## Facts

- The United States brought a civil action seeking an injunction under § 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, challenging fluid-milk pricing practices in the Chicago area.
- Borden Company and Bowman Dairy Company sold fluid milk to two groups of purchasers: independently owned grocery stores and grocery-store chains.
- Each dairy used a two-tier pricing system:
  - Independents received discounts from list prices based on each store’s individual purchase volume, up to a stated maximum.
  - Chains received a flat discount substantially higher than the maximum allowed to independents, without regard to a particular chain store’s purchase volume.
- The Government alleged the price differentials were discriminatory and had the prohibited competitive effects identified in § 2(a).
- The dairies invoked the § 2(a) cost-justification proviso, asserting the differentials made only “due allowance” for differences in the cost of sale and delivery.
- Each dairy submitted a cost study comparing average costs of serving all chain stores with average costs of serving all independent stores.
- The district court found each pricing plan a prima facie § 2(a) violation but accepted the class-average cost studies as sufficient cost justification and dismissed the Government’s suit.
- The Supreme Court took a direct appeal under the Expediting Act.

## Issues

1. Whether a seller can satisfy the Robinson-Patman cost-justification defense by showing only that average costs of serving the class of chain customers are lower than average costs of serving the class of independent customers.
2. Whether customer “classes” used for cost averaging must be shown to have sufficient resemblance in essential cost-determinative factors so that class averages reasonably reflect costs for members receiving the discriminatory price.
3. Whether § 2(b)’s allocation of the burden to the seller requires a showing that the size of the price differential corresponds to demonstrated, transaction-relevant cost savings.

## Decision

- The Supreme Court reversed and remanded.
- The Court held the dairies’ class cost justifications did not satisfy the sellers’ burden under § 2(b) to show their discriminatory pricing reflected only a “due allowance” for actual cost differences.
- The Court accepted that class pricing and averaging may be used as a practical matter, but only when the customer classification is not arbitrary and is grounded in essential cost-determinative similarities.
- Because the record did not show sufficient resemblance among members of each class in the cost-determinative factors used to define the classes, the class-average studies were inadequate to justify the challenged differentials.

## Legal Principles

- Under Robinson-Patman, a discriminatory price may be defended only to the extent it makes “due allowance” for differences in the cost of manufacture, sale, or delivery.
- The seller bears the burden under § 2(b) of proving a statutory justification for the discriminatory price, including cost justification.
- Class-wide cost studies using averages are permissible only if the members of each class are sufficiently similar in essential cost-determinative factors such that the average is a reasonable indication of the cost of dealing with class members receiving the lower price.
- A cost-justification showing must connect the magnitude of the price differential to demonstrated cost savings; a broad comparison of average costs between loosely defined classes (e.g., “chains” versus “independents”) is insufficient by itself.

## Conclusion

The Court rejected cost justification based solely on class-wide average comparisons between chain and independent grocers, requiring sellers to ground customer classifications in cost-determinative similarities and to show that discriminatory discounts reflect only a due allowance for actual, demonstrated cost differences.


United States v. Borden Co., 370 U.S. 460 (1962)