The Supreme Court ruled yesterday that a company can obtain a second price bid from a supplier without violating antitrust law after competitors bettered the supplier's initial bid.
The decision was a victory for the Great Atlantic & Pacific Tea Co. (A&P) and a defeat for the Federal Trade Commission in a case involving the Robinson-Patman Act. The court would have been unanimous but for partial dissents by Justices Byron R. White and Thurgood Marshall.
The case hinged on Robinson-Patman's Section 2 (f), which makes it unlawful "knowingly to induce or receive a discrimination in price which is prohibited by this section."
The FTC accused A&P of a violation of the section by making a 1965 agreement with the Borden Co. under which Borden undertook to supply "private label" milk to more than 200 of the chain's stores in Chicago and portions of Illinois and Indiana. The agreement represented A&P's effort to achieve cost savings by switching from brand-name milk to milk sold under its own label.
To implement the effort, A&P asked Borden, its long-time supplier, to submit an offer. After prolonged negotiations, Borden made a proposal that would save A&P $410,000 a year, partly by cutting back on the supplier's delivery service.
Unsatisfied, A&P solicited other dairies. A Borden rival, Bowman Dairy, then submitted an offer that would have saved A&P $737,000, or $327,000 more than Borden's.
At this point, A&P's Chicago buyer told a Borden executive, "I have a bid in my pocket. You... are so far out of line... You are not even in the ball park."
The Borden executive, asking for more details, was told only that a $50,000 improvement in its bid "would not be a drop in the bucket." This put Borden on the spot, not only because A&P was one of its largest Chicago-area customers, but also because it had just invested more than $5 million in a new Illinois dairy facility. If the A&P account were lost, the facility would be under-used.
In these circumstances, Borden made a new bid that would double A&P's savings, from $410,000 to $820,000 a year. It emphasized that it was doing so to retain A&P's patronage and to meet the competition of Bowman. A&P accepted the second Borden bid.
The FTC, rejecting A&P's contentions that the second Borden bid was made to meet competition and was cost-justified, charged that the chain had violated sections 2(f). Borden had discriminated between A&P and A&P's competitors, and the chain should have known that it was the beneficiary of unlawful price competition, the commission said.
A&P challenged the agency in the 2d U.S. Circuit Court of Appeals. But that court held that as a matter of law, A&P could not assert a meeting-competition defense, because, unlike Borden, it knew that Borden's offer was better than Bowman's. It also held that A&P had no cost-justification defense.
In the opinion for the Supreme Court reversing the 2d Circuit, Justice Potter Stewart emphasized that the price discrimination prohibited by 2(f) is only that, in its own phrasing, "prohibited by this section." There was no such price discrimination at issue, he said. And, he said, Borden, contrary to the FTC and the 2d Circuit, "quite clearly" had a meeting-competition defense, partly because it obviously acted "reasonably and in good faith" in making its second bid.