Utah Pie Co. v. Continental Baking Co.
386 U.S. 685, 1967 U.S. LEXIS 2982, 18 L. Ed. 2d 406 (1967)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the Robinson-Patman Act, a reasonable possibility of injury to competition can be inferred from evidence of predatory intent and a deteriorating price structure caused by persistent, discriminatory, below-cost pricing, even if the complaining competitor remains profitable and maintains a substantial market share.
Facts:
- Utah Pie Company, a small local company based in Salt Lake City, entered the frozen pie market in late 1957 and quickly became the dominant seller, holding a 66.5% market share in 1958.
- Continental Baking Company, Carnation Company, and Pet Milk Company were large, national corporations that also sold frozen pies in the Salt Lake City market, supplied from their plants in California and other states.
- From 1958 to 1961, the Salt Lake City frozen pie market experienced intense price competition, resulting in a 'drastically declining price structure'.
- During this period, each of the three national companies sold frozen pies of like grade and quality in Salt Lake City at prices lower than those they charged in other markets, some of which were closer to their manufacturing plants.
- Pet Milk Co. sold pies to the grocer Safeway under a private label at a price significantly below its own branded pies and sent an industrial spy into Utah Pie's plant to gather information.
- Continental Baking Co. offered its pies in Salt Lake City for a period in 1961 at a price that was below its direct cost plus overhead.
- Carnation Co., to regain market share, slashed its prices in Salt Lake City to a level admittedly well below its costs.
- Despite the price competition, Utah Pie's sales volume steadily increased each year and it remained profitable, though its market share fell from 66.5% in 1958 to 45.3% in 1961.
Procedural Posture:
- Utah Pie Company filed suit against Continental Baking Company, Carnation Company, and Pet Milk Company in the U.S. District Court for the District of Utah (trial court).
- The jury found for the defendants (respondents) on a Sherman Act conspiracy charge but found for the plaintiff (petitioner) on the Robinson-Patman Act price discrimination charge.
- The district court entered judgment for Utah Pie, awarding damages and attorneys' fees.
- Continental, Carnation, and Pet, as appellants, appealed the judgment to the U.S. Court of Appeals for the Tenth Circuit.
- The Court of Appeals reversed, holding that Utah Pie (appellee at this stage) had failed to produce sufficient evidence to support a finding of probable injury to competition.
- The U.S. Supreme Court granted certiorari to review the decision of the Court of Appeals.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a drastically declining price structure resulting from persistent, discriminatory below-cost pricing by national competitors in a local market constitute sufficient evidence to find a reasonable possibility of injury to competition under § 2(a) of the Robinson-Patman Act, even if the local competitor remains profitable and retains a significant market share?
Opinions:
Majority - Justice White
Yes. A drastically declining price structure resulting from persistent, discriminatory below-cost pricing can constitute sufficient evidence to find a reasonable possibility of injury to competition under § 2(a) of the Robinson-Patman Act, even if the local competitor remains profitable. The Robinson-Patman Act reaches price discrimination that erodes competition over time, not just actions that have an immediate, destructive impact. The Court of Appeals placed too much emphasis on Utah Pie's continued profitability and sales volume, ignoring the long-term corrosive effect of the respondents' pricing. There was ample evidence for a jury to find predatory intent by each respondent, including Pet's industrial espionage and the persistent below-cost sales by Continental and Carnation. The jury could rationally attribute the deteriorating price structure to this conduct and conclude that the effect of such discrimination 'may be substantially to lessen competition.'
Dissenting - Justice Stewart
No. The respondents' actions did not have the required anticompetitive effect; rather, they fostered a more competitive market. The majority errs by reading the Robinson-Patman Act as protecting individual competitors instead of protecting competition itself. The facts show that the Salt Lake City market became more competitive, moving from a 'quasi-monopolistic' state where Utah Pie held 66.5% of the market to one where multiple firms, including Utah Pie with a still-commanding 45.3% share, competed for business. Lower prices are the 'hallmark of intensified competition,' not evidence of its demise. The Court's decision wrongly protects Utah Pie’s dominant market position from effective and legitimate price competition.
Analysis:
This decision significantly broadened the interpretation of 'injury to competition' for primary-line violations under the Robinson-Patman Act. It established that a plaintiff does not need to show actual financial losses or imminent business failure to prove competitive injury. Instead, evidence of predatory intent coupled with a sustained, discriminatory campaign that erodes market price levels can suffice. The ruling has been heavily criticized by many scholars and subsequent courts for potentially chilling legitimate price competition, as it can be difficult to distinguish between pro-competitive price cuts and anticompetitive predatory pricing. This case exemplifies the tension in antitrust law between protecting the competitive process and protecting individual competitors from the rigors of that process.
