Recent Price Discrimination Cases Are Instructive
ANTITRUST & TRADE REGULATION BULLETIN 10-4
By: RICHARD J. WEGENER
December 10, 2010
Like the crazy uncle who appears at the annual Thanksgiving dinner table, Robinson-Patman Act price discrimination cases continue to appear on crowded court dockets. Two recent Robinson-Patman Act decisions in cases from the automotive parts sector are instructive both to antitrust counselors and litigators.
Background
The first case, Gorlick Distribution Centers v. Car Sound Exhaust Systems,1 allowed an automobile exhaust systems distributor to assert a Section 2(f) Robinson-Patman Act price discrimination claim against a rival distributor that allegedly induced the manufacturer to refuse to ship parts to the disfavored plaintiff. The plaintiff, with business locations in many cities throughout the United States, was forced to reship parts the manufacturer supplied to its California location to Oregon and Washington in order to compete with the rival distributor. In denying the defendant’s motion for summary judgment, the court held that different shipping terms may constitute cognizable price discrimination.
The second case is the latest in a long-standing crusade by the plaintiffs and their counsel against national big-box retailers like Wal-Mart. In their current case, Coalition for a Level Playing Field v. Autozone,2 hundreds of mom-and-pop auto retailers, middle men between such stores and parts manufacturers and the trade association Coalition for a Level Playing Field alleged price discrimination by the nation’s major auto parts manufacturers and the big-box chain retailers they sell to. The plaintiffs alleged, among other things, that the manufacturer defendants sell parts to the retailer defendants below their variable cost, and that the defendant retailers pay 40 to 50 percent less for parts than the plaintiffs. The court found that the plaintiffs offered no factual material to support a plausible inference that any discounts taken by the favored retailers did not reflect bona fide functional discounts or non-price terms of sale.
What Does This Mean?
Gorlick discloses a fatal lack of distribution counseling on the defendant manufacturer’s part. By refusing to ship to Gorlick’s Oregon and Washington locations, the manufacturer thought it was restricting the geographic area in which Gorlick could sell. Instead, the manufacturer created a cognizable Robinson-Patman price discrimination claim. What should the manufacturer have done? A simple territorial restraint prohibiting Gorlick from making sales in Oregon or Washington would have prevented the price discrimination problem.3
Coalition for a Level Playing Field is the latest decision to recognize the validity of the “functional discount” defense, i.e., discounts given by a manufacturer to a wholesaler, jobber, or retailer, as compensation for the performance of some distribution function that the manufacturer would otherwise have to pay for itself.4 The literal language of the Robinson-Patman Act makes no mention of functional discounts, and it is clearly not among the three statutory defenses set forth in the statute. Despite this, the Supreme Court has recognized them as a defense.5 Coalition for a Level Playing Field applies Twombly6 and Iqbal7 to Robinson-Patman pleadings in a functional discount setting. Pleading does matter. While the complaint assumed discriminatory pricing from the different retail prices charged by the retailer defendants vs. those charged by the plaintiffs, those prices were just as consistent (if not more consistent) with an inference of non-discriminatory pricing in the form of permissible functional discounts or non-price terms of sale enjoyed by the big-box retailers, neither of which implicate the Act. Failing to allege facts that would remove the price differences from the presumptive legality of functional discounts, such as discounts given for services not performed or discounts which greatly exceed the value of the services provided, the complaint failed to state a claim.
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1 Gorlick Distribution Centers, LLC v. Car Sound Exhaust System, Inc., 2010 WL 4365807 (W.D. Wash. 2010), 99 BNA ATRR 558.
2 Coalition for a Level Playing Field, L.L.C. v. Autozone, Inc., 2010 WL 3590187 (S.D.N.Y. 2010), 99 ATRR 369. Mr. Wegener represented The Valvoline Company in the prior litigation, Coalition I, No. 00 Civ. 953 (E.D. N.Y., filed Feb. 16, 2000).
3 The cases almost always uphold vertical territorial restrictions after a rule of reason analysis. Generac Corp. v. Caterpillar, Inc., 172 F.3d 971, 977-78 (7th Cir. 1999) (agreement to divide geographic market by exclusive territories for the resale of Caterpillar brand equipment did not have “anticompetitive effect” because manufacturer could appoint additional distributors if plaintiff’s performance was unsatisfactory, and distributor was not limited to selling Caterpillar products); First Beverages, Inc. v. Royal Crown Cola Co., 612 F.2d 1164 (9th Cir. 1980) (upholding defendant’s use of airtight territorial sales restrictions); Quaker State Corp. v. Leavitt, 839 F. Supp. 76, 80 (D. Mass. 1993) (policy allowing purchasers only to apply for loans and do business with the distributor responsible for the purchaser’s geographic territory upheld even though it “may have a limiting effect on [purchaser’s] business opportunities”); Coca-Cola Co. v. Omni Pacific Co., Inc., 79 BNA ATRR 511 (N.D. Cal. 2000) (judgment for Coca-Cola on charges that its territorial bottling agreements constitute unreasonable restraints of trade under the rule of reason).
4 A “functional discount” might be in the form of transportation savings. It might be in the form of inventory or warehouse savings. It might be in the form of promotional and merchandising savings that the manufacturer would otherwise have to pay for itself. It would have to hire the trucking company. It would have to hire the warehouse. It would have to, perhaps, put its own ads on the radio and conduct other types of merchandising.
5 Texaco, Inc. v. Hasbrouck, 486 U.S. 543 (1980).
6 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
7 Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).