Automatic Canteen Co. of America v. Federal Trade Commission

1953-06-08

Headline: Court limits FTC power by narrowing when large buyers must prove sellers’ costs, preventing automatic burden shift when buyers merely knew prices were lower and easing enforcement against buyers.

Holding: The Court held that a buyer is not liable under §2(f) unless it knew the lower prices were unlawful (not cost‑justified), and that the FTC cannot force the buyer to prove sellers’ costs merely because prices were lower.

Real World Impact:

Makes it harder for FTC to force buyers to prove sellers’ cost justifications.
Requires FTC to show buyer knew prices were unlawful, not just lower.
May force FTC to investigate sellers’ cost data or join sellers in proceedings.

Topics: price discrimination, buyer liability, FTC enforcement, Robinson-Patman Act

Summary

Background

A large company that bought candy for resale through about 230,000 vending machines in 33 States and the District of Columbia was accused by the Federal Trade Commission of getting and sometimes soliciting prices up to 33% lower than other buyers. The Commission issued a cease-and-desist order after the company failed to introduce evidence about sellers’ costs; a court of appeals affirmed that the Commission need not show absence of cost justification at the prima facie stage, and the Supreme Court agreed to review the proper allocation of the burden of proof under §2(f) of the Robinson-Patman Act.

Reasoning

The central question was whether the FTC can shift to the buyer the duty to come forward with evidence of sellers’ cost savings simply by showing the buyer knew he was getting lower prices. The Court held that §2(f) reaches only prices the buyer knew to be unlawful (for example, not cost-justified), so mere knowledge that prices were lower is not enough to force the buyer to prove sellers’ costs. The opinion explained that sellers’ cost data are often hard to obtain and that the Commission, with investigative powers, is better positioned to obtain such proof; it gave examples of what might show knowledge of unlawfulness, like identical quantities and service methods.

Real world impact

The decision reverses the court of appeals as to the count before the Court and sends the case back to the lower courts and the Commission for further proceedings consistent with this standard. It narrows when the FTC can rely on a buyer’s silence and limits automatic shifting of the cost-justification burden.

Dissents or concurrances

Justice Douglas (joined by Justices Black and Reed) dissented, arguing Congress intended buyers who solicit discriminatory prices to bear the burden and that the buyer’s coercive conduct should require it to justify the discounts.