Facts of the Case

From 1972 through 1978, Falls City Industries, Inc. sold beer to Vanco Beverage, Inc., the sole wholesale distributor for Falls City in Indiana at a higher price than Falls City charged its only wholesale distributor in Kentucky. Under Indiana law, brewers were required to sell to all Indiana wholesalers at a single price, Indiana wholesalers were prohibited from selling to out-of-state retailers, and Indiana retailers were not permitted to purchase beer from out-of-state wholesalers. Vanco filed suit, alleging that Falls City's price discrimination violated section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act. The Federal Court found that Vanco had established a prima facie case of price discrimination. The court rejected Falls City's "meeting-competition" defense under section 2(b) of the Clayton Act, which provides that a defendant may rebut a prima facie showing of illegal price discrimination by establishing that its lower price to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor. The Court of Appeals affirmed.

Question

Is the meeting-competition defense of section 2(b) of the Clayton Act available only if the defendant sets its lower price on customer-by-customer basis and creates the price discrimination by lowering rather than by raising prices?

Conclusion

No. In a unanimous opinion delivered by Justice Harry A. Blackmun, the Court held that section 2(b) is not so inflexible. The Court held that the meeting-competition defense required a seller at least to show the existence of facts that would lead a reasonable and prudent person to believe that the seller's lower price would meet the equally low price of a competitor and required the seller to demonstrate that its lower price was a good faith response to a competitor's low price. "Falls City contends that it has established its meeting-competition defense as a matter of law. In the absence of further findings, we do not agree," wrote Justice Blackmun.