Federal Trade Commission v. National Lead Co.

Background

Manufacturers of lead pigments, including a large company called National Lead and several other sellers, agreed in the 1930s to sell on a zone-delivered pricing system that set the same delivered price for customers inside designated geographic zones. The Federal Trade Commission found the industry had conspired to adopt and use this system, which often produced identical prices and reduced price competition, and issued a cease-and-desist order. The order included a controversial paragraph directing each company individually to stop using zone pricing to match competitors’ prices; a federal appeals court struck that paragraph and the Supreme Court reviewed the question.

Reasoning

The central question was whether the Commission, after finding an unlawful method of competition, could order individual firms to refrain from using the zone pricing device when it was used to match rivals and sustain the conspiracy. The Court held the Commission has broad discretion to fashion remedies that reasonably relate to the unfair practice. It found the individual prohibition was temporary, tailored to conduct that produced identical prices, and necessary to prevent revival of the unlawful scheme. The Court also read into the order the protection of §2(b) of the Clayton Act, allowing a seller in good faith to meet a competitor’s lower price.

Real world impact

The decision lets the FTC enforce remedies that limit how firms may use zone-delivered pricing when it serves to match rivals and maintain illegal price coordination. It does not ban zone pricing outright, preserves a seller’s right to meet lower prices, and leaves the Commission able to modify the restriction when competition is restored.