Lawyer Article

Does your company buy or sell things? Then you may be interested in the Supreme Court's new opinion in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. which clarifies when a seller may be liable for price discrimination under the Robinson-Patman Act.

The Robinson-Patman Act was enacted in 1936 in response to the advent of large chain stores that had clout to obtain lower prices for goods than smaller buyers. The Act prohibits discrimination "in price between different purchasers of commodities of like grade and quality, ... where the effect of such discrimination may be substantially to lessen competition..." 15 U.S.C. 13(a).

In Volvo Trucks, the Supreme Court held that a manufacturer is not liable for secondary-line price discrimination (i.e. a price discrimination case brought by a "disfavored" purchaser) in the absence of a showing that the manufacturer discriminated between purchasers competing to resell its product to the same retail customer.

Plaintiff Reeder-Simco GMC, Inc. (Reeder) was an authorized dealer of trucks manufactured by Volvo Trucks North America, Inc. (Volvo). Reeder sold specialty ordered trucks through a competitive bidding process whereby retail customers would describe their specific product requirements and invite bids from several dealers. Once the dealer received the customer's specifications, it requested from Volvo a discount or concession off the wholesale price and then used this discount in preparing its bid.

Although Reeder rarely bid against another Volvo dealer, Volvo's stated policy was to provide the same price concession to dealers competing over the same customer. Volvo, however, did not provide the same price concession to dealers when they were competing over different customers. Rather, Volvo offered varying price concessions on a case-by-case basis.

After Volvo announced plans to increase the size of its dealers’ markets and to reduce the number of its dealers, Reeder "coincidentally" learned that Volvo had given another dealer a price concession greater than the concessions Reeder typically received. Reeder suspected that Volvo was using price discrimination to eliminate it as a dealer and chose this method to avoid possible violations of franchise agreements and state law.

Instead of focusing on evidence of price discrimination in head-to-head competition with another Volvo dealer (of which there was little evidence), Reeder dominantly relied on comparisons between concessions it received when it bid against non-Volvo dealers and more favorable concessions other Volvo dealers received in bidding processes in which Reeder did not participate. Also, Reeder did not offer any statistical analysis revealing whether it was disfavored on average as compared to other dealers.

Nevertheless, the jury found Volvo liable for price discrimination under the Robinson-Patman Act and the District Court awarded treble damages. The Eight Circuit affirmed after finding the jury could reasonably decide Reeder was in actual competition with favored dealers at the time price differentials were imposed.

The Supreme Court, however, reversed the Eight Circuit’s decision because Reeder’s comparisons fell short of showing price discrimination for the same customer. The Court noted that Reeder did not "even attempt to show that the compared dealers were consistently favored vis-à-vis Reeder." Rather Reeder "simply paired occasions on which it competed with non-Volvo dealers for a sale to Customer A with instances in which other Volvo dealers competed with non-Volvo dealers for a sale to Customer B." The Court "declined to permit an inference of competitive injury from evidence of such mix-and-match, manipulable quality." The Court also noted that the primary purpose of antitrust law is interbrand competition, not intrabrand competition.

Justice Stevens’s dissent (in which Justice Thomas joined) argued that the majority adopted "a novel, transaction-specific concept of competition." Justice Stevens warned: “The Court appears to hold that, absent head-to-head bidding with a favored dealer, a dealer in a competitive bidding market can suffer no competitive injury. It is unclear whether that holding is limited to franchised dealers who do not maintain inventories, or excludes virtually all franchisees from the effective protection of the Act." Although Justice Stevens acknowledged that although the rational for the Robinson-Patman Act has been criticized as a "wholly mistaken economic theory,” he disagreed with the majority’s reading of the Act in this case, especially since "the jury credited evidence that discriminatory prices were employed as means of escaping contractual commitments and eliminating specifically targeted firms from a competitive market."

Although the full extent of the Court’s decision in Volvo Trucks remains to be seen, the decision is a victory for manufacturers and franchisors because it makes it more difficult for a dealer-plaintiff to establish price discrimination especially in a competitive bidding or special order context.

Womble Carlyle has extensive experience advising clients on antitrust, distribution, and franchise law issues, including price discrimination under the Robinson-Patman Act. If you have any questions or would like to discuss a particular situation, please visit Womble Carlyle's Antitrust, Distribution and Finance Law web page.

Womble Carlyle contacts:
Jason Hicks email, (336) 728-7032
Mark Poovey email, ( 336) 721-3641