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The Franchise Memorandum

Supreme Court Reverses Dealer’s $4 Million Price Discrimination Judgment
Posted in Antitrust

For the first time in over a decade, the Supreme Court in early 2006 addressed Robinson-Patman Act standards for price discrimination in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 2006 WL 43971 (U.S. Jan. 10, 2006). The decision came in the context of a dealership dispute. A key fact in this case was that Volvo Trucks North America, the defendant at trial, had, like many companies, decided to reduce its dealership ranks so that each dealer would serve a larger market. With that common backdrop, the plaintiff convinced a jury that Volvo Trucks had discriminated against the dealer in price in order to eliminate it as part of the reduction plan (which was called “Volvo Vision”), and a treble-damages judgment was entered at over $4 million, plus attorneys’ fees. The Supreme Court’s decision reversed that judgment and refused to expand price discrimination law.

When two buyers of a product compete against each other to resell the product, the Robinson-Patman Act can require the original seller to sell to both buyers at the same price. But the Supreme Court’s recent decision clarifies that a buyer who pays more cannot prevail on a federal price discrimination claim unless it was competing head-to-head for resales to the same customer at the same time. Absent head-to-head competition, the disfavored buyer, like Reeder-Simco, cannot show the “injury to competition” required under the law. The decision also confirmed more generally that the antitrust laws do not bar a manufacturer from restructuring its distribution network to improve the efficiency of its operations.  Therefore, the implementation of the “Volvo Vision” to have fewer, larger dealers did not cause the result to change.

Even though the manufacturer/seller ultimately won this case, the Supreme Court’s opinion makes clear that sellers still need to follow the Robinson-Patman Act. First, the court refused to rule that price discrimination law never can come into play when the buyer is seeking a special price in order to make a competitive bid to an end-user. That defense had been raised both by Volvo Trucks and the United States government; both wanted the court to rule that the Robinson-Patman Act never applies in the competitive bid context, but the court sidestepped that point. Second, the court specifically mentioned that the plaintiff had not presented a “statistical analysis” to show that its sales or profits were diverted to a favored purchaser. The express reference to the absence of statistical analysis could imply that a verdict would be upheld if statistics prove the requisite injury. Third, the court stated once again that the purpose of federal price discrimination law is to protect smaller buyers from “large chain stores” who otherwise could get lower prices than could the smaller buyers. This sounds ominous to franchisors and manufacturers looking to sell products to large, multiple-store buyers at favorable prices, while also serving as warning to franchise “chains” that are buying product.

In the end, however, the Supreme Court also reaffirmed that preserving competition between brands remains more important than the regulation of any single brand’s distribution network. Price discrimination law is being construed for now consistent with that broader antitrust policy of promoting interbrand competition.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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