Federal Trade Commission v. Cement Institute
333 U.S. 683 (1948)
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Rule of Law:
The concerted use of a multiple basing-point delivered price system by members of an industry, which is designed to and results in the elimination of price competition, is an "unfair method of competition" under § 5 of the Federal Trade Commission Act and constitutes illegal price discrimination under § 2 of the Clayton Act.
Facts:
- The Cement Institute was a trade association representing 74 cement manufacturing corporations.
- These member corporations collectively employed a "multiple basing-point" delivered price system for cement sales.
- Under this system, the delivered price to any location was the lowest combination of a base price at a designated mill (a "basing point") plus the published all-rail freight cost from that mill to the destination.
- This pricing formula was used by all member companies regardless of the actual origin of the cement shipment.
- As a result, all cement producers quoted identical delivered prices for cement at any given location in the United States.
- The Institute and its members took collective actions to enforce this system, such as preparing and distributing common freight-rate books, boycotting dealers who sold competing imported cement, and punishing producers who deviated from the system's prices.
- The system often resulted in producers charging "phantom freight" (freight charges for transport that did not occur) or absorbing freight costs to match a competitor's price based on a nearer basing point.
- This practice meant a single producer received different net returns ("mill nets") from different purchasers for the same quantity and quality of cement.
Procedural Posture:
- The Federal Trade Commission (FTC) filed a two-count complaint against The Cement Institute and its member corporations.
- Following extensive administrative hearings, the FTC found the respondents in violation and issued a cease and desist order.
- The Cement Institute and other respondents, as petitioners, sought review of the FTC's order in the United States Circuit Court of Appeals for the Seventh Circuit.
- The Circuit Court of Appeals found the evidence insufficient to support the FTC's findings and entered a decree vacating and setting aside the FTC's order.
- The FTC, as petitioner, successfully petitioned the U.S. Supreme Court for a writ of certiorari to review the judgment of the Circuit Court of Appeals.
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Issue:
Does the collective adoption and use of a multiple basing-point delivered price system by members of the cement industry, which results in identical prices at any given delivery point, constitute an unfair method of competition under the Federal Trade Commission Act and illegal price discrimination under the Clayton Act?
Opinions:
Majority - Mr. Justice Black
Yes. The collective maintenance of a multiple basing-point delivered price system to eliminate price competition is an unfair method of competition under the Federal Trade Commission Act and constitutes illegal price discrimination under the Clayton Act. The Court reasoned that the Federal Trade Commission (FTC) has jurisdiction to prosecute conduct as an "unfair method of competition" even if that same conduct could also be prosecuted as a violation of the Sherman Act. The Court found substantial evidence supported the FTC's finding of a combination to eliminate price competition, including the system's perfect price uniformity, identical sealed bids to government agencies, boycotts of non-compliant dealers, and collective punishment of price-cutters. Citing its prior decisions in Corn Products Co. and Staley Co., the Court also held that the system's resulting variation in net returns to the seller constitutes price discrimination under the Clayton Act. The "good faith meeting competition" defense under § 2(b) of the Act applies to individual competitive situations, not to the wholesale, systematic adoption of an industry-wide, anticompetitive pricing system.
Dissent - Mr. Justice Burton
No. The evidence was insufficient to support the FTC's finding of a combination to restrain competition. Justice Burton argued that he agreed with the Circuit Court of Appeals that the FTC had not proven the existence of a combination or conspiracy. He contended that the majority's opinion was premised entirely on the existence of such a combination. By doing so, the majority failed to address the distinct legal question of whether an individual producer, acting alone and not as part of a conspiracy, could lawfully absorb freight costs to meet a competitor's price in good faith. Justice Burton believed the Court should have affirmed the lower court's decision, which found no combination and therefore no violation.
Analysis:
This landmark decision affirmed the Federal Trade Commission's broad authority, establishing that the FTC Act and the Sherman Act provide cumulative remedies against anticompetitive conduct. The ruling effectively condemned industry-wide basing-point pricing systems by holding that their use, when coupled with evidence of collusion, is an unfair method of competition. By rejecting the "meeting competition" defense for a systematic pricing scheme rather than an individual response, the decision made it extremely difficult for industries to justify such systems under the Robinson-Patman Act, significantly influencing antitrust enforcement and pricing practices for decades.
