Federal Trade Commission v. Universal-Rundle Corp.

Citations: 18 L. Ed. 2d 749; 87 S. Ct. 1622; 387 U.S. 244; 1967 U.S. LEXIS 2968; 1967 Trade Cas. (CCH) 72,109Docket: 101

Court: Supreme Court of the United States; May 29, 1967; Federal Supreme Court; Federal Appellate Court

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The case involves the Federal Trade Commission (FTC) petitioning against Universal-Rundle Corporation regarding a cease-and-desist order linked to alleged price discrimination practices under the Clayton Act, as amended by the Robinson-Patman Act. The FTC's complaint originated from findings that Universal-Rundle had been selling plumbing fixtures at higher prices to some customers compared to others, despite the competitors being in direct competition with those receiving higher prices. Universal-Rundle denied the allegations and claimed any price differentials were justified by costs or competitive practices. 

After hearings, the FTC concluded that Universal-Rundle's practice of offering truckload discounts, averaging about 10%, constituted illegal price discrimination, as it negatively impacted competition by favoring certain buyers. Consequently, the FTC ordered Universal-Rundle to cease such discriminatory pricing practices. 

Following the order, Universal-Rundle sought to stay the cease-and-desist order, arguing for an investigation into industry-wide pricing practices, asserting that its competitors provided greater discounts and held a more substantial market share, while Universal-Rundle faced significant financial losses. During the four years of the complaint, Universal-Rundle failed to provide the FTC with information about its competitors' pricing.

Universal-Rundle's marketing vice president submitted an affidavit asserting that competitors were selling to customers who might not purchase in truckload quantities. He expressed concern that if Universal-Rundle was not allowed to offer price differentials like its competitors, its sales under the 'U/R' brand would significantly decline, resulting in substantial financial losses. The Commission unanimously denied Universal-Rundle's petition for a stay, determining that the general claim of competitors providing truckload discounts was insufficient for initiating industry-wide proceedings or delaying enforcement of the cease-and-desist order. The Commission clarified that the order did not prohibit truckload discounts and that such discounts might not inherently be illegal; instead, their legality would depend on various competitive factors.

The Commission stated that prior losses incurred by Universal-Rundle did not justify claims of financial hardship caused by enforcing the order. Following the denial of the stay, Universal-Rundle sought review from the Seventh Circuit Court of Appeals, which did not address the merits of the cease-and-desist order but overturned the Commission's denial of the stay and instructed the Commission to conduct an industry investigation. The court found Universal-Rundle's evidence sufficient to demonstrate that the Commission's refusal to grant the stay was a patent abuse of discretion, noting that the Commission's actions targeted a common industry practice and could harm smaller participants, thus contradicting the Clayton Act's intent. The principles governing the court's review emphasized that decisions regarding the postponement of enforcement are informed by the Commission's expert understanding.

An administrative agency's determination regarding allegedly illegal industry practices is subject to its specialized judgment and cannot be overturned by courts unless there is a clear abuse of discretion. The court's role is limited to assessing whether the agency's evaluation of a stay petition was arbitrary and capricious, rather than whether the evidence supports claims of illegal activities. In this case, Universal-Rundle's petition for a stay was based on inconclusive evidence, failing to show that the Commission's refusal constituted an abuse of discretion. The company was found to have engaged in illegal price discrimination by selling fixtures at discounts to competing customers while denying similar terms to others. Moreover, speculation about financial harm from enforcement actions was insufficient to demonstrate that such enforcement would contravene the Clayton Act's purposes. Even if all competitors were engaging in similar practices, the Commission is not obligated to refrain from enforcement. The agency has the authority to evaluate the impact of delaying enforcement on competition and to manage its enforcement policies effectively. The court concluded that the Commission's refusal to grant the stay was reasonable, leading to the reversal of the lower court's judgment, the setting aside of the stay, and remanding the case for further proceedings.

Respondent's petition for a stay highlights the market shares of its main competitors: American Radiator and Standard Sanitary Corp. at 32%, Kohler Co. at 15%, Eljer Division of the Murray Corp. at 10%, Crane Co. at 9%, Briggs Manufacturing Co. at 6%, and Rheem Manufacturing Co. at 5%. The Commission acknowledged that even if a prima facie violation of Section 2(a) occurs, the seller can present statutory defenses to justify the alleged discrimination. Following the Commission's refusal to grant a stay, the respondent provided additional evidence to Commission staff regarding the anticompetitive effects of discounts from two competitors. The court ruled that the Commission must conduct its own industry investigation, noting that an ongoing Department of Justice antitrust investigation does not exempt the Commission from this obligation. However, the post-proceeding evidence was not properly included in the court's review, and the court should not have considered whether an industry investigation was warranted based on this evidence or if it was unnecessary due to the Department of Justice investigation.