Originally published January 23, 2006
Volvo Trucks N.A., Inc. v. Reeder-Simco GMC, Inc., No. 04-905, 546 U.S. ___ (U.S. Jan. 10, 2006)
The Robinson-Patman Act outlaws price discrimination between different purchasers of goods but only to the extent that the effect of such discrimination may be to substantially lessen competition. 15 U.S.C. § 13(a); see also Brooke Group, Ltd. v. Williamson Tobacco Corp., 509 U.S. 209 (1993). The United States Supreme Court recently rejected a franchised dealer’s claim that it had been the victim of unfair price discrimination in violation of the Robinson-Patman Act. The Court held that manufacturers cannot be liable to dealers for price discrimination absent competition between the dealers to resell to the same customer.
The plaintiff, Reeder-Simco GMC, Inc. ("Reeder"), was a franchised dealer of Volvo heavy-duty trucks. It sold these trucks in competition with the trucks of other competitors and, to a lesser extent, in competition with other Volvo dealers. In the heavy-duty truck market, trucks are not generally maintained in inventory but are manufactured only after a retail customer has solicited and accepted bids from several dealers. To meet the needs of any given customer, Volvo’s heavy truck dealers seek price concessions from Volvo to provide the trucks to customers at a price below the wholesale price. Volvo’s stated policy is to determine its discounts on a case-by-case basis, except that Volvo equalizes prices in any case in which Volvo dealers are bidding against one another. Reeder alleged that Volvo discriminated against Reeder and other disfavored dealers by providing them less competitive prices generally and that this practice was pursuant to an overall plan to eliminate disfavored dealers and reduce the number of dealers in Volvo’s distribution channel.
Reeder sought to prove harm to competition by relying primarily on instances in which Reeder was not in direct competition with another Volvo dealer, but was charged or quoted a higher price for trucks than had been charged or quoted to other Volvo dealers in similar circumstances. The Supreme Court squarely rejected Reeder’s "mix-and-match" approach, holding that the discrimination must cause harm in specific instances in which the favored and disfavored purchaser actually compete "for the same customer." Slip Opinion at 11 (emphasis in original). Reeder could cite only two occasions in which it had competed directly with another Volvo dealer. The Court found in these two instances that "Reeder did not establish that it was disfavored vis-à-vis other Volvo dealers . . . let alone that the alleged discrimination was substantial" so as to warrant the requisite inference of injury to competition. Slip Opinion at 13
(emphasis in original). Specifically, the Court observed that if there had been some discrimination, which it doubted, it was not of sufficient magnitude – approximately $30,000 in lost profits – to substantially affect competition, as required to sustain a claim under the Act. Id. Accordingly, the Court overturned the jury verdict of more than $1.3 million that had been entered in favor of Reeder.
The Robinson-Patman Act is most commonly applied to protect competition between purchasers in cases in which goods are held in inventory. One or more (typically larger) retailers or distributors may be able to purchase goods held in inventory at a lower price than their competitors, and this price differential allegedly impedes the ability of the disfavored purchaser to compete. By contrast, in the heavy-duty truck market at issue in Volvo Trucks, trucks are not generally maintained in inventory but are sold to support a bid in response to the requirements of a specific customer. Such contract-by-contract bidding arrangements are somewhat rare in the motor vehicle market, but are more typical in other markets such as construction and government contracts. The broader question for the Court was whether and to what extent the Act applies in such bid markets.
Both the defendant and the Antitrust Division of the Department of Justice in its amicus brief argued that the Robinson-Patman Act should never have any application in this kind of market. In those cases in which dealers do compete head-to-head with one another, they argued, only one of them actually becomes a "purchaser," and there is thus no discrimination "between different purchasers," as described in the Act. 15 U.S.C. § 13(a). Such a ruling would have had a much broader impact, since it would have effectively insulated sellers from liability in all bid markets in which manufacturers supply quotes. This would have included markets in which head-to-head competition between competing purchasers may be the norm, such as some construction and government contract markets. The Court recited this argument and accorded it some respect, but found that it "need not decide that question today." Slip Opinion at 12-13. It is unclear whether the Court was unable to muster a majority on this point or was simply exercising judicial restraint in not reaching a question it did not have to decide.1 Consequently, while the proof requirements imposed by Volvo Trucks may limit the cases in which a purchaser can or will assert a price discrimination claim, the case provides no safe harbor for discrimination in these kinds of markets.
The Volvo Trucks decision follows a string of Supreme Court and lower court decisions that have made it increasingly difficult for plaintiffs to mount successful claims for price discrimination under the Robinson-Patman Act. See, e.g., Brook Group, 509 U.S. at 223-25 (in cases asserting "primary line" competitive harm at the manufacturer level, plaintiff must show
1
Similarly, the Court declined to decide whether it might reach a different conclusion if a disfavored purchaser could show that it was denied the opportunity to bid to customers in the first instance because of a reputation for being unable to secure low prices. The Court pointed out that Reeder had introduced no such proof. Slip Opinion at 12 n.3. that prices were below cost and must otherwise demonstrate a likelihood that the predatory scheme alleged would cause a rise in prices above a competitive level sufficient to allow for recoupment of the cost of the predation and the corresponding injury to competition); J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 562 (1981) (rejecting inference of "presumptive" or "automatic" damages measured as the equivalent of the amount of the price discrimination; a plaintiff must prove actual injury, i.e., lost profits, and that such injury was actually caused by the price discrimination and not some other benign factor); Great Atlantic & Pacific Tea Co., Inc. v. F. T. C., 440 U.S. 69, 78 (1979) (precluding buyer liability for knowingly inducing or receiving illegal price discriminations under the Robinson-Patman Act where the seller has a valid "meeting competition" defense and finding that both seller and buyer have a valid meeting competition defense where seller lowered its bid in response to buyer’s statement that seller’s original bid was "not even in the ballpark"). This line of decisions appears to be based on a general hostility to the Robinson-Patman Act from a policy standpoint on the grounds that it tends to protect competitors rather than competition and thus may be antithetical to the goals of the antitrust laws generally. Indeed, even Justice Stevens, in dissent, suggested his agreement with the view that the "statutory mission" of the Robison-Patman Act represented "wholly mistaken economic theory," but would have held nevertheless that Reeder should prevail under the statute as written. Dissent Slip Opinion at 7 (Stevens, J.).In deciding whether to discriminate in price, manufacturers should realize that price discrimination, for all practical purposes, is not a crime under the Robinson-Patman Act. (This may be contrasted with price fixing and similar anticompetitive agreements between competitors, which are most definitely crimes and can result in substantial prison terms.) In many if not most cases, price discrimination can be undertaken with relatively little antitrust risk. Nevertheless, a proper legal assessment may be prudent, not only to assess any risk under this Act, but also to determine whether any state laws dealing with price discrimination, below-cost pricing, or franchisee or dealer protection may apply to outlaw discrimination in a particular case. Indeed, the Supreme Court in Volvo Trucks did not review and thus let stand a $513,750 verdict against Volvo, imposed for its failure to deal with Reeder in a "commercially reasonable manner and in good faith" as required by the Arkansas Franchise Practices Act, Ark. Code Ann. § 4-72-206(6).
Footnote
1 Similarly, the Court declined to decide whether it might reach a different conclusion if a disfavored purchaser could show that it was denied the opportunity to bid to customers in the first instance because of a reputation for being unable to secure low prices. The Court pointed out that Reeder had introduced no such proof. Slip Opinion at 12 n.3.
© 2006 Sutherland Asbill & Brennan LLP. All Rights Reserved.
This article is for informational purposes and is not intended to constitute legal advice.
