Veto of Bill To Define the Application of the Federal Trade Commission Act and the Clayton Act to Certain Pricing Policies.

To the Senate of the United States:

I am returning herewith, without my approval, S. 1008, a bill "To define the application of the Federal Trade Commission Act and the Clayton Act to certain pricing practices".

It is the purpose of this bill to eliminate confusion and uncertainty under these Acts regarding the legality of freight absorption and the sale of goods at delivered prices. Further, the bill provides a definition of the extent to which "good faith" meeting of competition is a defense against a charge of illegal price discrimination.

It is obviously desirable for laws to be as clear as possible. After careful study, however, I am convinced that the bill would not achieve the clarification which is desired. Instead, through the introduction of new and uncertain legal terminology, and through its confusing legislative history, the bill would obscure, rather than clarify, the law. As a result, it would make it more difficult for businessmen, administrative agencies, and the courts to understand and apply the legal safeguards against monopoly and unfair competition. Moreover, the bill contains provisions which might be interpreted, after protracted litigation, to impair the effectiveness of the antitrust laws.

Because of the increasing complexity of our economic system, the laws protecting fair competition have been amended from time to time, and the judicial decisions interpreting those laws have taken account of specific situations not anticipated by those who drafted the laws originally. When further amendments of the antitrust laws are needed to meet new problems, they should be enacted in a form which clearly preserves the basic purpose of these laws--the protection of fair competition and the prevention of monopoly.

The sponsors of this bill intended to do exactly that. They were impressed by court decisions in recent years, which were said by some to mean that businessmen could not absorb freight costs or quote "delivered prices" in distant markets, in order to meet the prices offered by competitors. They drafted this bill in an effort to clarify that situation.

This bill, however, as it has finally emerged from the legislative process, is so far from clear that each of its major provisions is capable of widely conflicting interpretations. Members of Congress are usually in substantial agreement about the meaning of proposed legislation, even though they may differ widely about whether or not it is desirable. In debating this bill they have expressed substantial agreement about what is desirable and yet have differed widely about the bill's meaning and effects. There is every reason to believe that it S. 1008 were to become law there would be as much uncertainty about its meaning in the business community and the administrative agencies of the Government as there has been in the Congress.

Section 1 of this bill is designed to make clear that it is not unlawful under the Federal Trade Commission Act for businessmen acting independently to absorb freight and to sell at delivered prices. The sponsors of the bill in the Senate interpreted section 1 as a mere declaration of existing law. On the other hand, the Committee on the Judiciary of the House of Representatives has interpreted certain provisions of this section in a manner which apparently would change existing law. Still other' members of both Houses of Congress interpret the bill as permitting the resumption of basing point practices recently found to be illegal.

Sections 2 and 3 are intended to clarify the meaning of the Clayton Act with respect to certain price discriminations, particularly those resulting from freight absorption and delivered pricing. In so doing, those sections undertake to define the extent to which the good faith of a seller in meeting a competitor's price is a defense against a charge of illegal price discrimination. Supporters of the bill in both the Senate and the House have interpreted sections 2 and 3 as increasing a seller's freedom to meet a competitor's price in good faith--regardless of resulting injury to competition--by removing what they regard as undue restrictions in existing law. On the other hand, it has also been stated in support of the bill that these sections would have a contrary effect. Opponents of the bill in both Houses of Congress have said that these same sections would have the practical effect of nullifying the Robinson-Patman Act, with its protections against ruthless price discrimination.

In the light of these conflicting interpretations, many years of complex litigation would be required to give the provisions of S. 1008 clear and specific content. This is certain to be a slow and difficult process. Meanwhile, some individuals might be encouraged to resume practices which are now prohibited. During this period, doubt cast on the previous decisions of the courts would impair effective enforcement of the antitrust laws.

Even more serious is the risk that this bill would eventually be interpreted to reduce the protection afforded the public by the antitrust laws. These laws have been in effect a long time and have acquired specific content through interpretation by the courts. They provide safeguards against practices which would tend to destroy our free competitive economy. The Sherman Act is directed against monopolies and conspiracies in restraint of trade. The Federal Trade Commission Act established an administrative agency with authority to prevent trade practices which, if not checked, would unduly suppress competition or tend to create monopoly. The Clayton Act, as amended by the Robinson-Patman Act, prohibits a number of specific, injurious trade practices. In particular, this law protects small enterprises against ruthless price discrimination.

Because the meaning of S. 1008 is so uncertain, no one can accurately foretell how its enactment would change the content of these laws. The bill might handicap the Federal Trade Commission in proving the existence of a conspiracy involving use of a delivered pricing system. The Commission and the courts now consider a great number of factors in determining whether there has been an unlawful conspiracy to fix prices in a particular case. Among these factors are the operation of freight absorption and basing point systems as they affect pricing and competition. The courts have frequently found these to be the means by which organized price fixing is accomplished. Yet it is quite possible that S. 1008 would be interpreted to create a preferred status for these practices, giving them immunity from consideration in conspiracy proceedings.

Furthermore, S. 1008 might jeopardize the Commission's ability to stop unfair discriminations. At the present time a principal test of unjustified price discrimination under the Clayton Act is whether the effect "may be" substantially to lessen competition. In a number of cases the courts have upheld the legislative intent of the original Clayton Act to make this test cover discriminations which have not yet reached the stage of actually suppressing competition but could reasonably be expected to do so. S. 1008, however, provides that certain price discriminations are illegal if the effect on competition "would be" such that competition "will be" substantially reduced. In interpreting this new language the courts may feel compelled to require proof that damage to competition is already occurring or will certainly follow, before discriminations can be stopped.

These are risks, not certainties. But there would be no justification for taking such risks unless the existing legal situation were so confused as to appreciably hamper business operations and there were no alternative methods for resolving these difficulties. At the present time, this is clearly not the case.

The issues this legislation is designed to resolve have been under intensive consideration by the Congress and the public for two years. During this period the relevant court decisions and administrative policies which gave rise to this bill have been thoroughly re-examined. In a recent decision by the United States Court of Appeals for the Fourth Circuit, considerable light was thrown on the legality of freight absorption under the Federal Trade Commission Act. In addition, the Commission has issued a number of statements designed to make clear its interpretations of the law. As a result, much of the earlier uncertainty has been eliminated. Thus it is quite clear that there is no bar to freight absorption or delivered prices as such. Still further clarification of the antitrust laws can be expected when decisions are reached in a number of cases now under consideration by the Federal Trade Commission and the courts.

The recent court decisions were effective in eliminating certain clear abuses of competition. The sponsors of this bill recognize the merit of these decisions. In none of these cases have legitimate competitive practices been prevented by the courts. Moreover, industries affected by these court decisions have demonstrated their ability to adjust to the law with respect to the absorption of freight and delivered pricing, as now interpreted, without apparent injury to themselves or to the economy.

I recognize that businessmen have been concerned lest they be penalized for perfectly sensible and appropriate competitive action. I believe their concern is unwarranted. If in the future there should be clear evidence to the contrary, the law should, of course, be changed.

On the basis of the present evidence, however, I am convinced that no such change is necessary, and that in attempting to affirm what is already true, the bill goes further and would hamper, instead of help, the preservation of fair competition.

When reasonable and informed men arrive at such widely divergent interpretations of a piece of legislation as in this case, it is impossible to predict the direction which future court decisions would take. Even if all interpretations served to maintain full protection under our antitrust laws, the intervening period of uncertainty might jeopardize enforcement of these laws for a decade or more. But the fact is that these interpretations, when they came, might necessarily weaken the present laws. I am convinced, therefore, that the enactment of S. 1008 would not be in the public interest.

HARRY S. TRUMAN