Texaco Inc v. Hasbrouck/Concurrence Scalia

by Antonin Scalia

Justice SCALIA, with whom Justice KENNEDY joins, concurring in the judgment.

I agree with the Court that none of the arguments pressed by petitioner for removing its conduct from the coverage of the Robinson-Patman Act is persuasive. I cannot, however, adopt the Court's reasoning, which seems to create an exemption for functional discounts that are "reasonable" even though prohibited by the text of the Act.

"It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality . . . where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, 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 quantities in which such commodities are to such purchasers sold or delivered." 15 U.S.C. § 13(a).

As the Court notes, ante, at 556, sales of like goods in interstate commerce violate this provision if three conditions are met: (1) the seller discriminates in price between purchasers, (2) the effect of such discrimination may be to injure competition between the victim and beneficiaries of the discrimination or their customers, and (3) the discrimination is not cost based. Petitioner makes three arguments, one related to each of these conditions. First, petitioner argues that a price differential between purchasers at different levels of distribution is not discrimination in price. As the Court correctly concludes, that cannot be so. As long ago as FTC v. Morton Salt Co., 334 U.S. 37, 68 S.Ct. 822, 92 L.Ed. 1196 (1948), we held that the Act prohibits differentials in the prices offered to wholesalers and retailers. True, in Morton Salt the retailers were being favored over the wholesalers, the reverse of the situation here. But if that factor could make any difference, it would bear not upon whether price discrimination occurred, but upon whether it affected competition, the point I address next.

Second, petitioner argues that its practice of giving wholesalers Gull and Dompier discounts unavailable to retailer Hasbrouck could not have injured Hasbrouck's competition with retailers who purchased from Gull and Dompier. Any competitive advantage enjoyed by the competing retailers, petitioner asserts, was the product of independent decisions by Gull and Dompier to pass on the discounts to those retailers. This also is unpersuasive. The Act forbids price discrimination whose effect may be "to injure, destroy, or prevent competition with any person who . . . knowingly receives the benefit of such discrimination, or with customers of [that person]." 15 U.S.C. § 13(a) (emphasis added). Obviously, that effect upon "competition with customers" occurs whether or not the beneficiary's choice to pass on the discount is his own. The existence of an implied "proximate cause" requirement that would cut off liability by reason of the voluntary act of passing on is simply implausible. This field is laden with "voluntary acts" of third persons that do not relieve the violator of liability beginning with the act of the ultimate purchaser, who in the last analysis causes the injury to competition by "voluntarily" choosing to buy from the seller who offers the lower price that the price discrimination has made possible. The Act focuses not upon free will, but upon predictable commercial motivation; and it is just as predictable that a wholesaler will ordinarily increase sales (and thus profits) by passing on at least some of a price advantage, as it is that a retailer will ordinarily buy at the lower price. To say that when the Act refers to injury of competition "with customers" of the beneficiary it has in mind only those customers to whom the beneficiary is compelled to sell at the lower price is to assume that Congress focused upon the damage caused by the rare exception rather than the damage caused by the almost universal rule. The Court rightly rejects that interpretation. The independence of the pass-on decision is beside the point.

Petitioner's third point relates to the third condition of liability (i.e., lack of a cost justification for the discrimination), but does not assert that such a justification is present here. Rather, joined by the United States as amicus curiae, petitioner argues at length that even if petitioner's discounts to Gull and Dompier cannot be shown to be cost based they should be exempted, because the "functional discount" is an efficient and legitimate commercial practice that is ordinarily cost based, though it is all but impossible to establish cost justification in a particular case. The short answer to this argument is that it should be addressed to Congress.

The Court does not, however, provide that response, but accepts this last argument in somewhat modified form. Petitioner has violated the Act, it says, only because the discount it gave to Gull and Dompier was not a "reasonable reimbursement for the value to [petitioner] of their actual marketing functions." Ante, at 562; see also ante, at 570. Relying on a mass of extratextual materials, the Court concludes that the Act permits such "reasonable" functional discounts even if the supplier cannot satisfy the "rigorous requirements of the cost justification defense." Ante, at 561. I find this conclusion quite puzzling. The language of the Act is straightforward: Any price discrimination whose effect "may be substantially . . . to injure, destroy, or prevent competition" is prohibited, unless it is immunized by the "cost justification" defense, i.e., unless it "make[s] only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which [the] commodities are . . . sold or delivered." 15 U.S.C. § 13(a). There is no exception for "reasonable" functional discounts that do not meet this requirement. Indeed, I am at a loss to understand what makes a functional discount "reasonable" unless it meets this requirement. It does not have to meet it penny for penny, of course: The "rigorous requirements of the cost justification defense" to which the Court refers, ante, at 561, are not the rigors of mathematical precision, but the rigors of proof that the amount of the discount and the amount of the cost saving are close enough that the difference cannot produce any substantial lessening of competition. See ante, at 561-562, n. 18. How is one to determine that a functional discount is "reasonable" except by proving (through the normally, alas, "rigorous" means) that it meets this test? Shall we use a nationwide average?

I suppose a functional discount can be "reasonable" (in the relevant sense of being unlikely to subvert the purposes of the Act) if it is not commensurate with the supplier's costs saved (as the cost justification defense requires), but is commensurate with the wholesaler's costs incurred in performing services for the supplier. Such a discount would not produce the proscribed effect upon competition, since if it constitutes only reimbursement for the wholesaler one would not expect him to pass it on. The relevant measure of the discount in order to determine "reasonableness" on that basis, however, is not the measure the Court applies to Texaco ("value to [the supplier] of [the distributor's] actual marketing functions," ante, at 562), but rather "cost to the distributor of the distributor's actual marketing functions"-which is of course not necessarily the same thing. I am therefore quite unable to understand what the Court has in mind by its "reasonable" functional discount that is not cost justified.

To my mind, there is one plausible argument for the proposition that a functional basis for differential pricing ipso facto -cost justification or not-negates the probability of competitive injury, thus destroying an element of the plaintiff's prima facie case, see Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 434, 103 S.Ct. 1282, 1288, 75 L.Ed.2d 174 (1983): In a market that is really functionally divided, retailers are in competition with one another, not with wholesalers. That competition among retailers cannot be injured by the supplier's giving lower prices to wholesalers-because if the price differential is passed on, all retailers will simply purchase from wholesalers instead of from the supplier. Or, to put it differently, when the market is functionally divided all competing retailers have the opportunity of obtaining the same price from wholesalers, and the supplier's functional price discrimination alone does not cause any injury to competition. Therefore (the argument goes), if functional division of the market is established, it should be up to the complaining retailer to show that some special factor (e.g., an agreement between the supplier and the wholesaler that the latter will not sell to the former's retailer-customers) prevents this normal market mechanism from operating. As the Court notes, ante, at 571, n. 30, this argument was not raised by the parties here or below, and it calls forth a number of issues that would benefit from briefing and factual development. I agree that we should not decide the merit of this argument in the first instance.

For the foregoing reasons, I concur in the judgment.

Notes