United States: Robinson-Patman Applied to Customer-Specific Bid Discounts

Last Updated: January 18 2006
Article by G. Michael Halfenger and Jon P. Christiansen

Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc.

The United States Supreme Court recently announced its decision in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., No. 04-905 (Jan. 10, 2006), the Roberts’ Court’s first foray into antitrust law. Interpreting the Robinson-Patman Act’s prohibition on price discrimination, the decision provides helpful guidance to companies that sell through independent dealers, especially those companies that offer negotiated discounts to their dealers in an effort to aid those dealers in competing with rival manufacturers’ dealers. The decision emphasized the Court’s continuing commitment to interpreting the federal antitrust laws in a manner that promotes interbrand competition, rather than protects individual competitors. Foley attorneys G. Michael Halfenger and Jon P. Christiansen represented several manufacturing associations that filed amicus briefs supporting Volvo Truck’s request for Supreme Court review and for reversal of the lower court’s decision.

Reeder’s $4 million price discrimination claim: differing discounts in a competitive bidding market.

Reeder-Simco GMC, Inc., sold heavy-duty trucks manufactured by Volvo Trucks North America, Inc. Heavy-duty trucks are sold in the U.S. by several manufactures. Each manufacturer sells trucks through its own dealer network. For the most part, the dealers sell the trucks on a competitive bid basis, that is, potential purchasers (typically fleet operators) negotiate with several dealers (often dealers of different brands of trucks) over truck specifications as well as price. In order to win a customer’s business, dealers customarily solicit discounts from the manufacturer and manufacturers offer discounts on a case-by-case basis. Only when the customer accepts the bid does the dealer arrange to purchase the trucks from the manufacturer, which then builds them to the customer’s specifications.

In the years following Volvo’s 1997 announcement that it intended to reduce its dealer ranks, Reeder’s sales declined. Reeder sued Volvo alleging that Reeder had lost sales and profits because Volvo had given other dealers better pricing. Reeder alleged that Volvo violated the federal Robinson-Patman Act, which prohibits selling the same products at different prices if the price differential substantially affects competition.

At trial, Reeder made little effort to prove that it lost sales to other Volvo dealers. Indeed, Reeder’s evidence showed that during its entire five years as a Volvo dealer it only twice competed head to head against another Volvo dealer.

Reeder instead presented evidence comparing the discounts it received from Volvo with discounts Volvo gave dealers in connection with unrelated sales in which Reeder was not involved. Reeder contended that if Volvo had given it the more favorable discounts Volvo offered in connection with these unrelated deals, Reeder would have sold more trucks and made more profits on the trucks it did sell.

The jury concluded that Volvo’s pricing practices violated the Robinson-Patman Act, and the Court awarded Reeder a judgment of over $4 million on that claim. Volvo appealed. A divided Court of Appeals affirmed, reasoning that Reeder’s proof that its lost sales and profits were caused by Volvo’s pricing practices was sufficient to support the jury’s award.

The Supreme Court reversed, holding that the Robinson-Patman Act does not prohibit selling at different prices to purchasers that do not compete for the same customers.

The Supreme Court reversed. The Court’s decision, written by Justice Ginsburg for a seven-to-two majority, begins its reasoning by focusing on the Robinson-Patman Act’s historical target, purchaser market power: "Congress sought to target the perceived harm to competition occasioned by powerful buyers, rather than sellers; specifically, Congress responded to the advent of large chain stores, enterprises with the clout to obtain lower prices for goods than smaller buyers could demand." Slip op. at 8. Mindful of this purpose, the Court turned to the statute’s text, explaining that it "proscribes price discrimination only to the extent that it threatens to injure competition," id. at 9, which can be at several levels of production, e.g., at the level of the discriminating seller ("primary line"), at the level of that seller’s resellers ("secondary line"), or of the seller’s resellers’ customers ("tertiary line").

Reeder claimed secondary-line harm—i.e., that Volvo’s price discrimination harmed its ability to compete with other Volvo dealers. But the Court held that Reeder’s case failed because it did not prove that it actually competed with favored Volvo dealers for the same sales. "A hallmark of the requisite competitive injury," the Court explained, "is the diversion of sales or profits from a disfavored purchaser to a favored purchaser." Id. at 9-10. "Absent actual competition with a favored Volvo dealer. . .Reeder cannot establish the competitive injury required under the Act." Id. at 10.

The Court reasoned that Reeder’s evidence that Volvo gave other dealers greater discounts was inadequate because it did "not support an inference of competitive injury." Id. at 12. In none of those instances did Reeder and the favored dealer compete for the same customer, nor did Reeder show that Volvo consistently favored other dealers. While Reeder competed for sales in the same geographical area as these other dealers, Volvo’s discounts were given only after a potential customer had sought bids from selected dealers based on a variety on non-price factors. Consequently, Volvo’s differential discounts could not reasonably be viewed as affecting competition between Reeder and other Volvo dealers.

Reeder had also presented evidence that it lost out on one sale made by another Volvo dealer, suggesting that the other dealer won the bidding because Volvo offered it a better discount. Volvo argued that the Robinson-Patman Act cannot apply to this competitive bid transaction because the Act only prohibits selling to different "purchasers" at different prices. When the customer seeks bids from several dealers before deciding from whom to buy, argued Volvo, only the dealer that makes the successful bid ultimately becomes a "purchaser" from the manufacturer. On this theory, the manufacturer in competitive bid situations may offer different prices to bidding dealers because the manufacturer (which ultimately sells only to the successful bidder) does not make sales at different prices. The Court declined to decide this issue. Instead, the Court assumed the Act applies in these head-to-head bidding contests but decided that Reeder’s evidence was insufficient to show that it had actually lost any sales as a result of Volvo offering another dealer a better discount.

The Court concluded its decision by emphasizing that the Robinson-Patman Act should generally be interpreted in a manner that promotes interbrand competition, the preservation of which is the primary concern of antitrust law. The Court’s decision signals that, at least in the absence of a clear textual prohibition, "Robinson-Patman’s governance" should not be extended to cases in which "there is no evidence that any favored purchaser possesses market power, the allegedly favored purchasers Page 3 of 3 © 2006 Foley & Lardner LLP are dealers with little resemblance to large independent department stores or chain operations, and the supplier’s selective price discounting fosters competition among suppliers of different brands." Id. at 14.

Observations on the decision’s effect on pricing practices.

g The decision clarifies that sellers can sell at different prices to dealers as long as those dealers do not compete for the same customers. The Court suggests, moreover, that customer-specific sales following competitive bidding may not implicate this type of competition: "Competition of that character ordinarily is not involved when a product subject to special order is sold through a customer-specific competitive bidding process." Id. at 2. This principle may not apply, however, if the price difference potentially affects competition among the resellers’ customers.

  • The decision supports the practice of many sellers in competitive bidding situations of offering the same discount to all dealers that are bidding for a particular end-user’s business but adjust the discount level based on the attractiveness of winning that business.
  • The decision leaves open whether a seller can offer different discounts to dealers submitting bids to the same enduser customer. While reserving judgment on this specific issue, a between-the-lines reading of the Court’s discussion might suggest that such a practice could be lawful, at least if the customer will ultimately purchase from only one of the dealers, the dealers lack market power, and the different discounts promote interbrand competition. Until a subsequent court ruling clarifies the law on this issue, however, the prudent practice for sellers is to follow Volvo’s stated policy of granting identical discounts to dealers competing for the same customer.
  • The decision observes that Reeder had not presented "any statistical analysis [of] whether Reeder was disfavored on average as compared to another dealer or set of dealers." Id. at 5. In a competitive bid market, for example, if a seller were to disadvantage one reseller by consistently offering other dealers larger discounts, the disadvantaged dealer might be able to argue that it can prove a Robinson-Patman claim if it can show that the systematic discrimination harmed its ability to compete against the favored dealers.
  • Finally, the decision only addresses Reeder’s Robinson-Patman Act claim. The jury also awarded Reeder $513,750 based on its conclusion that Volvo’s pricing practices violated the Arkansas Franchise Practices Act, and the Supreme Court’s decision does not upset that award. Many states have dealer and franchise laws that regulate manufacturers’ relationships with resellers, and many states also have price discrimination laws that potentially render unlawful practices that federal law does not proscribe.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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