealers of the area, including the dealers for some six or eight other majors who were within a two-and-a-half mile or two -- within a radius of two or three blocks, were competing as substantial disadvantage to McLean.
McLean sold some better than 30,000 gallons of gasoline in the month of January.
The Super Test Station sold 70,000 gallons of gasoline in that same month after the price war which ensued when Sun gave the cut price to McLean.
Now that was five or six times as much gasoline as it had been sold through that corner previously.
That gasoline came from somewhere and where it came from was out of the sales of competitive gasoline dealers who were not given the same price allowance by their supplier, and in particular, four Sun dealers who lost, as I will illustrate later, more both in gallonage and percentage wise during the month of January than then McLean lost in the entire six months that he was in competition with the Super Test Station without the special help of the Sun Company.
But to get back to the statute without the complicating additional facts for the time being, this Court in the Standard Oil case used the word competitor in a number of occasions and gave examples which were all of this horizontal type.
Now the facts of that case involved only the horizontal situation which I am now discussing.
So I'm not saying that the Court had it be -- had that issue before it.
I'm simply saying that this is the natural, normal way, to use the language, and in all the examples given in the Standard Oil opinion and all the examples given in the debate during the Robinson-Patman Act history in Congress, the horizontal meaning, manufacturer against manufacturer, wholesaler against a wholesaler was repeatedly used.
I would suggest that to open up by means of the Section 2 (b) proviso, a situation where every time a retail store cuts the price on one item of branded merchandize, it immediately becomes face to face in competition with the manufacturer of other -- another brand of merchandize which -- with which that brand competes is to open up an unwarranted exception to the Robinson-Patman Act.
Justice Arthur J. Goldberg: Mr. Hummel, I think the records says [Inaudible] --
Mr. Robert B. Hummel: An argument is made that the Commission did have that understanding and I don't propose to dispute it here today.
Yes, we will concede that.
Justice Arthur J. Goldberg: [Inaudible]
Mr. Robert B. Hummel: Yes they were and if they had -- if they were taking that position today, I would not be here defending it.
Justice Arthur J. Goldberg: [Inaudible]
Mr. Robert B. Hummel: Of course, this is -- this I might say that the Commission was or congressional committees felt that the statute was being not properly and -- not enforced at all during the period and I may say it was not too long a period.
The letters which are attached to the brief of the amicus of Texaco indicate that it was about a year from the middle of 1954 to the middle of 1955 when the Commission repeatedly held that position.
Prior, I may say also that prior to 1951, this Court's decision in the Standard Oil case, the problem had different overtones because Section 2 (b) was not considered to be an absolute defense in any attempt by the Commission.
Our position is that the argument of the respondent and Texaco as friend to the Court that this proviso was to be construed broadly in light of the fact that it has the word competitor in it, and therefore, assumedly reflects the general purpose of promoting competition, does violence to the structure of the statute and the intention of Congress.
Texaco indeed speaks of giving this proviso a preferred position such as it deserves in a competitive society.
That's at page 25 of the amicus brief.
It says the preferred position of meeting competition over uniform price treatment under the antitrust laws and on page 29, it says, “One would have expected the Commission to have accorded the meeting competition defense, the preferred position that it deserves in a competitive society.”
We submit, you're dealing with the statute which requires that first there be discrimination in price among com -- customers.
Second, they find it that the effect of that discrimination maybe substantially to lessen competition or tend to create a monopoly or to injure, destroy, or prevent competition.
And in the find -- in the face of those findings to say that the policy of free enterprise is exclusively promoted as is argued here by the proviso to Section 2 (b), is an odd way to construe the statute.
Now, it's not clear entirely as I now turn to the more detailed facts of the case, that the court below did not accept our construction of the statute.
The careful reasoning of the opinion indicates that among other things what the court did was to integrate the Super Test Station across the street backward and at the same time, integrate the Sun station forward.
It said that Sun advertised heavily and appeals directly to the consumer, and that the retail gasoline dealer is simply a conduit for delivering gasoline to the consumer, that is a rare bird among merchants.
The effort in this approach is to put Sun and Super Test on the same horizontal level which I have suggested is the normal way to read the statute.
We think that the dealer's legal independence which Sun saw assiduously creates itself, cannot thus easily be put aside.
The dealer bears the risk of the loss.
He is merely a tenant in the Sun station with a supply contract.
Sun carefully sets it up that way.
Now on the facts of this presentation, it is not easy to see how we, all of a sudden, in a situation where Sun claims the right to deal unequally with its tenants in the stations to say why we're going to ignore this independence and say this dealer is something between an independent contractor, something less than an independent contractor, and something more than an employee as the court below did.
Now I would like, if I may, to review the --
Justice John M. Harlan: Does this relation -- can't this – [Inaudible] your relationship differed to what is generally found in the trade?
Mr. Robert B. Hummel: Among the gasoline?
Justice John M. Harlan: Yes.
Mr. Robert B. Hummel: No, it does not.
This is the usual.
I think there are vastly a greater number of stations independent, occupied by tenants of the gasoline companies and tied to them in one form or another by supply contracts.
They rent the pumps.
They rent the stations and the stations are painted in the colors of the gasoline supplier.
Justice Potter Stewart: Does the record show what the setup was over -- across the street at Super Test?
Mr. Robert B. Hummel: It does not.
Justice Potter Stewart: The Court of Appeals characterized it as an integrated operation I think or didn't come around the state (Voice Overlap) --
Mr. Robert B. Hummel: I do not know where the Court of Appeals got that conclusion.
There is nothing in the record.
There was no issue created on this subject.
The Sun Company offered no evidence whatsoever as to the character of the Sun Company, I mean of the Super Test Company --
Justice Potter Stewart: Super Test --
Mr. Robert B. Hummel: -- or the nature of that operation.
The fact that Super Test owns 65 retail stations, came in, in the course of interrogation of a Ms. Goodwin who was the office manager of Super Test, who was asked to supply certain records as to the gallonage.
She testified she had 10 office employees under her and she received the reports of 65 stations.
Other than that, there is no evidence as to what Super Test character really is and this was not, if I may say it, so far as I'm aware, a defense of the Sun Oil Company in this proceeding.
Justice Potter Stewart: Now, what if instead of the Super Test across the street, it had been Texaco and the evidence was that it was -- the hearing to show that Texaco's setup was exactly the way the Sun Oil did with controlled, theoretical, independent contractors but people who are very much under the control of the supplier, would you have the same case as you have now?
Mr. Robert B. Hummel: I think we might have a case against Texaco because this might arise very well --
Unknown Speaker: [Inaudible]
Mr. Robert B. Hummel: Yes, Your Honor, because this presumes a situation in which the Texaco dealer across the street may very well be -- have been given special arrangements by the Texaco Company.
I'll say this, if Texaco had cut the tank wagon price in the whole area, it will be quite unlikely for Sun to respond by cutting the price at one of its stations.
It would be more likely to respond by cutting the tank wagon put -- its own tank wagon price.
And if Texaco cut the price to the one station, it would immediately become subject to this provision of the Act and it might also become subject to the Sherman Act for having engaged in predatory practices.
And this has something to do with the facts of this case as I want to -- would like to present at this point.
Justice Potter Stewart: But if regardless of what Texaco might or might not be guilty of, if Sun -- if everything were the same except to what I've said that this is a Texaco station and not a Super Test one and it was shown that Texaco marketed its products the way Sun does here.
If Sun had cut its tank wagon price to this to McLean station in order to meet that competition, would you have the same case as you have now?
Mr. Robert B. Hummel: Yes we would.
Justice Potter Stewart: You would?
Mr. Robert B. Hummel: The McLean station opened at the end of February 1955.
It was one of eight stations in the territory of the -- as setup by the Sun Company.
There were six other Sun stations fairly close to it and there were three Sun territories in Duval County which is the Jacksonville area.
In all, there were 38 stations in the Jacksonville area.
Super Test opened in June as compared to McLean opening in February.
It was diagonally across the street from it.
It was one of a chain of 65 stations.
It sold regularly at a price two cents below the price of the major gasoline as for instance the Sun product.
Justice Hugo L. Black: Below all level?
Mr. Robert B. Hummel: Yes.
Justice Hugo L. Black: Not merely Sun but below all level?
Mr. Robert B. Hummel: Oh no.
That's right, below all the major prices then common in the area.
Justice Hugo L. Black: And Sun was the only one that cut the prices there?
Mr. Robert B. Hummel: In response -- yes, subsequently.
As a matter of fact, Sun was the only major supplier which cut its price in the entire six-week period of price warfare to which -- which followed the initial Sun cut price to McLean.
I'm jumping ahead now to another period, but the other Sun -- the other major stations in that area did not move their price.
Justice Hugo L. Black: Suppose they had?
Mr. Robert B. Hummel: To just one of their dealers --
Justice Hugo L. Black: Suppose they had to all the customers in that community --
Mr. Robert B. Hummel: To --
Justice Hugo L. Black: -- in that area or whatever area you want to call it, all in that county for instance, suppose all the others did cut it down?
Mr. Robert B. Hummel: Yes.
Justice Hugo L. Black: In that county.
Mr. Robert B. Hummel: Yes an across the board tank wagon price cut to all the dealers --
Justice Hugo L. Black: Yes.
Mr. Robert B. Hummel: -- there would be no violation of the --
Justice Hugo L. Black: Well, suppose it -- suppose that all the local dealers, not just the tank wagon, the ones who'd sell it to me when I go by, suppose all of them in that county had cut it down except Sun and then Sun cut it down, what would be the situation then?
Mr. Robert B. Hummel: Assuming that Sun cuts its price to all of its dealers, there would be no violation in Sun's action.
I'm not sure I understand your question.
Justice Hugo L. Black: Just in that county but didn't do it in the next county.
Mr. Robert B. Hummel: Well, if in the next county, there might be some peripheral effect on some dealers right at the edge of the area if that's Your Honor's question.
And that might raise a question under the Robinson-Patman Act but the Trade Commission under its 1948 policy recognizes that there may be some peripheral effect on competition resulting from a fair effort to cut a price in an area.
Now this effort, I may say ought to be an effort subject to reexamination that as the events wear on, workout, the company ought to be required to reappraise the situation, to see whether the price that they'd tried to give fairly to all its dealers is working out that way.
I'm not sure if I answered your question.
Justice Hugo L. Black: [Inaudible] of the country, I think.
Mr. Robert B. Hummel: I beg your pardon.
Justice Hugo L. Black: I think I run up in areas in the country wherein the whole counties, you feel like you're coming into an oasis in the desert because you find all of them had cut down there to sell to the automobile owner.
What situation -- would that make any difference?
You'd not always notify them in advance so you can't always take advantage of it. [Attempt to Laughter]
Mr. Robert B. Hummel: I'm afraid I just don't follow Your Honor's question.
Justice Hugo L. Black: Well, for instance, you're going from here to Florida and found frequently that certain sections that seemingly for a whole county, it maybe a county-and-half, there will be what some people call a price war going on and some others would say it's a place to get cheap gasoline and suppose all of them have cut the price there, all but one, would he violate the law if he then cut it to meet their prices?
Mr. Robert B. Hummel: I think clearly not.
I mean, I -- it --
Justice Hugo L. Black: So far as -- what is the area, you have to consider some area in that connection, do you not?
Mr. Robert B. Hummel: Yes.
Justice Hugo L. Black: That's what I'm getting at.
You really have to consider some areas --
Mr. Robert B. Hummel: That's correct.
Now in a recent Pure Oil ruling, a ruling of Pure Oil proceeding involving another type of violation, a primary line violation, the examiner observed that there were something like 500 different tank wagon prices and that's generally what you call I think a county price, a tank wagon price.
There were some 500 different tank wagon prices being maintained by Pure in the 20 odd states in which it operates and that these were not alike except coincidentally.
The Robinson-Patman Act does not require price uniformity in all areas of the country.
In this aspect, what is required is that the seller make a bona fide effort to not discriminate among its various dealers when it gives a price cut to make an effort to see to it that this price it gives a dealer, five dealers, 10 dealers does not cause substantial injury to surrounding dealers.
And then we submit to reappraise that situation in the face perhaps of complaints from neighboring dealers that they didn't get a fair break, and that they are perhaps --
Justice Hugo L. Black: From your neighboring --
Mr. Robert B. Hummel: Of the same company.
Justice Hugo L. Black: Of some dealers, you're talking about this, or competitor dealers?
Mr. Robert B. Hummel: No, I'm -- I'm dealing only with the dealers of one company because this is the issue in this type of proceeding.
I'm not certain I have answered your question Your Honor.
Justice Hugo L. Black: Well, that -- it does raise the problem as to areas (Voice Overlap) --
Mr. Robert B. Hummel: Undoubtedly, there is no question but what it raises a problem.
In this case, the Sun Oil Company cut the price to one dealer. Other dealers complained within a nearby area.
The examiner found they were on a common traffic pattern leading from North or Northwest Jacksonville into downtown Jacksonville from a residential area.
That they could travel alternative routes and that customers wide -- were diverted from the Sun dealers located nearby to McLean station.
The examiner found that this caused the nearby Sun dealers substantial injury and I may say that one of them, the examiner found, dropped from 10,900 gallons in December which was before the price war to 9300 in January.
That's a drop of about 1600 gallons or about 15%.
The examiner found that another dealer dropped from an average of 17,000 or 18,000 gallons a month to 14,500 in January during the price war.
In other words, from 2500 to 3500 gallons lost or 15% to 25% plus car washes, plus tires, batteries, and accessories which might have been sold, incidental repairs, those are lost customers to those dealers.
That's a loss of the total profit on those sales.
Justice Potter Stewart: The loss might have been to Super Test.
Mr. Robert B. Hummel: It might have been, but it wasn't.
Oh, you mean during this period, you mean during the price war period?
Justice Potter Stewart: Yes.
Mr. Robert B. Hummel: Yes.
Some of that probably was to Super Test, but I may say that when -- the way the price war came about, Super Test on the 27th of December cut its price to 24 and ninth tenths cents a gallon.
McLean had been selling at 28 and nine tenths cents a gallon.
When he got an allowance from the Sun Oil Company of one and seven tenths cents a gallon, he cut his price 3 cents.
He hadn't cut it all at that point, but when he got this allowance, he cut it 3 cents.
That put him within 1 cent of the Super Test price.
Now Super Test generally and the non-major gasoline generally have been selling in a 2-cent differential.
So Super Test dropped another penny.
When that happened, it was Super Test and the Sun stations selling well below the regular price.
And moreover, a Royal Arrow station or Red Arrow station, next door also dropped to the Super Test price, another non-major, it dropped an additional penny.
So that, here was all of this gallonage flooding into this corner, now some of it was undoubtedly going to these non-majors because the price gap at that -- the greater the price gap, the more likelihood there is that some customers who would otherwise buy major gasoline will buy this gasoline.
But the point is that the Sun Oil Company was financing this price war, we submit, out of the pockets of the surrounding retail gasoline dealers and in this case out of its own gasoline dealer's pockets because --
Justice Arthur J. Goldberg: [Inaudible] -- your argument is the price cut [Inaudible] in order to [Inaudible]?
Mr. Robert B. Hummel: That's correct.
Justice Arthur J. Goldberg: Have you [Inaudible]
Mr. Robert B. Hummel: I can't tell.
I -- it might -- it might be that this kind of a price cut would be required in order to assure that whatever price war eventuates is being borne by the supplier who has chosen to protect its share of the market as the lower court described it, by cutting its price.
Justice Arthur J. Goldberg: [Inaudible]
Mr. Robert B. Hummel: That's right.
Justice Arthur J. Goldberg: [Inaudible]
Mr. Robert B. Hummel: It happens in this case that the Super Test station, apparently, was the only Super Test station in the area, but let me say this about that Super Test pricing operation.
The lower court describes it as being predatory in two or three occasions.
There is uncontradicted testimony in the record by the Vice President of the Sun Oil Company and by the Director of Marketing Research for the Sun Oil Company, that what Super Test was doing was the commonly used tactic of a non-major breaking into a new market, getting a foothold in the market, building up the gallonage quickly.
Let me read just briefly.
Mr. Charles, the Director of Marketing Research, “Super Test used the commonly used methods of more rapidly developing volume in new service stations that is used by such outlets.
They first utilized the low price.
They lowered the normal price and they advertised that price extensively.”
That's on page 232.
Then Mr. Wright, the Vice President in-charge of marketing, on page 222, gives his understanding of what causes price wars and he lists a number of ways in which price wars come about and the third one is this case.
He says, page 222, “for one of the chains, and this is particularly true where the chain builds a new station, the change man -- chain's management may decide that it would lower the price at that particular chain in order to get that station off to a good start and build a high gallonage with greater rapidity than normal.
This is a practice that is rather well recognized in the industry.”
Now here's a newcomer coming into a market, opening up a gasoline station.
To get that gasoline station of to a start, its cut the price -- cut the price six times in the course of six months, first the grand opening sale that was held six weeks after it opened.
But the idea is, you got a non-major line of gasoline and want people to try that gasoline, you induce them to come to your station with a lower price, and in the hope that they will like it.
The major oil companies spend -- Sun in this case, spends a third of a cent a gallon in advertising its product.
By that third of a cent of gallon, it manages to maintain for its one price gasoline, at this time it had only one rate, a margin of 2 cents over the non-major brands.
It induces the dealers to sell Sun gasoline because it promises them a somewhat protected area from other Sun dealers and it promises them a margin of two cents over the nonstandard brands.
Having established these stations, induce them to come in and take over the operation and this record as it indicates, there is a $2000 deposit involved and then when it gets involved with some price competition, with a non-major trying to break into the market, cuts the price to one station and I say finances a large portion of that price war out of the pockets of the other dealers because they find themselves instead of having a two-cent margin over non-major gasoline, they suddenly find themselves in competition with other stations, selling Sun gasoline at a substantially lower price here, three cents lower.
Burying the clang, crabcree and winning, four Sun station operators who testified in this case, found themselves during this period that they were in business.
They weren't all in business during the whole period, found themselves in a condition where they were competing with Sun gasoline being sold at 3 cents lower than they were selling at.
And we said -- I said this -- this was a means of financing a price war out of the pockets of the dealer and I'd like to explain how this works.
Justice Byron R. White: [Inaudible]
Mr. Robert B. Hummel: Absolutely not.
Justice Byron R. White: Well, why are the [Inaudible]?
Mr. Robert B. Hummel: What I am talking --
Justice Byron R. White: [Inaudible]
Mr. Robert B. Hummel: Yes sir.
Justice Byron R. White: Is that the thing [Inaudible] --
Mr. Robert B. Hummel: That's correct and the Court found in the facts which have been suggested by questions, the problems of the gasoline marketing, the Court found in those circumstances a reason for treating the Sun Oil Company as though it were in direct competition with the Super Test Station across the street.
Justice Byron R. White: [Inaudible]
Mr. Robert B. Hummel: I would say not and that's why I preceded my argument, this part of the argument by discussing how you construe the statute, whether you look for this purpose of promoting competition under Section 2 (a) violation which requires the finding that there be a tendency to monopolize or a tendency to eliminate competition or a substantial injury to competition.
And that you're dealing here with a very limited proviso so that you -- this is not a case where the Court should take all of the facts and look for the ultimate solution which in its judgment will best solve the problems of price wars in the gasoline industry.
This is not a problem susceptible of being so readily solved and certainly not through the -- a construction to be given the Robinson-Patman Act which stands for some general principles which we insist should be adhered to, but these facts which the lower court referred to put an equitable gloss on the case which the Sun Company presents and I'm going into them just for the purpose of ascertaining just what is the impact that these factors which the Court discussed.
When you get right down to it, after you have discussed the fact that the gasoline station is subservient to the Sun Company because it's tied to it as a supplier, the station is painted with the colors of the Sun Company, that it's a lessee who come right back with the proposition that what really lends some color to the Court's proposition that the manufacturer is a competitor of that retailer is that it's a brand product.
The argument is that gasoline like other products has a direct brand appeal.
The testimony of the Vice President of Marketing of the Sun Oil Company at page 210 of the record, illustrates this point and I may say that it also illustrates the point that it's a brand appeal that isn't much different from other brand appeal.
He says, “All manufacturers and distributors of branded products have been emphasizing the superiority of their brand.
They do the [Inaudible] advertising.
They emphasize their brand through the type of package they use.
They are neat.
They are objective.
They are easy to handle.”
I would also say that during this time, all consumers were buying branded packed products in packages.
They buy coffee in packages.
They buy brands of cookies in packages and it has been the same with gasoline.
So the issue is, does a retailer of a branded product who finds in -- who cuts the price of that branded product, does he invite a situation where the manufacturer of other branded products automatically and instantaneously becomes his competitor and he finds himself facing the manufacturer in competition.
And let me say this, “Not only does the manufacturer thereby come in competition with the retailer by this process under this construction, but he has the right to pick and choose which of the retailers he's going to favor in this way.
This Section 2 (b) proviso is not something which a manufacturer has to follow.
It's something which he has the option to follow and if he doesn't like the situation in which this particular retailer is demanding a pay price cut, he doesn't have to give it.
Justice Arthur J. Goldberg: Well, I suppose [Inaudible]
Mr. Robert B. Hummel: I would say that he should apply the statute in such a way as not to discriminate among the stations to their competitive injury.
Now that's not apparently an answer to the question but --
Justice Arthur J. Goldberg: [Inaudible]
Mr. Robert B. Hummel: Let me say this.
In this case, to heighten the question a little more, in this case, the evidence is that before Sun gave the price cut to McLean, none of these dealers were damaged at all by Super Test competition.
So here, you have a case where 4 four dealers, zero, zero, zero against the McLean suffering injury.
And the Commission's position is that we say correctly under the statute, that when it gives a price cut, it has to give that price cut in such a way as not to create injury to those four who had previously been zero, zero, zero, zero.
And if it turns out upon later appraisal, if it makes its first best effort to select a fair across the board price cut or persons to whom they give it, that in fact those persons begin to suffer injury.
It has to make or create accommodation.
This is the Commission's position on the construction with respect to this problem.
Justice Potter Stewart: The automobile being what it is, I don't see that this would stop anywhere short of a nationwide reduction.
Mr. Robert B. Hummel: Well, the -- one might hypothesize that that would be the situation except that as I said in the Pure Oil case, the examiner refers to the fact that there are some 500 different tank wagon prices that being the price at which major -- the Pure Oil Company was selling its retail dealers in various portions of the country and none of them were alike except coincidentally.
The majors are quite accustomed to having different tank wagon prices in different parts of the country, in different counties, in different cities accommodating to local conditions and no -- nothing improbable or impossible about there being as different prices.
Justice William J. Brennan: I don't know if I fully understood your answer to Justice [Inaudible] where the result of Super Test [Inaudible] is to have the gallonage loss in each of the seven places, what would be the form of reduction if Sun Oil [Inaudible]?
Mr. Robert B. Hummel: The direct answer is that it ought to make a reduction to at least those stations, but it might be required to make a reduction to more stations.
Justice William J. Brennan: Well, I know but I gathered --
Mr. Robert B. Hummel: Yes sir.
Justice William J. Brennan: -- Justice Goldberg's question.
Hypothesize only five stations, each of which having various amounts [Inaudible] bought gallonage as the result of Super Test's [Inaudible].
Now what makes Sun Oil fully meet that?
Mr. Robert B. Hummel: It ought to give price cuts to at least to those five equally --
Justice William J. Brennan: Equally.
Mr. Robert B. Hummel: -- or in such a way as not to cause injury from the price cuts which it gives.
In other words, it could be -- it possibly could feather out the price cut and some gasoline stations -- companies do this.
It could give the – a one price cut to two --
Justice William J. Brennan: [Inaudible]
Mr. Robert B. Hummel: To two and the other to three or the others, or it could give it to four into one.
The issue would be not what the prior harm had they suffered from Super Test but what future harm might be anticipated from the special price cut that the Sun was giving.
Justice Byron R. White: [Inaudible]
Mr. Robert B. Hummel: Yes, I am leaving out the primary line of the problem and --
Justice Byron R. White: And there's no claim whatsoever [Inaudible] the primary line.
Mr. Robert B. Hummel: That's correct and there are no charges of the violation of the primary line.
Justice Potter Stewart: What you've address yourself so far to as I understand it is that only by doing what you said Sun would have to do, could it avoid a violation that is from the point of view of injuring competition.
You've just assumed in all of this argument that the proviso, 2 (b) isn't available in this kind of a situation, haven't you?
Mr. Robert B. Hummel: Yes.
And so --
Justice Potter Stewart: And that's -- but that's the real issue in this case, isn't it?
Mr. Robert B. Hummel: Well, I answer the question in terms of our construction, how you would carry out this application of the statute, what would be the practical impact of it?
My argument as to whether or not 2 (b) applies is that you meet the statute in its normal construction that there's no occasion on the facts of this case to read it in the other way and there's no occasion on the history of the legislation to read it any other way.
Justice Potter Stewart: Well, then if you -- is that your whole argument on --
Mr. Robert B. Hummel: This is the essence of my argument on the (Voice Overlap) --
Justice Potter Stewart: I -- because I'd understood that that was the sole issue in this case.
Mr. Robert B. Hummel: Right, correct.
Justice Potter Stewart: But there's no question about the injury of the competition here.
The sole issue is the availability of the proviso to be as a defense?
Mr. Robert B. Hummel: The reason there's no issue as to the injury of the competition is that there is an undisputed finding that there is a -- there was an injury on the secondary line basis to competition.
This is -- this is conceded in the -- I'll reserve the remainder of my time for rebuttal.
Chief Justice Earl Warren: You may Mr. Hummel.
Argument of Leonard J. Emmerglick
Mr. Leonard J. Emmerglick: Mr. Chief Justice, may it please the Court.
The words of this statute and particularly the words of the proviso maybe described by an observation of Mr. Justice Holmes.
A “word” he said is not a crystal, transparent and unchanged with the skin of a living thought.
The words of this proviso are opaque, but more they are imprecise as this Court has had occasion more than once to point out, beginning in Staley and continuing in subsequent decisions.
A microscopic view which walks upon the words of this proviso will not serve to disclose its reach.
The court below therefore took a panoramic view of the statute, of the antitrust laws, and of the economic realities involved in the marketing of gasoline and saw that suppliers indeed compete for the business of motorists that suppliers are indirect in continuous communication with them.
The Court then centered its attention on 19th and Pearl Streets, a residential area in which most of the buyers are highly price conscious coming from low income groups.
The Commission looks upon the words of the statute narrowly and in adopting its construction, it told some to do one of two things; to reduce its price to all dealers, when the dealer like McLean finds himself subjected to a price rate by a chain retailer or to go into direct retailing.
That result was not found by the court below to be consistent with a proper construction of the statute or the spirit and purpose of the antitrust laws as a whole.
Justice William O. Douglas: Had there been any administrative practice by the Commission prior to this case what was its position in other cases?
Mr. Leonard J. Emmerglick: Yes.
The Commission had adopted as an administrative practice, the sanctioning of just such price assistance as is involved here from 1954 until either the end of 1955 or early 1956.
At that time as the court below found, the Commission changed its mind and adopted a different position in a letter written by the chairman of the Commission to a congressional committee, until that letter came to our attention when it became public in early 1956, it was well known to be the Commission's view that price assistance of this sort was consistent with the statute and within the 2 (b) defense.
This is elaborated in detail in the amicus brief filed by the Texas company, the correspondence is set out in full in an appendix to that brief.
Chief Justice Earl Warren: What was the situation before 1954?
Mr. Leonard J. Emmerglick: Well before 1954, the statute was in language when it was construed definitively, was in a language different than the language which is involved now and which was involved in 1954.
The statute at one time spoke of the meeting of the -- meeting of competition.
It was amended to read upon the meeting of a lower price of a competitor.
It is our reading of the legislative history that the purpose of that amendment was to prevent a beating of a lower price rather than a meeting, but not to disturb at all the essence of the defense.
And this Court, in Standard Oil, in 340 U.S. said that despite all of the amendments to the statute, the core of the defense was not at all effective and that it continued to be that wherever a lawful lower price of a competitor threatens to deprive a seller of a customer, the seller to retain that customer may in good faith meet that lower price.
Now, what is involved here is an attempt on the part of Super Test, a chain retailer to deprive Sun of a customer it's outlet McLean by deep price cuts over weekends and sporadically from time to time so that Sun could not readily respond to them, deep price cuts of as much as 5 cents a gallon.
Now, the Commission's position is that if Super Test had made an offer to McLean to sell him gasoline at a lower price, Sun could have met that offer by giving McLean a discount.
Justice Potter Stewart: You mean Super Test is the supplier and there's no evidence in the record as to who that was.
Mr. Leonard J. Emmerglick: Oh, there is no evidence as to who Super Test was.
Justice Potter Stewart: But you mean -- you mean Super Test the supplier rather than Super Test --
Mr. Leonard J. Emmerglick: Or the Super Test Company as a chain retailer having enough gasoline to supply 65 stations.
If for example, that your point itself was an abundance -- an over abundance of gasoline and should try to establish additional outlets or if it should find that it could make large long-term contracts which would lower its cost, if it could only find some more useful outlets, if then Super Test offered McLean gasoline at 2 cents a gallon less than what's on -- was the charge of it, Sun says, the Commission could meet that price and this Court said essentially that in Standard Oil.
Justice Potter Stewart: That clearly is within the literal words of the statute.
Mr. Leonard J. Emmerglick: That is clearly within the literal words of the statute.
Now, if that had happened, Sun could have discriminated against these four dealers working upon them, we will assume the same competitive injury as to the [Inaudible] by giving McLean price [Inaudible].
This coincides with the Commission's view, but the reality is that Sun is just as much deprived of McLean as an outlet by price cuts, by Super Test of 5 cents a gallon which threatened to destroy them and if Super Test wins him over by offering 2 cents of gallon.
In either case, the core of the matter as this Court put it in Standard Oil, the core of the matter is that Sun is being deprived of the customer and the defense exists to enable a seller to defend himself against such a price rate.
Justice Potter Stewart: Well, that's the question before it sued.
Mr. Leonard J. Emmerglick: That is the essential question.
Justice Potter Stewart: It's the only question, isn't it?
Mr. Leonard J. Emmerglick: It's the only question.
Justice Potter Stewart: Availability of the -- this proviso as a defense in this case.
Mr. Leonard J. Emmerglick: Yes.
No, if this statute were a statute which did not meet structure, we would not be here but it is so -- inartificially drawn as this Court and other courts have found that we must search for its meaning by resort to reason to analogy the consistency of the antitrust laws.
Now, on the level of reason, I submit that if we could discriminate to meet a Super Test offer or an offer of a major to say to McLean that essentially, competition is being just as much protected by giving him the kind of assistance that we could give him.
Now this kind of an attack upon Super Test -- upon McLean, could be made by companies only differ from Super Test.
This is not a confrontation simply between Sun Oil Company and a chain retailer called a private brand or an independent.
For example, if a West Coast refinery [Inaudible] should determined into come in to the Eastern market, it could do so and to break into the market, the lower prices of the station office of McLean, without violating the law, and Sun would be confronted by a major competitor of formidable size.
For example, to spend just a moment more on this, Union Oil Company is in California in a case pending in the Ninth Circuit is shown to be marketing gasoline by consigning, not selling.
If the Union Oil Company determined to go into the Florida market and located the station office of McLean and there sold gasoline through an agent to whom gasoline was consigned and dropped the price to break into the market, 3 or 4 or 5 cents surely, Sun should be in a position to meet that competition.
Now it's the view of the Commission that we must reduce our price to all dealers.
This is what the Commission said in its decision.
In its brief in this Court, the Commission said that we should reduce our price to all dealers in the area.
Now, there is great difficulty, however, in determining what the area shall be and to remain free regardless of the determination of a lawsuit by the Commission and likely determination that you have violated your office in top of that.
May I take a few minutes to point out why that is so?
I just want to focus the attention if we may on McLean for a moment by way of introduction.
The only source of help which was available to McLean was Sun.
While Super Test with its chain of resources could fix any price it pleased, McLean's ability to compete depended upon Sun's price to him.
If to help McLean, Sun had to reduce its price everywhere not only would that be economically unreasonable and not supportive and active sound business judgment, but it would have several profound consequences.
Suppose Sun reduced its price everywhere, there would be no discrimination and we would have no problem.
As soon as Sun tried to narrow everywhere and to define a market, the problem is presented.
For in the first place, Sun might select too wide an area, the whole of Florida for example and then there would be a great risk of primary line discrimination, the kind of discrimination identified by this Court in Moore against Mead's Fine Bread or the kind of discrimination found to exist in the Pure Oil case to which my learned friend referred.
In Pure Oil, Pure reduced its price to all of its dealers in Birmingham, but not to its dealers elsewhere.
This was found to be primary line discrimination, hurtful to the independent chain retailers in Birmingham.
Second, we risk selecting two narrow an area and a charge of the secondary line price discrimination even if we select an area larger than McLean, the only one who seemed to be hurt by the bouncing ball kind of price discrimination which was off again and on again every few days.
The most illuminating decision on this subject has come down recently from the Federal Trade Commission and when considered with its decision in this case, exhibits the profound difficulties which the Trade Commission's doctrine presents.
In American Oil, it appeared that Paraland was a private brand and the Shell Oil Company, a major, reduced its price to narrow the two cents brand between the Paraland and Shell.
American then went down in Smyrna, but not in Marietta, these being adjacent communities.
The Court found that American who was guilty of secondary line discrimination because the dealers in Marietta were injured.
So the selection of an entire community did not protect it from a charge of discrimination.
Justice Potter Stewart: Is that case in your brief?
Mr. Leonard J. Emmerglick: That case is in our brief Your Honor.
The Court could -- in the index.
Justice Potter Stewart: Of the Trade Commission.
Mr. Leonard J. Emmerglick: It is the Trade Commission --
Justice Potter Stewart: [Inaudible]
Mr. Leonard J. Emmerglick: There was nothing but the docket number.
Justice Hugo L. Black: What was the name of it?
Justice Potter Stewart: American Oil Company.
Mr. Leonard J. Emmerglick: American Oil Company.
I plan, however, to further enlighten the Court by referring to some parts of the opinion of that case -- of that proceeding.
Justice Arthur J. Goldberg: Is that the one where Commissioner Elman dissented?
Mr. Leonard J. Emmerglick: That is it and in his dissent, he calls attention to the dilemma which a marketer confronts and since it is only the Commission decision, may I read an excerpt from his dissent which states the argument most forcibly?
Justice Potter Stewart: Is that on your brief?
Mr. Leonard J. Emmerglick: Yes.
Justice Potter Stewart: Page 26.
Mr. Leonard J. Emmerglick: It is on page 26 in our brief.
Justice William O. Douglas: Thank you.
Mr. Leonard J. Emmerglick: If American had chosen to give equally large discounts to its Marietta dealers, where could it have safely stopped.
Smyrna and Marietta are located along a major north-south highway with gasoline stations in every town along the way.
A price cut to any station or group of stations would be bound to affect the sales of nearby stations up or down the road.
And if American made its reductions to all stations on this highway, there would undoubtedly be effects upon stations located on adjacent and intersecting roads.
Under the Commission's theory, American's only safe alternative would be to reduce its prices to all of its dealers everywhere.
But if the Commission prepared to say that this enlargement of the local [Inaudible] buyer into a nuclear price war would have effects upon competition less injurious than those of the course of action which American actually pursued.
Now, the sequel to this came just the other day and as I've said, Shell was the first major to go down in this area.
In the reply brief filed yesterday by the petitioner, it is only argued that there need be no concern about the area of price discrimination because the Commission has stated its policy be that surely there would be some fringe effects that these will not bring it about that there will be a violation of the statute.
And in support of that argument at page 6 of the reply brief, the argument was on that a representative of Shell Oil Company testified before a congressional committee looking into this subject that such price assistance as they give dealers is now offered to all their dealers in a competitive retail marketing area.
Well last week, the Commission filed a complaint against Shell because it gave assistance to its dealers in Smyrna as American did.
So the dilemma which is presented by the Commission's tortured reading of the statute is one which makes practical market limitation and impossibility --
Justice Hugo L. Black: What do you mean by “gave assistance”?
Mr. Leonard J. Emmerglick: Gave assistance?
Justice Hugo L. Black: You said gave assistance, you mean cut prices?
Mr. Leonard J. Emmerglick: Cut prices in one form or another, sometimes by lowering the tank wagon, sometimes without lowering the tank wagon by making a (Voice Overlap) --
Justice Hugo L. Black: In other words, they gave lower prices.
Mr. Leonard J. Emmerglick: Gave lower prices.
Now a further difficulty is presented.
Price assistance must be in good faith.
Good faith means among other things that the price must meet but not beat the lower price.
But it also means that a market area geared to the price attack must be selected or if a different market area is selected, then price wars are certain to be generated in remote areas where there has been no need for this lower price and a warrant good faith is very likely the conclusion which will come.
Now, the other alternative of the Commission then is to go into direct retail and this -- the Commission explicitly advises it might do if it needed a direct price release upon its business which is really one that's involved by chains like Super Test.
Now, it is our submission that the elimination of the independent dealer from the American scene was not one of the purposes of Congress in adopting the Robinson-Patman Act.
There were two main evils which the price discrimination law seeks to deal with.
The first was identified before the Robinson-Patman Act was adopted.
That statute, if we take back originally, was adopted to prevent a driving out of competing sellers by price discrimination, something we have come to term or here termed as primary line discrimination.
When the Robinson-Patman Act came, it was to deal with another evil primarily, the confine of a competitive advantage on large chain buyers by giving them lower discriminatory prices.
Neither of those evils is involved here.
Primary line discrimination charge is not charged.
McLean was not a large chain buyer.
He was our outlet that we were trying to protect and a moment's reflection would show that a marketer like Sun gains nothing by helping McLean at the expense of gallonage sold by nearby Sun dealers.
It's merely taking gallonage from one dealer and transferring it to another.
At the same time, we make our dealers unhappy and dissatisfied and we gave nothing at all by discriminating in price and helping less than all who are under attack.
We gave price assistance to McLean.
He was the only one who seemed to be hurt.
Other marketers did not give any assistance to their dealers until six weeks later.
Then the hurt became apparent to all marketers and then we gave assistance to all of our dealers.
There was no --
Justice Hugo L. Black: In what area?
Mr. Leonard J. Emmerglick: In Jacksonville.
Justice Hugo L. Black: You mean by that, you cut the prices.
Mr. Leonard J. Emmerglick: We cut the prices, yes.
Justice Hugo L. Black: I can understand that (Voice Overlap) --
Mr. Leonard J. Emmerglick: Yes, we cut prices, Mr. Justice Black.
Justice Hugo L. Black: It may not be euphemistic [Inaudible].
Mr. Leonard J. Emmerglick: Yes.
Justice Hugo L. Black: -- I understand you.
Chief Justice Earl Warren: Would your position be any different here if Super Test was not a chain of stations, it's just a small independent station?
Mr. Leonard J. Emmerglick: It would not be any different Mr. Chief Justice if we look to the fundamental basic premise of our position which is that a gasoline supplier of grand profit is in competition for the business of motorists.
He almost in a sense reaches over the dealer to make direct contact with motorists.
He maintains the bulk of these supplies, the dealer having very little storage deposit and he provides a uniform product.
He keeps the brand in high esteem and the dealer is as Mr. Justice Jackson put it in his dissent in the Standard Stations case, a conduit so that the verity is that the supplier of a branded product is in competition for the business of the motors with anyone else who is seeking that business.
Now, this is of course a theoretical possibility that such a situation might arise.
I would point out that it is not very likely that Sun would exercising judgment lower its price where a dealer without any assistance from a supplier, a single dealer lowered his price in competition with McLean and the evidence of that is that for four months, Sun carefully refrains from doing anything to help McLean.
In retrospect, we acted too late, but this evidence is the unlikely one that absent an attack of an aggressive sort why someone like a chain or like another major able because of superior resources to destroy McLean.
As to that kind of attack, it is unlikely that Sun would give assistance but in the presence of such a confrontation as existed here, a chain retailer with 65 stations versus a small businessman, McLean, Sun I think had given a situation like that as the statute permit as construed here might come to the assistance of it, every dealer who seems to be hurt might be expected to do so.
Justice Arthur J. Goldberg: [Inaudible]
Mr. Leonard J. Emmerglick: Throughout the City of Jacksonville.
The [Inaudible] that Super Test triggered a price war in mid-February.
This price war came about first by the reduction throughout the city of prices by a number of majors, and thereupon, some reduced its price, lowered its price to all its dealers throughout the city.
The elimination of the independent dealer is threatened by the Commission's interpretation and the argument in the brief of the Commission before this Court attempts to suggest that this has not been taken seriously but there is no likelihood that major gasoline suppliers would go back to direct retail.
Well, now in Standard Oil of California, Mr. Justice Douglas in his dissent, pointed out that a narrow construction of Section 3 of the Clayton Act would set the stage for direct retailing or the use of agency which he said in practical effect means control the refilling stations by the oil companies.
Now that development, Your Honors, has come about.
The Union Oil Company is shown by this proceeding pending in the Ninth Circuit to be consigning gasoline.
Two proceedings pending in the Federal Trade Commissions, attack consignment operations in the marketing of gasoline, one of them against the Sun Oil Company, and in the record in that case, it appears that Sun adopted the method of offering consignment to its dealers in the Norfolk market area because a few weeks before, the complaint in this proceeding was filed against it, and because of the difficulties in determining just where to draw the line in market delimitation and to be free when you draw it from either primary line or secondary line charges or both and to be sure that you have the benefit of the proviso because if you draw the line, you still don't have the benefit of the proviso of the Commission's view was sound.
And if you don't have the benefit of the proviso, you can't draw any line, you must reduce prices to everybody.
Now, no such [Inaudible] results fall from the interpretation of the statute in the court below.
The McLean's of this world can be preserved from price range by chains and powerful majors through price assistance carefully geared to be defensive and solely defensive.
Predatory pricing is not facilitated.
The Commission's view is claimed in its brief to be grounded and appear that the other view will promote predatory pricing.
For that, if it should exist, could be easily detected.
The difference between predatory pricing and defensive pricing is manifestly clearly in this case.
The state of affairs is not big Sun versus little Super Test.
It was Super Test which attacked McLean, Sun merely reacted when Mclean appealed to it for help and as it was reacted with perhaps too much circumspection and care before deciding to give him help.
Now of course it is true --
Justice William J. Brennan: Waiting for four months [Inaudible]
Mr. Leonard J. Emmerglick: Well, perhaps we should have helped him shortly than waiting for four months, Your Honor.
I think we would have been barred from doing so if we had waited for four months.
Justice John M. Harlan: Do you think it makes no difference in your case what the actual facts are as to the position of the Super Test in relation to its suppliers?
Mr. Leonard J. Emmerglick: Well, we think that --
Justice John M. Harlan: The record doesn't show us but --
Mr. Leonard J. Emmerglick: We think it makes no difference.
Justice John M. Harlan: That's what I understood your argument to be.
Mr. Leonard J. Emmerglick: Because Super Test is a chain retailer at least --
Justice John M. Harlan: Oh, we don't know.
Mr. Leonard J. Emmerglick: Well, the record shows that it has 65 retail stations.
Justice John M. Harlan: Well, if you assume that it isn't a chain retailer, what is your -- does this affect your position?
Mr. Leonard J. Emmerglick: It does not affect our position.
Justice John M. Harlan: Is this -- as I understood your argument?
Mr. Leonard J. Emmerglick: Because the market's confrontation is the same.
Super Test versus McLean had we defensively undertaking to preserve him from aggressive price attack.
Justice Potter Stewart: Would affect a little bit the eloquence of your argument because you couldn't talk about this big giant.
Mr. Leonard J. Emmerglick: Yes indeed. [Laughter] Well, may I add one more comment on that, on that subject?
There was an augmenting of the force and vigor of competition when Super Test if it had one station or 65 stations lowered its price, the competition was theoretically benefited by that act.
And if the situation went on that way, there would be an augmenting of competition compared with the situation just before.
Now if in addition, Sun can help McLean lower his price, there is a further augmentation of competition so that the competition is aided and the fundamental aims of the antitrust laws are promoted by the construction of the court below.
Chief Justice Earl Warren: Mr. Marianne or Mr. Hummel, I mean.
Rebuttal of Robert B. Hummel
Mr. Robert B. Hummel: May it please the Court.
I would like to refer one more time to this price war and the four months that Super Test was presumably oppressing McLean before the price cut was given by the Sun Oil Company.
The record shows that Super Test cut the price on the 27th and 28th of August and it did not cut the price thereafter until the 3rd, I'm sorry the 4th of December, the 4th, the 12th, 13th, and 14th, and 27th of December.
On the 27th of December, Sun responded with a price cuts to McLean.
So there was a four-month period there when no deep price cuts were made by Super Test during that period.
The Court will resort that -- will refer to the table at page 354, will find that McLean continued to lose gallonage.
Now, reference has been made to the --
Justice Potter Stewart: Is that -- was this -- is this good or bad from your point of view, I --
Mr. Robert B. Hummel: Well, this --
Justice Potter Stewart: Should Sun have cut -- done these four months earlier from your point of view?
Mr. Robert B. Hummel: This, if Your Honor please, refutes the notion that McLean was being oppressed by Super Test.
The oppression is alleged to come from the deep price cuts which it has said were repeatedly made and which repeatedly caused McLean to complain to the Sun Company.
But actually, the price cuts were made in August, late in August after Super Test had been in business for at least six weeks.
Justice John M. Harlan: What conceivable holding does Sun Oil have to favor McLean over against some of the dealers?
Mr. Robert B. Hummel: If Your Honor please, it appears to me that this is a kind of signal price warfare.
This is the way --
Justice John M. Harlan: A what?
Mr. Robert B. Hummel: Signal price warfare.
This is a way --
Justice Potter Stewart: Single or signal?
Mr. Robert B. Hummel: Signal.
This is a way --
Justice John M. Harlan: Is it --
Mr. Robert B. Hummel: -- in which the Sun Oil Company tells the Super Test Company, “Hold off on these price cuts or we will cut the price so close to your price that you will have to come down and as happened here, you will be selling 61,000 gallons of gasoline at a substantially lower price than you had previously been selling it.
Now, I said it was a signal and I say it's a signal in this sense.
The other major oil companies standby and do not respond when this happens.
Justice Arthur J. Goldberg: As I understand it, you [Inaudible] --
Mr. Robert B. Hummel: Six weeks later after this price war had gone on for six weeks out of what I say is the profits of the other Sun dealers and other independent, the other major dealers in fact.
Justice John M. Harlan: Did the Commission or the examiner make any findings that this was --- that Sun Oil had a predatory purpose in all that?
Mr. Robert B. Hummel: That -- there was a finding that the purpose of Sun Oil was to go below the price of Super Test as normally maintained and that this refuted the good faith defense.
The Court of Appeals reversed on this finding and it is not here for review.
We did not petition --
Justice John M. Harlan: It is --
Mr. Robert B. Hummel: -- for certiorari on this Your Honor.