"unlawful" under the Robinson-Patman Act. In Standard 011 Co. v. FTC, 41 the Supreme Court's opinion referred to the defense as contemplating the meeting of a "lawful" price. For years the FTC required that the party seeking to invoke the defense prove that the price it was seeking to meet was, in fact, lawful. 42 / An appellate opinion, however, interpreted the Supreme Court's opinion as requiring merely that the seller be meeting a price which he did not know was unlawful. That opinion would seem to negate the FTC's interpretation that the burden of proof concerning legality of the price rests upon the seller. 43/ But if a seller knows or has reason to know a competing price is unlawful, the law requires the seller to engage in litigation rather than competition.

Risk also attends a seller's decision to meet competition by adopting an entire pricing system for that purpose rather than by specific competitive price cuts. The Commission asserts that a uniform change in the seller's total pricing system will not satisfy the meeting competition defense. 44/ There is a split authority among the various circuits. A Second Circuit

42/ Tri-Valley Packing Ass'n., 60 F.T.C. 1134 (1962), rev'd on other grounds, 329 F.2d 694 (9th Cir. 1964).

431

Standard Oil Co. v. Brown, 238 F.2d 54 (5th Cir. 1956).

44 Knoll Int'l, Inc., [1970-1973 Transfer Binder] CCH TRADE REG. REP. 19,768 (FTC 1971).

24

opinion is in accord with the view expressed by the FTC. 45 / The Fifth Circuit, on the other hand, has held that, at least where a new competitor in the market seeks to establish a viable market share, the Act does not necessarily prohibit the use of pricing systems to meet competition. 46 / A subsequent Fifth Circuit opinion, however, casts doubt upon the ability of a seller to rely on the meeting competition defense when a pricing system is involved. In Surprise Brassiere Co. v. FTC, 47/ the court indicated that, where possible, a seller seeking to meet competition must limit his actions to the narrowest possible response.

Finally, under the Act as interpreted a seller may "meet but not beat" a competitor's price. For example, in National Dairy Products Corp., 48/ the FTC held that a seller of milk products had failed

to establish a meeting competition defense when the record showed that the seller, in response to a competitor's price cuts, had undercut, rather than simply met, his competitor's price. 49/ The "meet but not beat" rule moderates potential price competition; the two competitors' prices, assuming compliance with the Act, will be identical. Of course, the requirement also exposes the seller to liability if he makes a mistake by

451 Standard Motor Prods., Inc. v. FTC, 265 F.2d 674 (2nd Cir.) cert. denied, 361 U.S. 826 (1959).

46/ Callaway Mills Co. v. FTC, 362 F.2d 435 (5th Cir. 1966).

47 406 F.2d 711 (5th Cir. 1969).

48 / 70 F.T.C. 79 (1966), aff'd, 395 F.2d 517 (7th Cir.), cert. denied, 393 U.S. 977 (1968).

49/ Id. at 198.

going "too low" in response to price competition.

This risk may cause the seller either to withhold a response or to check with his competitor.

Either course is undesirable; the latter would likely violate the

Sherman Act.

The Commission is also of the view that the meeting competition defense is available only when a seller who cuts prices is attempting to retain present customers and not when he is seeking to acquire new customers. In Sunshine Biscuits, Inc., 50/ the meeting competition defense was held inapplicable to a seller seeking to acquire new wholesale customers by promotional pricing. While the Seventh Circuit rejected

that interpretation, finding it "economically unsound" 51/, the Second Circuit has apparently accepted the Commission's interpretation of the defense. 52/ The FTC thereafter announced that it intended, in all cases, to limit the use of the meeting competition defense to defensive situations. 53/

Even the defensive use of the meeting of competition defense may expose a seller to liability where he cuts prices, not to meet his own competition but to help a customer meet his competition.

In FTC v. Sun

Oil Co. 54/ a gasoline refiner granted a reduction in price to one of

50/ 59 F.T.C. 674 (1961), rev'd, 306 F.2d 48 (7th Cir. 1962).

51 / 306 F.2d at 52.

52/

Standard Motor Prods., Inc. v. FTC, 265 F.2d 674, 677 (2nd Cir.), cert. denied, 361 U.S. 826 (1959).

53/ FTC Press Release (Nov. 23, 1962, 1 CCH TRADE REG. REP 3345.52).

54/ 371 U.S. 505 (1963).

its independently owned service station customers, who was faced with price competition from a nearby service station selling a competitive brand of gasoline. The Supreme Court held that the meeting competition defense of Section 2(b) was not intended to cover the situation where a supplier gives a discount to help a customer meet competition.

The practical difficulty of establishing defenses to Robinson-Patman charges thus deters a rational businessman from engaging in selective price reductions. After a businessman has been told by legal counsel that the law favors any injured party wishing to attack his pricing policy, he must further be told that his defenses provide at best uncertain protection. As one eminent antitrust and Robinson-Patman Act practitioner testified, a seller can never be sure whether his cost justification study, no matter how diligently prepared, will satisfy the FTC. Furthermore, the execution of such a study involves methods foreign to accountants and businessmen, and requires extensive supervision by attorneys. 55 / Similarly, the difficulties facing a seller considering reliance on the meeting competition defense are enormous:

a salesman is almost

required to become a lawyer in order to know how he can meet competition

and stay within the law." 56/ The average businessman may resolve doubts over the legality of price cutting by maintaining the higher price.

55 Testimony of Paul H. La Rue, DCRG Hearings, Tr. 205-206.

56/ Id. at 207.

3. Certain Pricing Practices Are Per Se Illegal

Without a Showing of Competitive Harm

While the statutory defenses to a charge of price discrimination are complex and unreliable, there are sections of the Robinson-Patman Act

which prohibit pricing activity without regard to effect upon competition and which allow only limited or no defenses.

Section 2(c) of the Act

makes it unlawful for either party to a transaction to: 57/

pay or grant, or to receive or accept, anything of value
as a commission, brokerage, or other compensation, or
any allowance or discount in lieu thereof, except for
services rendered in connection with the sale or purchase
of goods, wares, or merchandise, either to the other
party to such transaction or to an agent, representative,
or other intermediary therein where such intermediary
is acting in fact for or in behalf, or is subject to
the direct or indirect control, of any party to such
transaction other than the person by whom such
compensation is so granted or paid.

Section 2(d) and (e) 58 / prohibit a seller from granting a customer
advertising or promotional allowances or services unless such benefits
are made available to all customers on a proportionally equal basis.
These sections were intended to prevent the circumvention of the
Act's prohibition of discriminatory discounts through the devices of
"dummy" brokerage payments or promotional allowances granted or received
in lieu of direct discounts. Where violation of any of these sections
is charged, however, the complaining party need not prove any adverse
effect upon competition. 59/ Moreover, neither statutory defense is

59/

FTC v. Simplicity Pattern Co., 360 U.S. 55, 65 (1959).