Competitive Bidding Assistance Programs Do Not Violate Robinson-Patman Act

On Jan. 10, 2006, the U.S. Supreme Court announced its first decision in over a decade interpreting the federal price discrimination statute, known as the Robinson-Patman Act (the “RPA”). In a 7-2 decision, the Court in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. (04-905), held that a heavy-duty truck manufacturer's unequal price concessions to its dealers bidding for special order jobs do not violate the RPA unless they discriminate between dealers competing for the same retail customer.

Background

Section 2(a) of the RPA prohibits sellers from discriminating in price between “different purchasers of commodities of like grade and quality,” when such discrimination may “substantially … lessen competition or … injure, destroy or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination.” 15 U.S.C. '13(a). Reeder, a franchised dealer of Volvo heavy-duty trucks, claimed that Volvo violated the Act by giving other dealers more advantageous wholesale discounts for their bids on retail truck contracts. Customers in the heavy-duty truck industry typically invite select dealers to bid on orders for particular trucks, built to order to unique specifications. Each selected dealer, before bidding, requests from its manufacturer a job-specific price concession (or discount) that it uses to prepare its bid. In most cases, the customer selects only a single dealer representing each manufacturer to provide a bid. In the rare cases where more than one Volvo dealer was selected to bid, Volvo's written policy is to offer each the same price concession.

Reeder nevertheless alleged that Volvo engaged in price discrimination based on: 1) evidence that Volvo gave larger concessions to other dealers who were bidding on different jobs on which Reeder did not bid; 2) one instance in which Reeder bid against another Volvo dealer and Volvo promised both the same concession during bidding but, after the other dealer won the bid and at the customer's insistence, Volvo gave it a larger concession; and 3) one instance in which Volvo initially offered Reeder a lower discount but later increased it to match the discount for another dealer bidding on the same job. Reeder also pointed to evidence that Volvo had implemented a program it called “Volvo Vision,” through which, among other things, Volvo expressed an intent to reduce the number of its dealers; Reeder argued that Volvo was discriminating against it through unequal concessions because it was one of the dealers targeted for elimination. The jury found for Reeder and awarded RPA damages of $1.3 million (plus $513,750 on Reeder's claim under the Arkansas Franchise Practices Act). The District Court trebled the antitrust damages, and the Eighth Circuit affirmed.

Supreme Court's Decision

On appeal, the parties presented two central issues for the Supreme Court's review. First, Volvo and the U.S. Department of Justice as amicus curiae invited clarification of the nature of a “purchaser” under the RPA: Could a losing bidder in a competitive bidding situation ever bring a claim under the Act as a disadvantaged purchaser?

Second, the parties asked the Court to clarify the nature of the harm to “competition” necessary to violate the RPA: In an industry characterized by customer-specific competitive bidding, must the disfavored bidder show direct competition on particular bids between itself and the favored bidder, or is it enough to establish some generalized competition between those firms in the same geographic market?

The Supreme Court reversed and remanded. Writing for a seven-justice majority, Justice Ruth Bader Ginsburg expressly left open whether Robinson-Patman should even apply to competitive bidding or special-order sales. It held that, in any case, Reeder had not shown the requisite competitive injury, because it was never in actual competition with a more favored dealer in any case in which it was offered a smaller discount. Citing a vigorous dissent in the Eighth Circuit, the Court held that “[o]nce a retail customer has chosen the particular dealers from which it will solicit bids, 'the relevant market becomes limited to the needs and demands of a particular end user, with only a handful of dealers competing for the ultimate sale.'” The Court concluded that Reeder's selective evidence regarding discounts Volvo gave to dealers for jobs on which Reeder did not bid was irrelevant, particularly since Reeder admitted that it was “quite possible” that it actually received a larger concession than other dealers on other bids. Further, Reeder's two examples of head-to-head competition failed to show that it was actually disfavored vis-'-vis another Volvo dealer, let alone that any discrimination was substantial, as required to give rise to an inference of injury to competition under the Act. Thus, there could be no RPA violation under these facts.

Impact of the Decision

Reeder-Simco has significant implications in any industry where special-order products are sold through a customer-specific competitive bidding process. It is now clear that under those circumstances, differential discounts to dealers vying for different customer jobs are not subject to the Act. This is an important victory for manufacturers, who argued that any other conclusion would prevent them from responding to competitive conditions in the market, thereby artificially making prices more rigid. For dealers, the decision marks the rejection of their claim that generalized competition between dealers is harmed (and the RPA therefore triggered) if discounts differ within a geographic area, even when dealers do not compete on particular jobs.

Yet the decision's impact transcends the narrow facts of the case. In its final paragraph, the Court addressed, arguably in dicta, a deeper question raised by both sides in the case: whether the RPA's doctrinal foundations can be reconciled with those of the broader federal antitrust law. Contrary to most courts and commentators, who have traditionally read the RPA to protect competition between individual intra-brand competitors and not to require a showing of harm to competition more broadly ' including the Supreme Court itself, in FTC v. Morton Salt Co., 334 U.S. 37 (1948) ' the Reeder Court announced that the RPA “signals no large departure” from antitrust's general focus on inter-brand competition. “Even if the Act's text could be construed in the manner urged by Reeder and embraced by the Court of Appeals, we would resist interpretation geared more to the protection of existing competitors than to the stimulation of competition.”

The Court went on to apply traditional antitrust standards to explain why no violation occurred here (the absence of evidence that any favored purchaser had market power, and the fact that “the supplier's selective price discounting fosters competition among suppliers of different brands”) ' standards that have not, until now, typically been considered in analyzing RPA claims brought by an allegedly disfavored customer. In so holding, the Supreme Court arguably signaled a material departure from past precedent that could significantly reduce the number of successful RPA claims in the future.

On Jan. 10, 2006, the U.S. Supreme Court announced its first decision in over a decade interpreting the federal price discrimination statute, known as the Robinson-Patman Act (the “RPA”). In a 7-2 decision, the Court in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. (04-905), held that a heavy-duty truck manufacturer's unequal price concessions to its dealers bidding for special order jobs do not violate the RPA unless they discriminate between dealers competing for the same retail customer.

Background

Section 2(a) of the RPA prohibits sellers from discriminating in price between “different purchasers of commodities of like grade and quality,” when such discrimination may “substantially … lessen competition or … injure, destroy or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination.” 15 U.S.C. '13(a). Reeder, a franchised dealer of Volvo heavy-duty trucks, claimed that Volvo violated the Act by giving other dealers more advantageous wholesale discounts for their bids on retail truck contracts. Customers in the heavy-duty truck industry typically invite select dealers to bid on orders for particular trucks, built to order to unique specifications. Each selected dealer, before bidding, requests from its manufacturer a job-specific price concession (or discount) that it uses to prepare its bid. In most cases, the customer selects only a single dealer representing each manufacturer to provide a bid. In the rare cases where more than one Volvo dealer was selected to bid, Volvo's written policy is to offer each the same price concession.

Reeder nevertheless alleged that Volvo engaged in price discrimination based on: 1) evidence that Volvo gave larger concessions to other dealers who were bidding on different jobs on which Reeder did not bid; 2) one instance in which Reeder bid against another Volvo dealer and Volvo promised both the same concession during bidding but, after the other dealer won the bid and at the customer's insistence, Volvo gave it a larger concession; and 3) one instance in which Volvo initially offered Reeder a lower discount but later increased it to match the discount for another dealer bidding on the same job. Reeder also pointed to evidence that Volvo had implemented a program it called “Volvo Vision,” through which, among other things, Volvo expressed an intent to reduce the number of its dealers; Reeder argued that Volvo was discriminating against it through unequal concessions because it was one of the dealers targeted for elimination. The jury found for Reeder and awarded RPA damages of $1.3 million (plus $513,750 on Reeder's claim under the Arkansas Franchise Practices Act). The District Court trebled the antitrust damages, and the Eighth Circuit affirmed.

Supreme Court's Decision

On appeal, the parties presented two central issues for the Supreme Court's review. First, Volvo and the U.S. Department of Justice as amicus curiae invited clarification of the nature of a “purchaser” under the RPA: Could a losing bidder in a competitive bidding situation ever bring a claim under the Act as a disadvantaged purchaser?

Second, the parties asked the Court to clarify the nature of the harm to “competition” necessary to violate the RPA: In an industry characterized by customer-specific competitive bidding, must the disfavored bidder show direct competition on particular bids between itself and the favored bidder, or is it enough to establish some generalized competition between those firms in the same geographic market?

The Supreme Court reversed and remanded. Writing for a seven-justice majority, Justice Ruth Bader Ginsburg expressly left open whether Robinson-Patman should even apply to competitive bidding or special-order sales. It held that, in any case, Reeder had not shown the requisite competitive injury, because it was never in actual competition with a more favored dealer in any case in which it was offered a smaller discount. Citing a vigorous dissent in the Eighth Circuit, the Court held that “[o]nce a retail customer has chosen the particular dealers from which it will solicit bids, 'the relevant market becomes limited to the needs and demands of a particular end user, with only a handful of dealers competing for the ultimate sale.'” The Court concluded that Reeder's selective evidence regarding discounts Volvo gave to dealers for jobs on which Reeder did not bid was irrelevant, particularly since Reeder admitted that it was “quite possible” that it actually received a larger concession than other dealers on other bids. Further, Reeder's two examples of head-to-head competition failed to show that it was actually disfavored vis-'-vis another Volvo dealer, let alone that any discrimination was substantial, as required to give rise to an inference of injury to competition under the Act. Thus, there could be no RPA violation under these facts.

Impact of the Decision

Reeder-Simco has significant implications in any industry where special-order products are sold through a customer-specific competitive bidding process. It is now clear that under those circumstances, differential discounts to dealers vying for different customer jobs are not subject to the Act. This is an important victory for manufacturers, who argued that any other conclusion would prevent them from responding to competitive conditions in the market, thereby artificially making prices more rigid. For dealers, the decision marks the rejection of their claim that generalized competition between dealers is harmed (and the RPA therefore triggered) if discounts differ within a geographic area, even when dealers do not compete on particular jobs.

Yet the decision's impact transcends the narrow facts of the case. In its final paragraph, the Court addressed, arguably in dicta, a deeper question raised by both sides in the case: whether the RPA's doctrinal foundations can be reconciled with those of the broader federal antitrust law. Contrary to most courts and commentators, who have traditionally read the RPA to protect competition between individual intra-brand competitors and not to require a showing of harm to competition more broadly ' including the Supreme Court itself, in FTC v. Morton Salt Co. , 334 U.S. 37 (1948) ' the Reeder Court announced that the RPA “signals no large departure” from antitrust's general focus on inter-brand competition. “Even if the Act's text could be construed in the manner urged by Reeder and embraced by the Court of Appeals, we would resist interpretation geared more to the protection of existing competitors than to the stimulation of competition .”

The Court went on to apply traditional antitrust standards to explain why no violation occurred here (the absence of evidence that any favored purchaser had market power, and the fact that “the supplier's selective price discounting fosters competition among suppliers of different brands”) ' standards that have not, until now, typically been considered in analyzing RPA claims brought by an allegedly disfavored customer. In so holding, the Supreme Court arguably signaled a material departure from past precedent that could significantly reduce the number of successful RPA claims in the future.