Corn Products Refining Co. v. Federal Trade Commission
Headline: Court upheld FTC order that Chicago basing-point pricing was unlawful, blocking phantom freight charges and other preferential deals that raised costs for out-of-town manufacturers.
Holding:
- Stops suppliers from using basing-point phantom freight to charge some buyers more.
- Helps candy makers avoid higher raw-material costs that can force relocation or loss of sales.
- Allows FTC to block special advertising deals and extended booking that favor select customers.
Summary
Background
A parent company and its sales subsidiary sold bulk glucose at delivered prices computed from a Chicago base price plus Chicago freight, even when shipments originated from their Kansas City plant. That system often included "phantom" freight for some buyers and sometimes forced the sellers to absorb extra charges. The Federal Trade Commission charged those pricing rules and related practices — extended booking privileges, special discounts on by-products, and large advertising payments tied to one buyer — as unlawful price and service discrimination under the Clayton Act. The Commission ordered the companies to cease and desist; the court of appeals sustained the order, and the Court affirmed.
Reasoning
The central question was whether computing delivered prices from a Chicago basing point and giving favored customers special terms produced unlawful discrimination that could harm competition. The Court accepted the Commission’s factual findings that prices depended on the Chicago freight factor rather than actual Kansas City costs, creating systematic differentials that raised raw-material costs for many manufacturers. Because glucose was a principal ingredient in low-priced candy sold on narrow margins, the Court agreed there was a reasonable probability these price differences could divert business and lessen competition. The Court also upheld the findings that extended booking, by-product discounts, and advertising payments to a single candy maker produced lower effective prices or denied services to other buyers, and therefore violated the statute.
Real world impact
Sellers using uniform delivered or basing-point pricing that results in phantom freight may be forced to change practices. Competing manufacturers, notably candy makers with thin margins, may avoid unfair cost disadvantages. The FTC may block secret discounts, extended booking privileges, and advertising subsidies that give one purchaser an edge.
Dissents or concurrances
Justice Jackson concurred in the result; one Justice did not participate.
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