On January 10, 2006, the U.S. Supreme Court issued its decision in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. The court’s first Robinson-Patman Act (RPA or the Act) case in twelve years, the Volvo decision substantially limits the ability of allegedly disfavored resellers to pursue price discrimination claims in the context of competitive bidding situations. The decision therefore promotes the ability of manufacturers to engage in selective discounting practices in the context of "competitive assistance" programs and similar pricing strategies where the ultimate sale results from a competitive bidding process.
Statement of the Case
Reeder-Simco GMC, Inc. (Reeder), an authorized dealer of heavy-duty trucks manufactured by Volvo Trucks North America, Inc. (Volvo), generally sold those trucks through a competitive bidding process, whereby the retail customer describes its specific product requirements and invites bids from dealers. Once a Volvo dealer receives the customer’s specifications, it requests a discount or "concession" from Volvo off the normal wholesale prices. Volvo decides on a case-by-case whether to offer a concession. The dealer then uses its Volvo discount in preparing its bid; it purchases trucks from Volvo only if and when the retail customer accepts its bid. Retail customers normally solicited bids from only one Volvo dealer. In the atypical cases in which a retail customer solicited bids from more than one Volvo dealer (so-called "head-to-head" situations), it was Volvo’s stated policy to offer the same price concession to each dealer.
In 1997 after Volvo had announced plans to streamline its dealer network, Reeder learned that Volvo had given another dealer a price concession greater than the discounts Reeder typically received. Suspecting it would not be retained as a Volvo dealer, Reeder filed suit against Volvo, claiming Volvo’s pricing practices constituted unlawful price discrimination under section 2(a) of the RPA.
Following a jury trial, Reeder was awarded $4 million in damages on its RPA claim. In a 2-1 decision, the U.S. Court of Appeals for the Eighth Circuit affirmed the jury’s verdict, rejecting Volvo’s arguments (1) that in any instance where Reeder allegedly lost sales as a consequence of Volvo’s pricing practices, Reeder was only an unsuccessful bidder for potential business, not a "purchaser" as required by the RPA; and (2) that in the context of competitive bidding situations, Reeder was unable to show a reasonable possibility of injury to competition, as also required by the Act. Writing in dissent, Judge Hansen commented that the majority was "attempt[ing] to fit a square peg into a round hole" in extending the RPA’s reach to price concessions granted by a manufacturer to dealers in the context of "winner-takes-all" competitive bidding situations:
By its very nature, this process will never produce the kind of competition the RPA was designed to protect…. Indeed, where, at the time of the purchase, only one possible seller and one possible buyer exist, competition is totally absent. It is the nature of competitive bidding, not price discrimination, that makes it so.
The Supreme Court granted certiorari on March 7, 2005 and the case was argued on October 31, 2005. The significance of the case was underscored by the impressive array of amicus curiae submissions. The U.S. Solicitor General (joined by the U.S. Department of Justice Antitrust Division and the Federal Trade Commission), the National Electrical Manufacturers Association, the Washington Legal Foundation, the American Petroleum Institute and the American Truck Manufacturers Association all filed briefs supporting Volvo before the Supreme Court. The National Automotive Dealers Association and the North American Equipment Dealers Association submitted briefs in support of the position urged by Reeder.
The Supreme Court’s Decision
In a 7-2 decision (Justice Stevens, joined by Justice Thomas, dissenting), the Supreme Court reversed the Eighth Circuit. Observing that the RPA proscribes price discrimination "only to the extent that it threatens to injure competition," the court held that Reeder’s evidence failed to establish the competitive injury required under the Act. The evidence Reeder offered at trial fell into three categories: (1) comparisons of concessions Reeder received for successful bids against non-Volvo dealers, with larger concessions other successful Volvo dealers received for different sales on which Reeder did not bid (purchase-to-purchase comparisons); (2) comparisons of concessions offered to Reeder in connection with unsuccessful bids against non-Volvo dealers, with greater concessions accorded other Volvo dealers who competed successfully for different sales on which Reeder did not bid (offer-to-purchase comparisons); and (3) evidence of two occasions on which Reeder bid against another Volvo dealer (head-to-head comparisons).
In assessing the sufficiency of this evidence, the court observed that neither the purchase-to-purchase nor the offer-to-purchase comparisons were sufficient to support any inference of competitive injury since in none of these instances "did Reeder compete with the beneficiaries of the alleged discrimination for the same customer." (Emphasis in original) In the two instances where Reeder did compete head-to-head with another Volvo dealer, the pre-award discounts Volvo offered to both Reeder and the other dealer had been the same. On this record, concluded the court, even "[a]ssuming the Act applies to head-to-head transactions, Reeder did not establish that it was disfavored vis-à-vis other Volvo dealers . . . —let alone that the alleged discrimination was substantial." (Emphasis in original)
The court declined, however, to accept the more expansive position urged by Volvo and the United States in its amicus brief (and seemingly endorsed by Judge Hansen in his dissenting opinion below) to the effect that the RPA simply does not reach markets characterized by competitive bidding and special-order sales, as opposed to sales form inventory, observing that "[w]e need not decide that question today." Nevertheless, the court’s opinion suggests that the possibility of successful RPA claims in a competitive bidding context may be more theoretical than real. In holding that the RPA "does not reach the case Reeder presents," the court went on to explain:
The Act centrally addresses price discrimination in cases involving competition between different purchasers for resale of the purchased product. Competition of that character ordinarily is not involved when the product subject to special order is sold through a customer-specific competitive bidding process.
While decided on narrow grounds, Volvo clearly imposes a significant hurdle for potential plaintiffs seeking to pursue RPA claims predicated upon selective price concessions granted by manufacturers to its dealers in the context of competitive bidding situations. Perhaps even more importantly, the Volvo decision signals that, whenever possible, the court will seek to reconcile the RPA’s dealer protection-focus with the broader, consumer welfare objectives of the antitrust laws generally. In the concluding section of the opinion, the court went out of its way to emphasize that interbrand competition is the "primary concern of antitrust law," and that in construing the RPA, it will "resist interpretation geared more to the protection of existing competitors than to the stimulation of competition." (Emphasis in original) Notwithstanding the fact that Volvo’s pricing practices might affect intrabrand competition between Volvo dealers, the court went on to observe that Volvo’s selective discounting practices foster interbrand competition—that is, competition between Volvo and other brands. The court concluded that "[b]y declining to extend Robinson-Patman’s governance to such cases, we continue to construe the Act ‘consistently with broader policies of the antitrust laws.’"
While any attempt to fully reconcile the RPA with these broader policies is akin to the "square peg/round hole" problem described by Judge Hansen, Volvo clearly represents another instance in which the Supreme Court has mitigated the practical import of these divergent policy objectives by making it more difficult for plaintiffs to mount successful treble damage actions based on price discrimination claims under the RPA. In J. Truett Payne Co. v. Chrysler Motors Corp. (1981), the court held that RPA plaintiffs were not entitled to "automatic damages" but, rather, must actually prove lost profits or sales resulting from the alleged discrimination. In Falls City Industries v. Vanco Beverage, Inc. (1983), the court substantially broadened the circumstances under which RPA defendants can successfully invoke the "meeting competition" defense. And, in Brooke Group Ltd. v. Brown & Williamson Corp. (1993), the court imposed a very rigorous evidentiary burden on competitors seeking to bring "primary-line" RPA claims, requiring them to meet the more exacting standards applicable to predatory pricing claims under section 2 of the Sherman Act and further observing that such claims are "rarely successful."
Now, in Volvo, the court has emphasized the plaintiff’s burden in meeting the Act’s "competitive injury" requirement and has seemingly exhibited a willingness to balance positive effects on interbrand competition against injury to intrabrand competition alleged by disfavored customers in secondary-line RPA cases. Nevertheless, although the issue was not before the court in Volvo, it gratuitously reaffirmed the vitality of the so-called "Morton Salt inference," which entitles RPA plaintiffs to a rebuttable inference of competitive injury based solely on evidence of a significant price difference over a substantial period of time.
In sum, while Volvo clearly represents another significant setback for RPA plaintiffs, it hardly signals the death knell of RPA claims, and whether the court’s stated objective of harmonizing the reach of the RPA with the broader policy objectives of the antitrust laws generally can ever be achieved absent legislative reform remains to be seen.