United States: Using The Distribution Agreement To Reduce Robinson-Patman Litigation Risk

Well-counseled clients who distribute goods through competing resellers are mindful of the litigation risks inherent in pricing, discount and rebate programs that may favor larger distributors or retailers. That is because the Robinson-Patman Act (the RPA)―a Great Depression era law designed primarily to protect small "mom and pop" retailers―can impose treble damages for commonly used (and often pro-competitive) discounting practices, including volume-based markdowns and annual rebates.

Although experienced antitrust attorneys can help design discount and rebate programs that comply with the RPA,1 manufacturers and wholesalers should also consult counsel to discuss whether they can reduce the likelihood, cost and potential exposure of federal price discrimination suits by adding a few short paragraphs to their reseller agreements.

The inclusion of a well-drafted arbitration clause can bypass the rigors of federal antitrust litigation to take advantage of the many benefits of private dispute resolution: lower costs, greater efficiency and speed, less expansive discovery, confidentiality, and the ability to choose expert adjudicators with industry experience to resolve disputes.

Not only do courts routinely enforce arbitration clauses in antitrust cases, some courts also compel litigants to adhere to contractual provisions that truncate the four-year statute of limitations period applicable to RPA suits. Since RPA claims tend to be offshoots of unrelated business disputes that may arise years after the alleged price discrimination occurred, clients should discuss with counsel whether distribution agreements with a tighter limitations period could help avoid RPA litigation altogether.

Background

In enacting the RPA during the 1930s, Congress targeted the perceived harm to competition caused by powerful buyers that had the clout (and the order volume) to demand lower prices from suppliers. To the delight of many manufacturers and economists, the RPA has lost favor over the years.2 Critics of the RPA―including the Department of Justice―have argued that the law chills manufacturers' and wholesalers' willingness to discount, encourages price rigidity, and rewards less efficient resellers.3 As a result, government enforcement of the Act is virtually nonexistent,4 and courts have, to a large extent, been reluctant to interpret the statute too liberally.

Nonetheless, private RPA litigation persists. Over just the last few years, RPA lawsuits have been filed against a number of different manufacturers and consumer product companies by resellers who allege they paid higher prices than their larger rivals.5

Price discrimination claims brought by resellers—so-called "secondary line injury" cases—are the most frequently litigated RPA claims. The key provision of the RPA in secondary line cases, section 2(a), prohibits suppliers of goods from charging different prices—including all discounts, rebates and other allowances—to competing resellers if the price discrimination causes the requisite competitive injury. The RPA specifically applies only to goods of "like grade and quality" (not services or custom-ordered goods) and requires two completed sales (not offers or bids) that are reasonably contemporaneous.

Price Discrimination Suits Carry the Risk of Treble Damages and Are Expensive to Litigate

One reason RPA suits pose serious litigation risks is that RPA plaintiffs often win jury verdicts with less evidence of competitive harm than is required in other types of antitrust cases. One of the most frequently quoted axioms in antitrust jurisprudence is that the "antitrust laws were enacted for the protection of competition, not competitors."6 Nonetheless, some courts have not applied this standard to RPA cases. Rather, in the view of these courts, a reseller-plaintiff in a RPA suit need show only that a price difference resulted in a significant "diversion" of sales or profits to a single competitor, not actual harm to overall competition or the competitive process.7 And courts still generally allow RPA plaintiffs to skip that step entirely and establish a rebuttable presumption of competitive injury through proof that the defendant provided "substantial discounts to a competitor over a significant period of time."8

Potential damages in price discrimination cases can also be high. Damage awards can span several years of a plaintiff's lost sales or profits, and those awards are automatically trebled. Although RPA class action certification is uncommon due to the individualized nature of the proof required in RPA cases, RPA suits can multiply if the case is publicized (which often happens, since federal court litigation is inherently public) and other plaintiff-resellers come to believe they also paid discriminatory prices. Moreover, the nature of the parties involved in price discrimination suits is often conducive to the type of "David vs. Goliath" trial theme that plaintiffs' lawyers may use to try to win the sympathy of a jury and potentially generate runaway verdicts.

RPA litigation is also often expensive and time consuming. Decade-long price discrimination cases are not unprecedented. A recent well-known RPA case in the pharmaceutical industry resulted in affirmance of summary judgment for defendant-manufacturers in 2015―taking more than 20 years for the case to wind its way through the court system.9 Like antitrust cases in general, discovery in RPA cases litigated in federal district court can require production of many years of data and documents, third-party depositions and document requests, and expensive reports and testimony from economic and damages experts.

Unlike many other types of business-against-business litigation, RPA cases can often be difficult to settle by providing the plaintiff a commercial concession. Frequently, plaintiffs in RPA cases are former distributors that have gone out of business or moved on to a different supplier. As a result, out-of-court settlements based on commercial terms can be difficult, if not impossible, to reach.

Reseller Contracts Provide Opportunity to Reduce the Cost and Uncertainty of Litigation

Businesses that are at potential risk of becoming RPA defendants, i.e., manufacturers and wholesalers, often have detailed distribution agreements or written terms of sale with the customers that are prospective RPA plaintiffs. In those agreements, suppliers may be able to mitigate RPA litigation risk through short and clear statements requiring arbitration pursuant to certain established procedures (e.g., the American Arbitration Association or JAMS rules) in lieu of litigation in federal court.

Years ago, it was common for federal courts to ignore arbitration clauses in antitrust litigation.10 Antitrust cases, according to the prevailing attitudes, were too important and too complex for resolution without judicial instruction and supervision, and it was of "questionable propriety" to allow arbitrators—who were "frequently men drawn for their business expertise"—to enforce laws meant to regulate the business community.11

In 1985, the Supreme Court rejected that reasoning, holding that federal policy favored arbitration, even in antitrust cases.12 Today, federal courts routinely grant defendants' motions to compel arbitration in RPA cases, citing the Supreme Court's directive to "rigorously enforce arbitration agreements" even when the case involves antitrust claims.13

Manufacturers and other suppliers that face a risk of price discrimination suits should consult with antitrust counsel about the inclusion of an arbitration clause in their distribution agreements, because the benefits can be substantial. Instead of a jury, arbitration allows the parties to appoint adjudicators with industry or business expertise to decide the case; the proceedings, trade secrets, and any damages award in an arbitration can be kept confidential; and, perhaps most importantly, arbitrations usually proceed much more quickly and at less expense than federal court litigation―often due to the streamlined arbitration process, the narrow scope of appellate review and limited mechanisms for discovery.

Nonetheless, there are potential downsides to arbitration that a company should discuss with counsel before invoking arbitration in a particular case or including arbitration clauses in its commercial agreements. The same limitations on appellate review that make arbitration quick and efficient can also be unhelpful if an arbitrator misapplies the law or makes clearly erroneous factual findings. Arbitration is also generally more geared toward fact-finding and may be less conducive to dispositive motions such as motions to dismiss or for summary judgment that sometimes enable companies to defeat litigation without a trial. Nevertheless, many companies that weigh the pros and cons with counsel conclude that on balance, the benefits of arbitration provisions outweigh the detriments.

Manufacturers and wholesalers should also discuss with counsel whether to include provisions in distribution agreements that shorten the Clayton Act's four-year statute of limitations, which governs the RPA and other antitrust statutes. Courts that have considered the issue have generally agreed that the statute of limitations in the Clayton Act is procedural, as Congress added the provision years after the Act's substantive provisions.14 As a result, the parties can reduce the four-year period by contract, so long as the shortened period is "reasonable."15 At least two courts have held that truncating the Clayton Act's limitations period to one year was reasonable.16 Because Robinson-Patman suits are often filed only after a business relationship sours, shortening the limitations period may significantly reduce the risk of Robinson-Patman litigation.

Conclusion

The federal district court is no longer the exclusive forum for litigating antitrust cases. The informal, confidential and expedited procedures available in commercial arbitration are available to companies that have a direct commercial relationship, which is most often the case for the firms who end up as RPA plaintiffs and defendants.

Manufacturers and other suppliers that face the specter of price discrimination litigation should consult antitrust counsel to determine whether inclusion of arbitration clauses and contractually shortened antitrust limitations periods in their reseller agreements would be effective ways to reduce exposure under the RPA―a federal law that is now, for all practical purposes, enforced exclusively through private litigation.

Footnotes

1 There are a number of statutory and judicially created RPA defenses that suppliers may use, including the meeting competition defense, the cost justification defense, changing conditions defense, and the functional availability defense.

2 Indeed, in 2007, the Antitrust Modernization Commission, appointed pursuant to an Act of Congress, recommended repealing the RPA. Antitrust Modernization Commission, Report & Recommendations at 311-32 (Apr. 2, 2007).

3 See, e.g., US Department of Justice, Department of Justice Report on the Robinson-Patman Act 35-37 (1977).

4 The FTC last brought an RPA case in 2000.

5 US Wholesale Outlet & Distribution, Inc. v. Living Essentials, LLC and Innovation Ventures, LLC, C.A. No. 2:18-cv-01077 (C.D. Cal. Feb. 8, 2018); Bedford Nissan, Inc. v. Nissan North America, Inc., 1:16-cv-00423 (N.D. Ohio Feb. 23, 2016); Napleton's Arlington Heights Motors, Inc. v. FCA US, LLC, 1:16-cv-00403 (N.D. Ill. Jan. 12, 2016); Woodman's Food Market, Inc. v. The Clorox Co., 3:14-cv-00734 (W.D. Wis. Oct. 28, 2014).

6 Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767 (1984) (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoting Brown Shoe Co. v. US, 370 U.S. 294, 320 (1962))) (emphasis in original).

7 See, e.g., Cash & Henderson Drugs, Inc. v. Johnson & Johnson, 799 F.3d 202, 210 (2d Cir. 2015) (quoting Volvo, 546 U.S. at 177, 180); Bedford Nissan, Inc., No. 1:16 CV 423, 2016 WL 6395799, at *4 (N.D. Ohio Oct. 28, 2016)(same).

8 Cash & Henderson Drugs, 799 F.3d at 210 (citing FTC v. Morton Salt Co.¸ 334 U.S. 37, 50-51 (1948)). The Morton Salt inference can be overcome with proof that the amount of diverted sales was insubstantial, see id. at 212-214, and there also is a viable argument that liability under the RPA requires proof that the diverted sales harmed competition in general, rather than merely a single competitor. See Volvo, 546 U.S. at 177, 181 (affirming the Morton Salt presumption but stating that the Court will "resist interpretation" of the RPA "geared more to the protection of competitors than the stimulation of competition.").

8 Id. at 207.

9 See, e.g., Cobb v. Lewis, 488 F.2d 41, 47 (5th Cir. 1974).

10 Id. (citing American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821,826–27 (2d Cir. 1968)).

11 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985).

12 Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 233 (2013).

13 In re Cotton Yarn Antitrust Litig., 505 F.3d 274, 287 (4th Cir. 2007).

14 Id.

15 Id.; see also Daniels v. NVR, Inc., 56 F. Supp. 3d 737, 743 (D. Md. 2014).

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions