United States: Supreme Court Adopts More Restrictive Application of Robinson-Patman Act

Last week, the U.S. Supreme Court adopted a more restrictive test for buyers to prove injury to competition from price discrimination under the Robinson-Patman Act. In a majority opinion by Justice Ginsburg, the Court reversed the Eighth Circuit Court of Appeals in Volvo Trucks North America v. Reeder-Simco GMC, Inc. Notwithstanding news reports of a major restriction on the scope of the antitrust laws, this reversal had been expected by antitrust specialists. Nonetheless, the opinion appears to set forth a tougher requirement for demonstrating a violation of the Robinson-Patman Act.

Reeder was an authorized Volvo dealer in Fort Smith, Arkansas, which sold heavy duty Volvo trucks. Dealers typically sell heavy duty trucks through a competitive bidding process. In this process, a customer issues specifications for the heavy duty trucks it wishes to purchase and invites bids from selected dealers.

Once a heavy duty truck dealer receives the customer’s specifications, it seeks a quote from its manufacturer on the price at which the manufacturer would sell a truck satisfying the specs. Volvo decides on a case-by-case basis what its price will be under a particular set of specs. Volvo’s stated policy was to provide the same price to each dealer competing for the same contract. The dealer purchases a truck from Volvo only if and when the customer accepts its bid.

Reeder was assigned a geographic territory and, although not prohibited from bidding outside its territory, it rarely bid against another Volvo dealer.

Reeder sued Volvo in February 2000, claiming that Volvo had given other dealers better terms than it received. Reeder alleged losses under Section 2(a) of the Robinson-Patman Act and Arkansas state law. After a trial in the United States District Court for the Western District of Arkansas, the jury awarded Reeder $1.3 million in damages on the Robinson-Patman Act claim, which would have been automatically trebled to $3.9 million, and $513,750 under the state law claim. A divided Eighth Circuit affirmed the jury’s verdict.

On January 11, 2006, the Supreme Court reviewed the rulings on the Robinson-Patman Act and reversed the Eighth Circuit, holding that Reeder had failed to prove the "competitive injury" required in a Section 2(a) case. In order to make its case, Reeder had to prove:

• The relevant Volvo truck sales were made in interstate commerce;

• The trucks in the comparable sales were of "like grade and quality;"

• Volvo price discriminated between Reeder and another Volvo truck dealer; and

• The discrimination may have injured competition.

It was undisputed that the sales involved interstate commerce and trucks of "like grade and quality." But, Reeder failed to prove that there was price discrimination resulting in an adverse effect on competition.

Reeder relied on three types of evidence to establish that Volvo had discriminated among dealers which resulted in competitive injury to Reeder:

• Comparisons of Reeder’s discounts received for four successful bids against non-Volvo dealers with larger discounts received by other Volvo dealers for different sales on which Reeder did not bid.

• Comparisons of Reeder’s discounts received for four unsuccessful bids against non-Volvo dealers with larger discounts received by other Volvo dealers who won the contract where Reeder did not bid.

• Comparisons of Reeder’s discounts with those received by another Volvo dealer in two instances when Reeder was bidding against the other dealer.

The Supreme Court found that the first two categories of evidence fell short because they did not involve Reeder bidding against another Volvo dealer for a customer, and was "mix-and-match, manipulable" evidence that could not prove competitive injury.

As for the two instances in which Reeder had competed head to head with another Volvo dealer in the same bidding process, the Court found no price discrimination. In one example, even though Volvo had offered the same discount to each dealer, neither Volvo dealer won the contract. In the second, the other Volvo dealer won the contract, but Volvo had offered the same discount to both dealers during the bidding. It was only after the other dealer had won the contract that Volvo offered it a larger discount. Therefore, the Court simply and narrowly held that "…Reeder did not establish that it was disfavored vis-à-vis other Volvo dealers in the rare instances in which they competed for the same sale — let alone that the alleged discrimination was substantial." The loss of this sale of 12 trucks to another Volvo dealer resulted in $30,000 in lost gross profits for Reeder. The Court held that, even if there had been better discounts offered to another dealer, the loss of one sale worth $30,000 was not enough to have a substantial effect on the competition between Reeder and the other Volvo dealer.

The Court went on to note that the Robinson-Patman Act should be interpreted to stimulate competition, rather than protect competitors. Where, as in the Reeder case, there is no evidence of discrimination in competitive situations or resulting harm to competition, and the allegedly favored customers are not the large retailers that were the targets of the Robinson-Patman Act, finding no violation of the Act is consistent with the goals of the antitrust laws.

Justice Stevens authored the dissent, joined by Justice Thomas, stating that there was ample evidence that Volvo charged Reeder higher prices than it charged to competing dealers over a period of many months and that these different prices clearly resulted in harm to Reeder. Justice Stevens did not believe that the case could be reduced to a customer-specific inquiry.

This case demonstrates again the complexities of the Robinson-Patman Act. The Supreme Court appeared to clarify when buyers are considered to be competing so that price differentials among them are discriminatory and may lead to competitive injury prohibited under the Robinson-Patman Act. However, it also specifically stated that it was not deciding whether the Act reached "markets characterized by competitive bidding and special-order sales, as opposed to sales from inventory." Nonetheless, the Court indicated that a substantial loss must exist before there would be competitive injury under the Robinson-Patman Act. Yet it seemed to affirm long-standing precedent that competitive injury may be inferred "from evidence that a favored competitor received a significant price reduction over a substantial period of time." The Act remains a minefield and a source of costly and lengthy litigation.

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