Utah Pie Co. v. Cont'l Baking Co. - 386 U.S. 685, 87 S. Ct. 1326 (1967)

Rule:

Predatory price discrimination is violative of § 2(a) of the Clayton Act. Also, a price reduction below cost tends to establish predatory intent. Thus, a jury is free to ascertain a seller's intent from surrounding economic circumstances, which would include persistent unprofitable sales below cost and drastic price cuts themselves discriminatory. 

Facts:

Petitioner Utah Pie Co, a local bakery company in Salt Lake City, filed this suit for treble damages and an injunction against respondents three large companies Continental Baking Co. et al., each of which was a major factor in the frozen pie market in one or more regions of the country. Respondents were charged of conspiracy under §§ 1 and 2 of the Sherman Act and violations by each respondent of § 2 (a) of the Clayton Act, as amended by the Robinson-Patman Act. The complaint alleged that the major competitive weapon in the city market was price and for most of the period petitioner, which had the advantage of a local plant, had the lowest prices. At some time, each respondent engaged in discriminatory pricing and thereby contributed to a deteriorating price structure during the relevant period. Respondent Pet Milk sold pies to Safeway under the latter's label at a price well below that for its proprietary label pies despite freight charges from its California plant. Respondent admitted sending a spy into petitioner's plant during its negotiations with Safeway, but denied using what it learned. In June 1961 respondent Continental Baking cut its price to a level well below that applicable elsewhere, and less than its direct cost plus an allocation for overhead. The jury found for respondents on the conspiracy charge and for petitioner on the price discrimination charge and for damages but the Court of Appeals reversed, holding that the evidence was insufficient to support a finding of probable injury to competition within the meaning of § 2 (a). 

Issue:

Did petitioner fail to show evidence sufficient to support a finding against respondents of probable injury to competition within the meaning of § 2(a) of the Clayton Act, 15 U.S.C.S. § 13(a)?

Answer:

No.

Conclusion:

The court reversed the judgment holding that petitioner failed to make a case against respondents because petitioner provided evidence that respondents had consistently sold their products below cost, and had made radical price cuts. That under § 13(a), a jury could have reasonably inferred that predatory price discrimination would have substantially lessened, injured, destroyed, or prevented competition. The court further held that respondents' persistent sales below cost and radical price cuts were evidence of their predatory intent toward petitioner. The court also ruled that the prohibition of price discrimination was not nullified because petitioner held a major share of the market involved. Accordingly, the court reversed the judgment holding that petitioner had failed to make a prima facie case against respondents and remanded the case for further proceedings.