Federal Trade Commission v. Simplicity Pattern Co.

Background

The Federal Trade Commission found that Simplicity Pattern Co., a major maker of sewing patterns, gave free catalogues, cabinets, consignment terms, and paid transportation to large variety-store chains while charging small fabric shops for those same services. The small fabric stores and the variety stores both sold identical patterns in the same markets. The FTC issued a cease-and-desist order, and the Court of Appeals partially disagreed about whether Simplicity could defend its conduct by showing cost differences or no harm to competition.

Reasoning

The central question was whether a seller may avoid liability for favoring one buyer over another by proving either that (1) the discrimination caused no competitive injury, or (2) the differences reflected lower costs in dealing with certain buyers. The Court read the statute’s text and history and concluded that Congress allowed cost justifications for price differences but did not extend those defenses to discriminations in services or facilities. Because the statute’s subsections (c), (d), and (e) ban these practices without those defenses, the Court held that neither absence of competitive injury nor cost differences defeats a prima facie violation of the provision at issue.

Real world impact

The Court affirmed the FTC’s cease-and-desist order. Sellers who provide unequal services or facilities to buyers on terms not proportionally equal may be ordered to stop, even if they claim cost savings or no clear competitive harm. This decision protects smaller independent retailers who compete with large chains for the same products.

Dissents or concurrances

Two appellate judges had disagreed below: one would have allowed a cost-justification defense, and another dissented on the competitive-injury point. Their views show there was disagreement about how broadly to permit defenses under the statute.