The Robinson-Patman Act: Annual Update

The Robinson-Patman Act Committee, Section of Antitrust Law, Forty-Sixth Annual Spring Meeting

Washington, D.C.

Date:
By: 
Donald S. Clark, Secretary of the Commission

The views expressed in this speech are those of the author, and do not necessarily represent the views of the Federal Trade Commission, of any of the Commissioners, or of any other member of the Commission staff. I appreciate the opportunity to appear before you today.

I should first note that the views I express are my own, and do not necessarily represent the views of the Federal Trade Commission, of any of the Commissioners, or of any other member of the Commission staff.(1) With that caveat in mind, I would like to try to provide an update concerning what has been happening with respect to the Robinson-Patman Act over the last year. I should first, however, provide some background information concerning my personal perspective on the statute, which informs my approach to analyzing the new cases that appear each year.

I. The Robinson-Patman Act

A. General Principles

The history of the Robinson-Patman Act actually begins in 1914, when section 2 of the Clayton Act became the first federal statute that expressly prohibited certain forms of price discrimination. In 1936, section 2 of the Clayton Act was amended by the Robinson-Patman Act, and it became a far more complex statute.(2) It is important to consider the context in which the amendments were adopted. In 1936, Congress believed that large firms could dominate markets through predation and other forms of economic warfare directed against smaller firms, and felt that "power buyers" such as large retailers could use their market power to extract price concessions from manufacturers and other sellers that were unavailable to their smaller competitors. As the Commission has stated, [t]he major legislative purpose behind the Robinson-Patman Act was to provide some measure of protection to small independent retailers and their independent suppliers from what was thought to be unfair competition from vertically integrated, multi-location chain stores.(3)

Consistent with the context in which the Robinson-Patman Act was created, the Supreme Court and the Commission have concluded that the Act is based on one fundamental principle:

to assure, to the extent reasonably practicable, that businessmen at the same functional level would stand on equal competitive footing so far as price is concerned.(4)

To that end, reduced to their essentials without their exceptions -- and provided that a number of jurisdictional requirements are satisfied -- section 2(a) of the Act requires sellers to sell to everyone at the same price, while section 2(f) of the Act requires buyers with the requisite knowledge to buy from a particular seller at the same price as everyone else. Sections 2(c), 2(d), and 2(e) -- as elaborated by the Commission through the FTC Act -- prohibit sellers and buyers from using brokerage, allowances, and services to accomplish indirectly what sections 2(a) and 2(f) directly prohibit.

Interpretation and elaboration of these basic principles are of course crucially important, because maximizing consumer welfare and economic efficiency in a free market economy necessarily means that different firms perform differently. In my view, our objective therefore should be to interpret the Robinson-Patman Act in as economically sensible a fashion as possible. The Supreme Court has on several occasions stated that the Act must be interpreted consistently with the "broader policies of the antitrust laws."(5) For example, the Court has

warned against interpretations of the Robinson-Patman Act which "extend beyond the prohibitions of the Act and, in so doing, help give rise to a price uniformity and rigidity in open conflict with the purposes of other antitrust legislation. . . ."(6)

Similarly, the Commission has concluded that

[t]he interpretation and application of the Act should be consistent with the interpretation and application of the other antitrust laws whenever possible.(7)

The best way to effectuate this objective is to interpret the Act so as to emphasize the prohibition of discriminatory practices that injure or threaten to injure competition. The Supreme Court has in the past stated that the Act prohibits price discrimination that creates a "reasonable possibility that a price difference may harm competition."(8) In its most recent decision interpreting the Act -- Brooke Group Ltd. v. Brown & Williamson Tobacco Corporation -- the Court confirmed that

[b]y its terms, the Robinson-Patman Act condemns price discrimination only to the extent that it threatens to injure competition. . . . Congress did not intend to outlaw price differences that result from or further the forces of competition.(9)

Of course, effects on individual competitors frequently can be of evidentiary value in conducting investigations and prosecuting cases under the Act. Moreover, the Act itself contains a number of defenses -- in particular, the meeting competition and cost justification defenses -- that help to make it more consistent with the maximization of consumer welfare and economic efficiency.(10)

B. Jurisdictional Elements: Background

That leads us to a discussion of the specific provisions of the Robinson-Patman Act. I should first note that the Act requires allegedly discriminatory transactions to satisfy certain jurisdictional prerequisites before its substantive prohibitions apply. Earl Kintner, at one time the Chairman of the Commission, summarized these jurisdictional requirements in the following fashion:

In order to bring the substantive portions of the Act into play, there must be (1) two or more consummated sales, (2) reasonably close in point of time, (3) of commodities, (4) of like grade and quality, (5) with a difference in price, (6) by the same seller, (7) to two or more different purchasers, (8) for use, consumption, or resale within the United States or any territory thereof, (9) which may result in competitive injury. Furthermore, (10) the "commerce" requirement must be satisfied.(11)

C. Jurisdictional Elements: Recent Developments

Recent court decisions have, in general, been consistent with the historical approach to these jurisdictional elements. Thus, for example, in Worldwide Communications, Inc. v. Rozar, the District Court in the Southern District of New York considered the defendants' counterclaim that the plaintiff had violated the Act by charging discriminatorily different prices for long-distance telephone services. The Court dismissed the counterclaim, concluding that telecommunications services are intangible services rather than commodities, for purposes of the Act.(12) This conclusion appears to be consistent with determinations in earlier cases that the Act does not apply to intangible products such as telephone service.(13)

Proof of a violation of section 2(a) of the Act also requires a cognizable difference in price, which is both greater than de minimis and occurs in contemporaneous sales to the plaintiff and a competing buyer. Of course, defining what constitutes a de minimis difference is not necessarily easy. In Chroma Lighting v. GTE Products Corp., the Court of Appeals for the Ninth Circuit noted that the prices the plaintiff lighting distributor paid on actual sales "were 2.38 percent less favorable than the prices paid for the same items" by competing distributors.(14) The Court concluded that such a difference was not de minimis, given testimony that, in the lamp business, a 2 percent difference in price would cause a customer to choose one distributor over another. The Court also concluded that the fact that the plaintiff competed with the favored distributors "for each sale on the basis of the price he expected to get from Sylvania" -- whether before or after he had particular customers' orders in hand -- satisfied the requirement that the allegedly discriminatory sales must be "substantially contemporaneous."(15)

D. Section 2(a) of the Robinson-Patman Act

The Act contains six substantive provisions. Section 2(a) prohibits a seller from discriminating in price between two or more competing buyers in the sale of commodities of like grade and quality, where the effect of the discrimination "may be substantially" to

(1) "lessen competition...in any line of commerce;" or

(2) "tend to create a monopoly in any line of commerce;" or

(3) "injure, destroy, or prevent competition with any person who grants or knowingly receives the benefit of the discrimination, or with the customers of either of them."

15 U.S.C. § 13(a). The crucial questions are the type and extent of injury to competition that can satisfy this standard.(16) Two types of possible injury -- "primary line" and "secondary line" -- are most commonly alleged.

1. Primary Line Injury: Background

The first type of injury is referred to as primary line injury, because the actual or threatened injury is to competition between the seller granting the discriminatory discount and other sellers.(17) In Brooke Group Ltd. v. Brown & Williamson, the Supreme Court held that

primary-line competitive injury under the Robinson-Patman Act is of the same general character as the injury inflicted by predatory pricing schemes actionable under § 2 of the Sherman Act. . . . With whatever additional flexibility the Robinson-Patman Act standard may imply . . . two prerequisites to recovery remain the same. First, a plaintiff seeking to establish competitive injury resulting from a rival's low prices must prove that the prices complained of are below an appropriate measure of its rival's costs. . . [Second, the plaintiff must demonstrate] . . . that the competitor had a reasonable prospect, or, under § 2 of the Sherman Act, a dangerous probability, of recouping its investment in below-cost prices.(18)

Similarly, the Commission has held that prima facie primary line injury can be established, subject to rebuttal, by showing that a seller engaged in predatory conduct, such as by making sales at prices below average variable cost for a significant period of time.(19)

2. Primary Line Injury: Recent Developments

In Rebel Oil Co., Inc. v. Atlantic Richfield Co., the District Court in Nevada considered allegations by two gasoline retailers (collectively "Rebel") that Atlantic Richfield ("ARCO") -- a gasoline refiner, wholesaler, and retailer -- had, between 1985 and 1989,

executed a pricing policy in Las Vegas of charging predatory prices in an attempt to increase its market share and eventually monopolize the Las Vegas gasoline market.(20)

The District Court had earlier granted ARCO's motion for summary judgment. However, the Court of Appeals for the Ninth Circuit reversed and remanded -- as to Rebel's Clayton Act predatory pricing claim -- because it raised a number of issues of material fact.(21)

On remand, ARCO filed a new motion for summary judgment. The District Court determined that it was bound by the law of the case to follow the appellate determination that genuine issues of material fact existed (1) "as to ARCO's ability to recoup" losses from predatory pricing,(22) and (2) "as to the causal connection between [Rebel's] injury and ARCO's alleged anticompetitive conduct" and the measurement of damages attributable to that conduct.(23) However, the District Court determined that Rebel could not, as a matter of law, establish that ARCO had engaged in predatory pricing, which the Supreme Court identified -- in Brooke Group -- as a prerequisite to establishing primary-line price discrimination. The District Court noted that "[i]n order to state a cause of action under section 2 of the Clayton Act as amended by the Robinson-Patman Act, a plaintiff bears essentially the same substantive burden as a plaintiff under the Sherman Act."(24)

The District Court then considered and rejected three separate theories presented by Rebel as alternative ways of comparing ARCO's prices to its costs. First, the Court considered an agreement that ARCO had with Tosco, under which it exchanged 50,000 barrels per day of crude oil for 30,000 to 35,000 barrels per day of refined gasoline. The Court determined that the market value of each barrel of oil could not be used as a surrogate for marginal cost, as Rebel had suggested. Instead, as the Court recognized, there was an opportunity cost associated with exchanging the oil for gasoline -- rather than selling it on the open market -- and the Court determined that "[i]t is improper as a matter of law to use opportunity costs to show below cost pricing."(25)

Second, the Court considered Rebel's allegation that the rack price in Los Angeles was "an adequate proxy for marginal cost," and that -- because ARCO's wholesale prices in Las Vegas from 1986 until 1989 were lower than the wholesale rack price in Los Angeles -- ARCO's prices were therefore below cost.(26) The Court rejected this approach, as a matter of law, noting that Rebel had made "no showing of ARCO's actual costs of producing gasoline."(27) Third, the Court considered Rebel's allegation that the price ARCO charged its wholly owned subsidiary -- Prestige Stations, Inc. ("PSI") -- meant that PSI incurred large losses. The Court also rejected this theory, as a matter of law, noting that "[t]o show below costs sales by a parent corporation and a subsidiary, the costs of both parent and subsidiary must be proved." The Court concluded that Rebel had failed to show the costs of ARCO and PSI, and that "[i]n order to meet the requirements of predatory pricing, the plaintiff must present some evidence that the defendant priced below its costs."(28)

The District Court also considered Rebel's argument that ARCO's pricing practices constituted "clear and convincing evidence of predatory intent."(29) In an earlier case, Drinkwine v. Federated Publications, Inc., the Ninth Circuit had concluded that

since the plaintiffs had failed to introduce any evidence on defendant's marginal, average variable or average total costs, they must prove by clear and convincing evidence that their pricing policy unreasonably restricted competition.(30)

The District Court concluded that Rebel had failed to provide any evidence that would satisfy this standard, and had "offered no evidence that provides inferences of ARCO's predatory intent without impermissible speculation . . ."(31) For all these reasons, the Court granted ARCO's motion for summary judgment.

In Stearns Airport Equipment Co., Inc. v. FMC Corp., the District Court in the Northern District of Texas similarly considered, inter alia, Stearns' allegations that FMC had violated Section 2(a) of the Robinson-Patman Act by engaging in predatory pricing. The Court stated that in order to show predatory pricing, the plaintiff

must at least show that either (1) FMC charged a price below its average variable cost in the relevant market or (2) FMC charged a price below its short-run profit-maximizing price . . .(32)

The Court granted FMC's motion for summary judgment with respect to the Robinson-Patman Act claim because "Stearns has failed to direct the court's attention to any evidence that FMC's actual bids or prices were below any measure of cost."(33)

3. Secondary Line Injury: Background

The second type of injury is often referred to as "secondary line injury," because the actual or threatened injury is to competition between the favored customer of the seller -- which receives the discriminatorily lower price -- and the seller's disfavored customers.(34) As noted above, the Supreme Court determined in Brooke Group that actual injury to competition must be established in order to establish primary line liability under Section 2(a). However, the third clause of Section 2(a) expressly prohibits price discrimination where "the effect of the discrimination may be substantially" to

(3) injure, destroy, or prevent competition with any person who grants or knowingly receives the benefit of the discrimination, or with the customers of either of them. . . .

Therefore, establishing that the price discrimination injured competitors may be sufficient to satisfy the injury to competition component of secondary line liability under Section 2(a). In Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., for example, the First Circuit concluded that Brooke Group did not establishing that actual injury to competition must always be shown in secondary line cases -- as well as in primary line cases -- and therefore did not implicitly overrule FTC v. Morton Salt.(35)

The existence of secondary line injury can be established directly by evidence of displaced sales.(36) It also may be established "prima facie by proof of a substantial price discrimination between competing purchasers over time;"(37) that is, it "may be inferred from evidence that some purchasers had to pay their supplier 'substantially more for their goods than their competitors had to pay.'"(38) The inference of injury can be broken by evidence that the allegedly favored and disfavored buyers do not in fact compete with each other, because, for example, they operate in different geographic markets,(39) or at different levels of distribution.(40) The inference of injury also can be overcome by "evidence breaking the causal connection between a price differential and lost sales or profits,"(41) such as that disfavored customers have actually done well;(42) that the seller was only one of many competing sellers;(43) or that the discounts at issue were simply introductory offers to new customers.(44)

There is a split in the Circuits as to whether the inference of secondary line injury can also be overcome "by a showing that competition in the relevant market remains healthy."(45) In Boise Cascade Corp. v. FTC, the D.C. Circuit held that -- because the Robinson-Patman Act must be construed in a fashion consistent with the other antitrust laws -- such an inference could be rebutted by a showing of no actual harm to competition in the relevant market at issue.(46) By contrast, in J.F. Feeser, Inc. v. Serv-A-Portion, Inc., the Third Circuit held that the Robinson-Patman Act was designed to protect individual competitors, as well as competition in general, and the inference of secondary line injury therefore could not be rebutted by evidence of no harm to competition.(47)

4. Secondary Line Injury: Recent Developments

The conflict among the Circuits with respect to inferences of secondary line injury has not yet been resolved. Thus, for example, in Chroma Lighting v. GTE Products Corp., the Ninth Circuit considered allegations that the defendant had given discounts to distributors that competed with the plaintiff -- without offering the same discounts to the plaintiff -- in violation of Section 2(a) of the Act.(48) The jury had found for the plaintiff, and the District Court had denied the defendant's motion for a judgment notwithstanding the verdict.(49)

The Court of Appeals affirmed, adopting the plaintiff's argument that

[i]njury to competition in a secondary-line Robinson-Patman case is conclusively established by proof of injury to a competitor . . . the inference of competitive injury that arises from proof of injury to a competitor may not be rebutted by evidence that competition was not adversely affected.(50)

The Court noted that the original version of Section 2(a) -- embodied in the Clayton Act of 1914 -- referred "generally to broad impacts on competition . . . ,"(51) and "addressed only primary-line injury."(52) By contrast, the Court stated, the Robinson-Patman amendments to Section 2(a) of the Clayton Act -- by adding the "to injure, destroy, or prevent competition" clause -- evinced a "Congressional intent to protect individual competitors, not just market competition, from the effects of price discrimination."(53) The Court recognized that in Brooke Group, the Supreme Court had determined that "[b]y its terms, the Robinson-Patman Act condemns price discrimination only to the extent it threatens to injure competition . . ."(54) However, the Court distinguished Brooke Group as a primary line case, and declined to extend its precepts to secondary line injury as well.(55)

By contrast, in George Haug Co. v. Rolls Royce Motorcars, Inc., the District Court for the Southern District of New York determined that a plaintiff alleging secondary line injury must establish that the discrimination at issue "threatens to injure competition," rather than just competitors such as itself.(56) The plaintiff -- a former authorized service dealer of Rolls Royce Motorcars, Inc. -- alleged that the manufacturer violated Section 2(a) of the Act by, inter alia, giving Carriage House Motor Cars Ltd. -- a competing authorized Rolls Royce automobile dealership and service provider -- more favorable credit and reimbursement terms for warranty repair work than it gave the plaintiff.(57) The District Court noted that the plaintiff's Section 2(a) claim was based on

a single, conclusory allegation that "the discrimination in price and services made plaintiff unable to compete in that it allowed Carriage House to offer customers items and benefits which plaintiff could not afford."(58)

The District Court granted the defendant's motion to dismiss the Section 2(a) claim because the plaintiff failed to allege "a threat of injury to competition as a whole," which the Court also characterized as "the requisite threat to the market."(59)

E. Defenses to Allegations of Section 2(a) Violations: Background

The Act contains a number of express or implicit exceptions to the prohibitions embodied in section 2(a). First, section 2(a) itself contains a cost justification defense. It permits price differentials that "make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities" in which the commodities are "sold or delivered."(60)Thus, a seller may charge different prices to different purchasers where "justified by savings in the seller's costs of manufacture, delivery or sale."(61) If properly interpreted, this exception can ensure that the Act prohibits only price differences that are discriminatory in an economic sense.(62) It is, however, not easy to establish this defense in the usual case. As the Supreme Court noted in Texaco v. Hasbrouck, a defendant typically must establish through "rigorous accounting" that the price differential at issue is less than or equals the additional costs it incurs in selling to the plaintiff.(63)

Second, section 2(a) permits price differences that constitute a response to "changing conditions affecting the market for or marketability of the goods concerned," such as the deterioration of perishable goods; the obsolescence of seasonal goods; or the need to conduct distress sales -- under court process -- or "going out of business" sales.(64)

Third, section 2(b) of the Robinson-Patman Act creates a defense to liability under section 2(a) by permitting price differences that represent a good faith effort to meet the competition of one or more other firms. The essential principle is that firms should be able to lower their prices, in order to match the prices of their rivals, without violating section 2(a). More particularly, the Supreme Court has said that the standard is whether the seller can

show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would, in fact, meet the equally low price of a competitor.(65)

More recently, the Court has determined that "territorial price differences that are in fact responses to competitive conditions" satisfy the requirements of the defense.(66) The Commission has similarly concluded that "if a seller has a good reason to believe that competing firms are charging lower prices in a particular market, it may respond with comparably low prices on a territorial basis [that is, throughout the market], rather than on a customer-by-customer basis."(67) Moreover, the seller may reduce prices in order to secure new customers, as well as to retain old ones.(68) The meeting competition defense can be defeated, however, by proof "that the prices met were actually illegal."(69)

Fourth, a seller can defend against allegations that it has violated section 2(a) by arguing that the lower price at issue was functionally available to the allegedly disfavored purchaser, even though that purchaser presumably did not take advantage of it.(70) The competing buyers must, however, be aware of the availability of the lower price; the seller involved has not made the favored treatment "available" to a disfavored customer if that customer "does not know about the favored treatment."(71) In addition, most competing buyers must be able to secure the lower price, so that it is in fact functionally -- rather than simply theoretically -- available to them.(72)

F. Defenses to Allegations of Section 2(a) Violations: Recent Developments

With respect to the meeting competition defense, the Ninth Circuit opinion in Chroma Lighting v. GTE Products Corp. provides some guidance as to the types of evidence that can be considered. The defendant argued, inter alia, that it had lowered its prices to the plaintiff's distributor competitors in response to "a price war started by Philips" (another manufacturer).(73) The Ninth Circuit, however, did not find this to be dispositive; it referred to evidence that the defendant's employees had falsified some "Competitive Activity Reports," and that "most price exceptions were approved without verification."(74) The Court therefore concluded that a jury could reasonably find that the defendant's lower prices to the plaintiff's competitors "were not the result of a good-faith effort to meet the prices offered by other manufacturers . . ."(75)

With respect to the functional availability defense, a defendant can defeat a finding of liability for a Section 2(a) violation if the lower price at issue was functionally available to the allegedly disfavored purchaser plaintiff. Thus, for example, in Metro Ford Truck Sales, Inc. v. Ford Motor Co., the plaintiff alleged that Ford's Competitive Price Assistance program violated Section 2(a) because competing Ford dealers received larger CPA discounts than the plaintiff.(76) The District Court for the Northern District of Texas noted, however, that a

pricing system which grants standard quantity discounts does not give rise to a price discrimination claim if the discounts are functionally available to all customers.(77)

The Court granted Ford's motion for summary judgment because the CPA program was open to all Ford dealers, including the plaintiff, on an equal basis.(78)

G. Section 2(f) of the Robinson-Patman Act

Section 2(f) of the Act applies the foregoing principles to the conduct of buyers, by making it unlawful for a buyer "knowingly to induce or receive a discrimination in price" prohibited by other parts of the Act. As a threshold matter, liability does not attach unless the buyer knew or should have known that the discrimination it induced or received was an illegal discrimination.(79) Moreover, buyer liability under Section 2(f) is completely derivative of seller liability under Section 2(a).(80) Thus, a buyer cannot be found liable under Section 2(f) unless a price discrimination that violates Section 2(a) can be established, and the meeting competition, cost justification, and changed conditions defenses cannot be sustained.(81) The separate injury to competition requirements of Section 2(a) for primary line and secondary line liability therefore apply to Section 2(f) as well. Thus, for example, secondary line injury may be rebuttably inferred from "substantial price discrimination between competing purchasers over time."(82)

H. Functional Discounts: Background

One of the most recent Supreme Court decisions addressing the Robinson-Patman Act is Texaco v. Hasbrouck, which dealt with the permissibility of functional discounts. A functional discount is one given to a purchaser based on its role in the supplier's distribution system, reflecting, at least in a generalized sense, the services performed by the purchaser for the supplier.(83) The Hasbrouck decision provides some important guidance as to the manner in which the Court currently views the Act as a whole. In Hasbrouck, twelve independent Texaco retailers in Spokane, Washington sued Texaco, alleging that while Texaco sold gasoline to them at retail tank wagon prices, it sold gasoline to two Spokane distributors -- Gull Oil Company and Dompier Oil Company -- at prices 3.65 to 6 cents lower than the retail tank wagon price, and in addition provided a hauling allowance to at least one of the distributors. The distributors in turn both sold gasoline to retailers and sold gasoline at retail themselves, in competition with the twelve independent Texaco retailers.(84) Over a nine-year period, this disparity apparently produced a significant improvement in the fortunes of the distributors, and a significant decline in the fortunes of the retailers. In one document placed in evidence, a Texaco vice-president characterized the effects of the arrangement in the following fashion:

We believe that the dramatic shift in gasoline sales from the independent retailer classes of purchaser to the independent distributor classes of purchaser can be explained almost entirely by the magnitude of the distributor discount and the hauling allowance.(85)


At trial, the jury ultimately found for the twelve plaintiff retailers and assessed total damages in the amount of $450,000. In denying Texaco's motion for judgment notwithstanding the verdict, the District Court concluded that the

presumed legality of functional discounts had been rebutted by evidence that the amount of the discounts to Gull and Dompier was not reasonably related to the cost of any function that they performed.(86)

The Court of Appeals affirmed.

On appeal, the Supreme Court noted that the Robinson-Patman Act contains no express reference to functional discounts, and that the independent Texaco retailers had to establish, in addition to the usual jurisdictional prerequisites (which Texaco did not dispute on appeal), (1) that Texaco had discriminated in price between the distributors on the one hand and the retailers on the other, and (2) that the discrimination had the prohibited effect on competition.(87) With respect to the first question, the Court determined that a price differential "that merely accords due recognition and reimbursement for actual marketing functions" is not illegal,(88) and "a functional discount that constitutes a reasonable reimbursement for the purchasers' actual marketing functions will not violate the Act."(89) The Court also emphasized that mathematical exactitude is not required in justifying a discount. Citing an "extraordinary absence of evidence to connect the discount [at issue] to any savings enjoyed by Texaco," the Court concluded that Texaco had engaged in price discrimination;(90) that is, its "lower prices to Gull and Dompier were discriminatory throughout the entire nine-year period."(91) With respect to the second question, the Court concluded that at least Gull, and apparently Dompier as well, were selling at retail during that entire period, and that "the discounts substantially affected competition throughout the entire market" and "injured each of the respondents."(92) The Court therefore affirmed the verdict against Texaco.

The Hasbrouck decision makes it clear that functional discounts are permissible under the Robinson-Patman Act when they constitute a reasonable reimbursement for actual marketing functions performed by the favored purchasers. The Court indicated that it would not countenance "a functional discount completely untethered to either the supplier's savings or the wholesaler's costs,"(93) but it also indicated that establishing "a causation defense in a functional discount case does not demand the rigorous accounting associated with a cost justification defense."(94) The Court found it unnecessary to decide, however, whether the amount of the discount should be reasonably related (1) to the costs incurred by the buyer in performing the services at issue, as the Commission had suggested in the Doubleday case,(95) or instead (2) to the cost savings that accrued to the seller as a result of the buyer performing the services at issue, as the Commission had later suggested in the Mueller decision(96) which overruled Doubleday.

I. Functional Discounts: Recent Developments

In Sawhney v. Mobil Oil Corp. and Ross Fogg Fuel Corp., the plaintiff Sawhney operated a gasoline filling station under a franchise relationship with Mobil, pursuant to which he leased the station from Mobil, operated it under the Mobil trademark, and sold Mobil-branded gasoline.(97) In 1995, Mobil transferred its interests in Sawhney's station to one of its distributors, Ross Fogg, which continued to lease the station to Sawhney, to license Mobil's trademark to him, and to provide him with Mobil-branded gasoline. Thereafter, Sawhney filed a complaint against Mobil and Ross Fogg, alleging, inter alia, that Ross Fogg charged him more for gasoline than Mobil had previously and provided fewer services.(98) In particular, Sawhney alleged that Mobil would no longer sell gasoline to him directly, at its dealer tankwagon prices; instead, he had to purchase gasoline at higher prices from Ross Fogg. Sawhney alleged that this conduct, inter alia, violated Section 2(a) of the Robinson-Patman Act.

Mobil filed a motion to dismiss the complaint for failure to state a claim upon which relief could be granted. The District Court for New Jersey noted that a plaintiff must establish that -- at the time a defendant establishes a price differential -- "the favored and disfavored purchasers competed at the same functional level, i.e., all wholesalers or all retailers, and within the same geographic market."(99) The Court determined that Sawhney, as a retailer, and Ross Fogg, as a wholesaler, did not compete at the same functional level.(100) The Court therefore granted the motion to dismiss with respect to the Robinson-Patman Act claims.

J. Section 2(c) of the Act: Background

As I mentioned earlier, sections 2(c), 2(d), and 2(e) of the Robinson-Patman Act are designed primarily to ensure that firms cannot circumvent the proscriptions of sections 2(a) and 2(f) by granting discriminatory discounts indirectly, through the provision of brokerage, advertising and promotional allowances, or services. Section 2(c) prohibits a seller from paying to or receiving from a buyer certain commissions, brokerage fees, or other compensation, "or any allowance or discount in lieu thereof, except for services rendered."(101)The Supreme Court has summarized the objectives of section 2(c) in the following way:

The Robinson-Patman Act was enacted in 1936 to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power. . . . One of the favorite means [for large buyers to obtain] an indirect price concession was by setting up "dummy" brokers who were employed by the buyer and who, in many cases, rendered no services. The large buyers demanded that the seller pay "brokerage" to these fictitious brokers who then turned it over to their employer. This practice was one of the chief targets of section 2(c) of the Act.(102)

In short, the purpose of section 2(c) apparently was to eliminate the practice of "dummy" brokerage, and to "eliminate hidden preferences by forcing them `into the open` for measurement and adjudication under the more forgiving price discrimination provisions."(103) Section 2(c) has also been held to prohibit commercial bribery,(104) such as where a corporate officer was paid secret commissions in connection with his corporation's purchases,(105) and where a state purchasing agent was bribed.(106)

K. Section 2(c) of the Act: New Developments

In Hansel 'N Gretel Brand, Inc. v. Savitsky, the District Court for the Southern District of New York considered allegations by the plaintiff Hansel 'N Gretel Brand ("HNG") -- a manufacturer and distributor of meats, cold cuts, and other delicatessen products -- that Savitsky, an HNG executive, had operated a kickback scheme with two suppliers. In particular, the plaintiff alleged that Savitsky agreed with the two suppliers and their principals that the suppliers would overcharge the plaintiff for meat and pay the overcharges to Savitsky.(107)The Court recognized that establishing a Section 2(c) violation did not require proof of harm to competition.(108) However, the Court determined that a private plaintiff -- in order to establish that it had suffered antitrust injury, and to recover damages under Section 4 of the Clayton Act -- had to show that the commercial bribes at issue resulted in the supplier charging the plaintiff higher prices than it charged the plaintiff's competitors.(109) The Court found that the plaintiff had sufficiently alleged such discrimination -- "enough to allege antitrust injury, and . . . for standing in a treble damages action" -- and therefore denied the defendants' motion to dismiss the Section 2(c) claim.(110)

L. Sections 2(d) and 2(e) of the Act: Background

Sections 2(d) and 2(e) of the Robinson-Patman Act prohibit a seller from granting advertising and promotional allowances or services to particular "customers" (under section 2(d)) or "purchasers" (under section 2(e)) unless the same allowances or services are available to all competing customers or purchasers on proportionally equal terms.(111) The Commission has taken a number of steps to elucidate the requirements of these provisions. In particular, the Federal Trade Commission Guides for Advertising Allowances and Other Merchandising Payments and Services(112) -- although they do not have the force of law -- nevertheless provide guidance to businesses seeking to comply with sections 2(d) and 2(e) of the Act. The Guides are more commonly known as the Fred Meyer Guides, because the Commission initially issued them in response to a Supreme Court suggestion in one of its opinions that the Commission should explain to sellers how they should make proportionate allowances available both to direct-buying retailers and to competing retailers buying through wholesalers.(113) The Fred Meyer Guides address a number of issues raised by sections 2(d) and 2(e), including the types of practices to which the sections apply; how to define "seller," "customer," "competing customers," interstate commerce, "services" and "facilities;" the concept of proportionally equal terms; the concept of availability of offers to competing customers; wholesaler or third party performance of seller obligations; steps sellers must take to check customer use of payments made; customer and third party liability; the contours of the meeting competition defense; and the absence of a cost justification defense.

A number of criteria must be satisfied in order to establish that the provision of particular allowances or services violates section 2(d) or section 2(e) of the Act. First, the services or payments at issue must be

in connection with the "processing, handling, sale, or offering for sale" of a product by the customer, i.e., [they] must bear a nexus to the resale or preparation for resale by the retailer.(114)

Thus, if a seller provides allowances or services in connection with its initial sale to a buyer, or makes a payment without expecting the buyer to provide any services, these actions are instead subject to the prohibitions embodied in Section 2(a) of the Act.

Second, the favored and disfavored customers or purchasers must compete with one another, both in the same relevant geographic market(115) and as a consequence of their functional status.(116) With respect to the latter requirement, the Supreme Court has held that a seller must make proportionate benefits available both to direct-buying retailers and to competing retailers buying through wholesalers.(117) Consistent with these principles, the Fred Meyer Guides define a "customer," for purposes of section 2(d) -- and a "purchaser," for purposes of section 2(e) -- to include

any buyer of the seller's product for resale who purchases from or through a wholesaler or other intermediate reseller.(118)

The Fred Meyer Guides go on to define "competing customers" as

all businesses that compete in the resale of the seller's products of like grade and quality at the same functional level of distribution regardless of whether they purchase directly from the seller or through some intermediary.(119)

Third, promotional allowances and services must be "available" (pursuant to Section 2(d)) or "accorded" (pursuant to Section 2(e)) on "proportionally equal terms." A supplier thus must take reasonable steps to make a particular offer known to all competing customers,(120) and the Fred Meyer Guides provide that a supplier that grants promotional payments or services should do so pursuant to a plan.(121) The Fred Meyer Guides also provide

Promotional services and allowances should be made available to all competing customers on proportionally equal terms. No single way to do this is prescribed by law. Any method that treats competing customers on proportionally equal terms may be used. Generally, this can be done most easily by basing the payments made or the services furnished on the dollar volume or on the quantity of the product purchased during a specified period. However, other methods that result in proportionally equal allowances and services being offered to all competing customers are acceptable.(122)

Section 2(f) does not prohibit buyer inducement or receipt of allowances or services that are unlawful pursuant to sections 2(d) or 2(e), and there is therefore no private right of action against either type of buyer conduct. However, the Commission has determined that buyer inducement or receipt of illegal allowances or services constitutes an unfair method of competition in violation of section 5 of the FTC Act.(123)

Sections 2(c), 2(d), and 2(e) all create greater or lesser degrees of per se liability (1) because proof of likely adverse competitive effects need not be adduced in order to establish a violation; (2) because there are no defenses to a prima facie section 2(c) case; and (3) because only the meeting competition defense can be raised in response to a prima facie section 2(d) or section 2(e) case.(124)

M. Sections 2(d) and 2(e) of the Act: New Developments

In George Haug Co. v. Rolls Royce Motorcars, Inc., the plaintiff, the former authorized Rolls Royce service dealer described above, also alleged that Rolls Royce violated Sections 2(d) and 2(e) by providing certain promotional services to Carriage House -- the competing authorized Rolls Royce new car dealer and servicer -- that it did not provide to the plaintiff.(125) The District Court for the Southern District of New York concluded that the plaintiff and Carriage House were not functionally equivalent resellers, because while Carriage House was a new car dealer, the plaintiff was not.(126) The Court noted that

[a] supplier might well have valid business reasons for treating a new car dealer that also provided parts and service differently from a dealer only in parts and service.(127)

The Court therefore granted the defendant's motion to dismiss the Section 2(d) and 2(e) claims.

II. The Robinson-Patman Act and the Book Industry

A number of cases in the book industry over the last few years provide an extensive illustration of how the Robinson-Patman Act can be applied in practice. As you know, the Commission issued six administrative complaints in late 1988 in the Harper & Row matter, and dismissed them in 1996. The complaints alleged that the respondent book publishers -- Harper & Row, Hearst, Macmillan, Putnam Berkley, Random House, and Simon & Schuster -- violated sections 2(a), 2(d), and 2(e) of the Act. As the Commission later noted,

[t]he core of the complaints is that the respondents gave certain national bookstore chains price and promotional concessions that they did not make available to independent bookstores, to the detriment of competition and consumers.(128)

More particularly, the complaints alleged that, through discriminatory pricing practices, the respondent publishers sold or distributed books at lower prices to some retailers than to others. The complaints further alleged that the favored retailer purchasers included the nation's three largest bookstore chains -- Waldenbooks, B. Dalton, and Crown Books -- and that the disfavored purchasers included most, if not all, of the nation's independent booksellers.

The complaints alleged that for certain books the publishers used pricing schedules under which the price was determined by the number of books in individual orders; on larger orders, purchasers allegedly paid a lower price per book than on smaller orders. The complaints alleged that the publishers treated orders placed by the three chains as a single order, even if the books were separately packed, itemized, and shipped to individual chain outlets. The complaints further alleged that the chains paid lower prices per book than independent bookstores that received shipments as large as or larger than the shipments to individual chain outlets.

The complaints also alleged that some or all of the publishers (1) had granted favored purchasers additional discounts that were not shown on published pricing schedules; and (2) had provided allowances, services, or facilities for promotion, display, and inventory control to favored purchasers without making such allowances, services, and facilities available on proportionally equal terms to all purchasers. The complaints alleged that the higher prices paid by disfavored purchasers had, among other things, limited their ability to compete with favored purchasers for retail locations, expansion opportunities, and sales to consumers, and had injured, destroyed, or prevented competition between favored and disfavored purchasers. The publishers maintained in response that the discounts were cost-justified; that is, for example, that they saved selling expenses because their representatives needed to visit only the headquarters of a given chain, rather than hundreds of individual stores.

In late 1992 the six matters were withdrawn from adjudication so that the Commission could evaluate nonpublic proposed consent agreements signed by complaint counsel and each of the respondents. On September 10, 1996, the Commission issued an order returning the matters to adjudication and dismissing the complaints. The Commission explained:

Having examined the proposed consent agreements, and having considered significant developments that have occurred in the industry since the complaints were issued -- including the initiation of private litigation addressing many of the same issues -- the Commission has concluded that it is in the public interest to reject the proposed consent agreements and dismiss the complaints.(129)

The Commission noted that the proposed consent agreements would have prohibited most of the practices that led to the complaints, but also noted that

the industry has changed appreciably since the consent agreements were signed. For example, the dynamics and structure of the book distribution market have evolved in significant ways, reflecting the growth of "superstores" and warehouse or "club" stores. Moreover, it appears that major book publishers generally have modified pricing and promotional practices. Finally, the respondents generally have replaced the principal forms of alleged price discrimination that prompted the complaints -- unjustified quantity discounts on trade books and secret discounts on mass market books -- with other pricing strategies. These developments may limit the potential benefits of the proposed consent agreements.(130)

The Commission stated that it could conduct an additional investigation and, if necessary, issue new administrative complaints, but noted that "[f]urther investigation would be time-consuming and resource-intensive," and that any future litigated or negotiated orders

might not effectively prevent the respondents from adopting, pursuant to the "meeting competition" defense, practices used by other publishers that are not subject to a Commission order.(131)

In addition, the Commission noted that

the American Booksellers Association has filed several private actions challenging alleged discrimination in this industry, and has already obtained consent decrees against four publishers.(132)

For these reasons, the Commission determined to reject the proposed consent agreements, return the matters to adjudication, and dismiss the complaints.(133) At the same time, the Commission closed an investigation of Bantam Doubleday Dell Publishing Group.(134)

The private lawsuits to which the Commission referred in its order were filed by the American Booksellers Association. I cannot, of course, take a position on the merits of these lawsuits, and I will therefore simply describe them. In 1994, the Association and six bookstores filed a federal court complaint in the United States District Court for the Southern District of New York against Houghton Mifflin Company, Penguin USA, St. Martin's Press, Hugh Lauter Levin Associates, and Rutledge Hill Press. The complaint, as amended, alleged that the defendants had violated the Robinson-Patman Act by, inter alia, offering "more advantageous promotional allowances and price discounts" to "certain large national chains and buying clubs."(135) The amended complaint sought declaratory relief and an injunction against the alleged violations of the Act.(136) The defendants denied the allegations in the amended complaint. Subsequently, the Association and the five defendants settled the action with the entry of consent decrees, pursuant to which the defendants did not admit any wrongdoing but did agree to take certain steps with respect to pricing and cooperative promotional efforts. Subsequently, the Association filed complaints against Random House and Putnam Berkley Group, and these cases also were later settled with the entry of similar consent decrees.

The American Booksellers Association, and a number of independent bookstores, have now filed a lawsuit against Barnes & Noble, Inc. and Borders Group, Inc., et al. The complaint alleges, inter alia, that the defendants have "knowingly induced and received discriminations in price from publishers and distributors which are prohibited by Section 2(f) of the Robinson-Patman Act."

III. Conclusion

I hope that the foregoing discussion is useful. Thank you for your attention.

Endnotes:

1. I am indebted to David Balto, Assistant Director for Policy and Evaluation in the Commission's Bureau of Competition, for a number of contributions to this discussion. I am also indebted to having been able to review an excellent draft version of the Robinson-Patman Act chapter for the 1977 Antitrust Law Developments volume, and to discuss the cases cited in that draft or in Antitrust Law Developments IV.

2. The relevant provisions are set forth in sections 2(a)-(f) of the Clayton Act, 15 U.S.C. § 13(a)-(f); references to the Robinson-Patman Act in the text therefore are intended to be to section 2 of the Clayton Act, as amended by the Robinson-Patman Act.

3. Boise Cascade Corp., 107 F.T.C. 76, 210 (1986), citing General Motors Corp., 103 F.T.C. 641, 693-96 (1984), rev'd and remanded on other grounds, 837 F.2d 1127 (D.C. Cir. 1988), on remand, 113 F.T.C. 956 (1990), appeal dismissed pursuant to stipulation.

4. Boise Cascade Corp., 107 F.T.C. at 205, quoting FTC v. Sun Oil Co., 371 U.S. 505, 520 (1963).

5. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 220 (1993), quoting Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69, 80 n.13 (1979); United States v. United States Gypsum Co., 438 U.S. 422, 458-59 (1978); Automatic Canteen Co. of America v. FTC, 346 U.S. 61, 74 (1953).

6. Great Atlantic and Pacific Tea Co. v FTC, 440 U.S. at 80, quoting Automatic Canteen Co. of America v. FTC, 346 U.S. at 63. Thus, the Court has made it clear that firms cannot use the Act as a pretext for anticompetitive conduct. For example, verifying the prices offered by competing firms cannot include systematically checking prices directly with rivals, because this could lead to collusion and price stabilization. United States v United States Gypsum Co., 438 U.S. at 456-59.

7. Boise Cascade Corp., 107 F.T.C. at 204-05.

8. Falls City Industries, Inc. v. Vanco Beverage Co., 460 U.S. 428, 434-35 (1983); accord, Corn Products Refining Co. v. FTC, 324 U.S. 726, 742 (1945); International Tel. & Tel. Corp., 104 F.T.C. 280, 423 (1984).

9. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. at 220.

10. See Brooke Group Ltd. v. Brown & Williamson, 509 U.S. at 220.

11. International Tel. & Tel. Corp., 104 F.T.C. at 417, quoting E. Kintner, A Robinson-Patman Primer 35 (2d ed. 1979); accord, L. Sullivan, Handbook of the Law of Antitrust 679-80 (1977).

12. Worldwide Communications, Inc. v. Rozar, No. 96 Civ. 1056 (MBM)(NRB), 1997 WL 795750 (S.D.N.Y. Dec. 30, 1997), at *9.

13. See Metro Communications v. Ameritech Mobile Com., 984 F.2d 739, 745 (6th Cir. 1993) (cellular telephone service not a commodity); National Communications Ass'n v. AT&T, 808 F.Supp. 1131, 1136 (S.D.N.Y. 1992).

14. Chroma Lighting v. GTE Products Corp., 1997-1 Trade Cas. (CCH) ¶ 71,836 (9th Cir. 1997) (not for publication), at 79,885.

15. Id.

16. The recovery of damages in a private Robinson-Patman Act suit -- which may be trebled, pursuant to section 4 of the Clayton Act, 15 U.S.C. 15 -- requires a showing not only of a violation of the Act, but also that the plaintiff has suffered actual injury as a result of the price discrimination at issue. Texaco, Inc. v. Hasbrouck, 496 U.S. 543, 572 (1990). That actual injury must be "attributable to something the antitrust laws were designed to prevent," Allen Pen Co. v. Springfield Photo Mount Co., 653 F.2d 17, 22 (1st Cir. 1981)(Breyer, J.), but the Supreme Court has reaffirmed its "traditional rule excusing antitrust plaintiffs from an unduly rigorous standard of proving antitrust injury." Texaco, Inc. v. Hasbrouck, 496 U.S. at 573 (citations omitted). The magnitude of actual injury may be measured by lost sales or profits, J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 561-62 (1981), but (in a secondary line case) the lost profits must result "from the drain . . . of competing with a distributor receiving favorable prices." DeLong Equip. Co. v. Washington Mills Electro Minerals Corp., 990 F.2d 1186, 1206, amended, 997 F.2d 1340 (11th Cir.), cert. denied, 114 S. Ct. 604 (1993). In private actions, therefore, this standard, in effect, supplements the competitive injury standard for demonstrating a section 2(a) violation that the Commission must satisfy. See Boise Cascade Corp., 107 F.T.C. at 208-09 n. 7.

17. Brooke Group Ltd. v. Brown & Williamson, 509 U.S. at 220; Texaco, Inc. v. Hasbrouck, 496 U.S. at 558 n.15; International Tel. & Tel. Corp., 104 F.T.C. at 423.

18. Brooke v. Brown & Williamson, 509 U.S. 209, 221-24 (1993), citing, e.g., Matsushita Electric Industrial Co.. v. Zenith Radio Corp., 475 U.S. 574, 589 (1986).

19. International Tel. & Tel. Corp., 104 F.T.C. at 404, 424-25. When predatory intent or predatory pricing is relied upon to establish primary line injury, the standards that govern the intent and conduct components of the attempted monopolization offense should apply. Id. at 424; see Boise Cascade Corp., 107 F.T.C. at 203. It may also be possible to establish primary line injury directly, through "a detailed market analysis establishing that the discrimination at issue actually injured competition." International Tel. & Tel. Corp., 104 F.T.C. at 423-24.

20. Rebel Oil Co., Inc. v. Atlantic Richfield Co., 957 F.Supp. 1184, 1192 (D. Nev. 1997).

21. Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51 F.3d 1421, 1448 (9th Cir.), cert. denied, 116 S.Ct. 515 (1995).

22. Id. at 1196.

23. Id. at 1197. The District Court did, however, determine that Rebel's estimates of damages attributable to conduct before 1985 should be excluded, as a matter of law, because of the statute of limitations. Id. at 1198.

24. Id. at 1198.

25. Id. at 1202.

26. Id. at 1202.

27. Id. at 1203.

28. Id. at 1203 (emphasis in original), citing Vollrath Co. v. Sammi Corp., 9 F.3d 1455, 1460, 1461 (9th Cir. 1993).

29. Id. at 1203.

30. Id. at 1204, citing Drinkwine v. Federated Publications, Inc., 780 F.2d 735, 739 (9th Cir. 1985).

31. Id. at 1204.

32. Stearns Airport Equipment Co., Inc. v. FMC Corp., 977 F.Supp. 1269, 1272 (N.D. Tex. 1997), citing Adjusters Replace-A-Car v. Agency Rent-A-Car, Inc., 735 F.2d 884, 890 (5th Cir. 1984), cert. denied, 469 U.S. 1160 (1985).

33. Id. at 1272, 1273.

34. Texaco, Inc. v. Hasbrouck, 496 U.S. 543, 558 n.15 (1990); Stelwagon Mfg. Company v. Tarmac Roofing Systems, 63 F.3d 1267, 1271-72 (3d Cir. 1995), cert. denied, 116 S. Ct. 1264 (1996); International Tel. & Tel. Corp., 104 F.T.C. at 441-42. A third type of injury, known as "tertiary line injury," occurs when competition among customers of a disadvantaged buyer and customers of the favored buyer is or may be injured.

35. Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 79 F.3d 182, 191-93 (1st Cir.), cert. denied, 117 S. Ct. 294 (1996); see also Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1446 (9th Cir.), cert. denied, 116 S. Ct. 515 (1995). But see Bob Nicholson Appliance, Inc. v. Maytag Co., 883 F.Supp. 321, 326 (S.D. Indiana 1994).

36. See, e.g., Chroma Lighting v. GTE Products Corp., 111 F.3d 653, 654 (9th Cir. 1997), cert. denied, 118 S.Ct. 357 (1997).

37. Falls City Industries v. Vanco Beverage, Inc., 460 U.S. 428, 435 (1983). Proof of the existence of such injury typically is sufficient to establish a prima facie case, regardless of the magnitude of the injury alleged.

38. Texaco, Inc. v. Hasbrouck, 496 U.S. at 559, quoting FTC v. Morton Salt Co., 334 U.S. 37, 46-47 (1948).

39. See, e.g., Best Brands Beverage, Inc. v. Falstaff Brewing Corp., 842 F.2d 578, 585-86 (2d Cir. 1987).

40. See, e.g., Anaren Microwave, Inc. v. Loral Corp., 49 F.3d 62, 63 (2d Cir. 1995).

41. Falls City Industries v. Vanco Beverages, Inc., 460 U.S. at 435; accord, Boise Cascade Corp., 107 F.T.C. at 205-06.

42. See Boise Cascade Corp. v. FTC, 837 F.2d 1127, 1135 (D.C. Cir. 1988).

43. See Richard Short Oil Co. v. Texaco, Inc., 799 F.2d 415, 420 (8th Cir. 1986).

44. See Motive Parts Warehouse v. Facet Enterprises, 774 F.2d 380, 394 (10th Cir. 1985); Interstate Cigar Co. v. Sterling Drug, Inc., 655 F.2d 29, 31 (2d Cir. 1981).

45. Chroma Lighting v. GTE Products Corp., 111 F.3d at 654.

46. Boise Cascade Corp. v. FTC, 837 F.2d 1127, 1144 (D.C.Cir. 1988).

47. J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1532-33 (3d Cir. 1990), cert. denied, 499 U.S. 921 (1991).

48. Chroma Lighting v. GTE Products Corp., 111 F.3d at 654.

49. Id. at 654-55.

50. Id. at 655.

51. Id. at 656.

52. Id. at 658.

53. Id. at 657.

54. Id. at 658, citing Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 219-21 (1993).

55. Id. at 658.

56. George Haug Co. v. Rolls Royce Motorcars, Inc., 1997-2 Trade Cas. (CCH) ¶ 71,972 (S.D.N.Y. 1997), at 80,772, citing Brooke Group Ltd. v. Brown & Williamson Tobacco Co., 113 S.Ct. at 2586.

57. Id. ¶ 71,972 at 80,770.

58. Id. ¶ 71,972 at 80,772.

59. Id.

60. 15 U.S.C. 13(a).

61. Texaco v. Hasbrouck, 496 U.S. at 556.

62. As now-Justice Breyer indicated in Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 990 F.2d 25, 28 (1st Cir. 1993), "price differences, based upon cost savings, will sometimes have a pro-competitive impact."

63. Texaco v. Hasbrouck, 496 U.S. at 564-65 n. 21; accord, e.g., FTC v. Morton Salt Co., 334 U.S. 37, 48 (1948).

A seller can establish the cost of dealing with a particular buyer by establishing the average cost of dealing with members of a customer grouping that includes the buyer, provided that the members of the group are of such selfsameness as to make the averaging of the cost of dealing with the group a valid and reasonable indicium of the cost of dealing with any specific group member.

United States v. Borden Co. and United States v. Bowman, 370 U.S. 460, 469 (1962).

64. See, e.g., Comcoa, Inc. v. NEC Telephones, Inc., 931 F.2d 655 (10th Cir. 1991) (technological obsolescence); Moore v. Mead Serv. Co., 190 F.2d 540, 541 (10th Cir. 1951) (perishable or obsolete goods), cert. denied, 342 U.S. 902 (1952); A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 683 F. Supp. 680, 691 (S.D. Ind. 1988) (eggs with 30-day shelf life), aff'd on other grounds, 881 F.2d 1396 (7th Cir. 1989), cert. denied, 494 U.S. 1019 (1990).

65. United States v. United States Gypsum Co., 438 U.S. 422, 451 (1978), quoting FTC v. A.E. Staley Mfg. Co., 324 U.S. 746, 759-60 (1945).

66. Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 448 (1983).

67. International Tel. & Tel. Corp., 104 F.T.C. at 435 (emphasis in original).

68. Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S. at 445-51; International Tel. & Tel. Corp., 104 F.T.C. at 435. A firm may also rely on the meeting competition defense to support meeting a rival bid that the firm reasonably believes is lower than its own, even though the firm does not know the rival's exact bid, or seeks to match only the total bid amount and not its individual components. Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69, 82-83 (1979).

69. Falls City Industries v. Vanco Beverage, Inc., 460 U.S. at 442 n.9.

70. See, e.g., FTC v. Morton Salt Co., 334 U.S. 37, 42, (1948); Caribe BMW v. Bayerische Motoren Werke, 19 F.3d 745, 751 (1st Cir. 1994); Comcoa, Inc. v. NEC Telephones, Inc., 931 F.2d 655, 664 (10th Cir. 1991); Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319, 1326, 1328-29 (6th Cir. 1983); Shreve Equipment, Inc. v. Clay Equipment Corp., 650 F.2d 101, 105-06 (6th Cir.), cert. denied, 454 U.S. 897 (1981).

71. Caribe BMW v. Bayerische Motoren Werke A.G., 19 F.3d at 751-52 (emphasis in original), citing, e.g., Alterman Foods, Inc. v. FTC, 497 F.2d 993, 1001 (5th Cir. 1974); Century Hardware Corp. v. Acme United Corp., 467 F.Supp. 350, 355-56 (E.D. Wis. 1979).

72. FTC v. Morton Salt Co., 334 U.S. 37, 42 (1948); Caribe BMW v. Bayerische Motoren Werke, 19 F.3d at 751-52.

73. Chroma Lighting v. GTE Products Corp., 1997-1 Trade Cas. (CCH) ¶ 71,836 (9th Cir. 1997) (not for publication), at 79,886.

74. Id.

75. Id.

76. Metro Ford Truck Sales, Inc. v. Ford Motor Co., 1997 WL 671323 (N.D. Tex. Oct. 20, 1997).

77. Id. at *5.

78. Id.

79. Automatic Canteen Co. of America v. FTC, 346 U.S. 61, 79-80 (1953); Boise Cascade Corp., 107 F.T.C. at 201. The plaintiff must bear the burden of establishing that the buyer knew that the discrimination at issue was illegal, but may be able to do so by introducing evidence of "trade experience." Automatic Canteen Co. of America v. FTC, 346 U.S. at 79-80.

80. See, e.g., Klamath-Lake Pharm. Ass'n v. Klamath Med. Serv. Bureau, 701 F.2d 1276, 1283 (9th Cir.), cert. denied, 464 U.S. 822 (1983).

In Kroger Co. v. FTC, 438 F.2d 1372, 1377 (6th Cir.), cert. denied, 404 U.S. 871 (1971), the Court of Appeals considered an exception to this principle that arises when a buyer misrepresents the prices it has been offered by a seller's competitors. In this situation, the seller arguably does not violate Section 2(a) by selling its products to the buyer at discriminatorily lower prices, because it is making a bona fide effort to meet what it believes in good faith to be competition from other sellers. Nevertheless, the Court held, "the seller's successful defense under § 2(b) cannot exculpate the buyer." Id. at 1377.

81. Great Atlantic and Pacific Tea Co. v. FTC, 440 U.S. 69, 78-79 (1979); Automatic Canteen Co. v. FTC, 346 U.S. 61, 70-71 (1953); Klamath-Lake Pharmaceutical Ass'n v. Klamath Medical Service Bureau, 701 F.2d 1276, 1283 (9th Cir.), cert. denied, 104 S.Ct. 88 (1983). A showing that the discounts at issue are generally and practically available to the competitors of the favored buyer may negate the price discrimination component. See, e.g., FTC v. Morton Salt, 334 U.S. at 42. It may also establish an absence of competitive injury. See, e.g., Tri-Valley Packing Ass'n v. FTC, 329 F. 2d 694, 703-04 (9th Cir. 1964).

82. Falls City Industries, Inc. v. Vanco Beverages, Inc., 460 U.S. at 435; FTC v. Morton Salt Co., 334 U.S. 37, 46 (1948).

83. Texaco, Inc. v. Hasbrouck, 496 U.S. 543, 554-55 n.11 (1990).

84. Id. at 549-51. Dompier resold the Texaco gasoline at retail under the Texaco brand name, while Gull resold it under its own brand name. Id. at 549. Both firms picked up product at the Texaco bulk plant and delivered it directly to retail outlets, and in addition Dompier received the equivalent of the common carrier rate for delivering the gasoline product to the retail outlets. Id. at 550.

85. Id. at 551 n.4.

86. Id. at 553.

87. Id. at 556.

88. Id. at 560, quoting Report of the Attorney General's National Committee to Study the Antitrust Laws 208 (1955).

89. Id. at 571.

90. Id. at 562.

91. Id. at 572.

92. Id.

93. Id. at 563.

94. Id. at 564 n.21.

95. Doubleday & Co., 52 F.T.C 169, 209 (1955).

96. Mueller Co., 60 F.T.C. 120, 127-28 (1962), aff'd, 323 F.2d 44 (7th Cir. (1963), cert. denied, 377 U.S. 923 (1964).

97. Sawhney v. Mobil Oil Corp. and Ross Fogg Fuel Corp., 970 F.Supp. 366, 369-70 (D.N.J. 1997).

98. Id. at 370.

99. Id. at 373, quoting Stelwagon Mfg. Co. v. Tarmac Roofing System, Inc., 63 F.3d 1267, 1271 (3d Cir. 1995).

100. Id. at 373.

101. 15 U.S.C. § 13(c). Section 2(c) is a per se provision, and none of the defenses available under other provisions of the Act are available to the defendant in a section 2(c) action. See FTC v. Henry Broch & Co., 363 U.S. 166, 170-71 (1960).

102. FTC v. Henry Broch & Co., 363 U.S. 166, 168-69 (1960).

103. Herbert R. Gibson, Sr., 95 F.T.C. 553, 740, modified, 96 F.T.C. 126 (1980), aff'd, 682 F.2d 554 (5th Cir. 1982), cert. denied, 103 S. Ct. 1521 (1983).

104. See, e.g., Calnetics Corp. v. Volkswagen of America, Inc., 532 F.2d 674, 695-96 (9th Cir.), cert. denied, 429 U.S. 940 (1976); Environmental Tectonics Corp. v. W.S. Kirkpatrick & Co., 659 F.Supp. 1381 (D.N.J. 1987), aff'd on other grounds, 847 F.2d 1052 (3d Cir. 1988), aff'd, 493 U.S. 400 (1990).

105. See Grace v. E.J. Kozin Co., 538 F.2d 170 (7th Cir. 1976); Fitch v. Kentucky-Tennessee Light & Power Co., 136 F.2d 12 (6th Cir. 1943).

106. Rangen, Inc. v. Sterling Nelson & Sons, 351 F.2d 851 (9th Cir. 1965), cert. denied, 383 U.S. 936 (1966).

107. 1997-2 Trade Cas. (CCH) 71,967 (S.D.N.Y. 1997), at 80,749-50.

108. Id. ¶ 71,967 at 80,754.

109. Id. at 80,754-55.

110. Id. at 80,756-57.

111. 15 U.S.C. §§ 13(d),(e). The courts have consistently held that sections 2(d) and 2(e) are to be construed in pari materia. General Motors Corp., 103 F.T.C. at 698 n. 2 (citation omitted).

112. 16 C.F.R. Part 240 (1997) (hereinafter Fred Meyer Guides).

113. FTC v. Fred Meyer, Inc., 390 U.S. 341 (1968).

114. Guides for Advertising Allowances and Other Merchandising Payments and Services, 55 Fed. Reg. 33651, 33652 (Aug. 17, 1990) (hereinafter Guides Federal Register Notice) (emphasis added), quoting Herbert R. Gibson, Sr., 95 F.T.C. 553, 725 (1980), aff'd, 682 F.2d 554 (5th Cir. 1982), cert. denied, 460 U.S. 1063 (1983); accord, e.g., Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319, 1328 (6th Cir. 1983); Rutledge v. Electric Hose & Rubber Co., 511 F.2d 668, 678 (9th Cir. 1975); General Motors Corp., 103 F.T.C. 641 (1984). The sales at issue also must be reasonably contemporaneous. See Fred Meyer, Inc. v. FTC, 359 F.2d 351 (9th Cir. 1966), rev'd in part on other grounds, 390 U.S. 341 (1968); England v. Chrysler Corp., 493 F.2d 269 (9th Cir.), cert. denied, 419 U.S. 869; Atalanta Trading Corp. v. FTC, 258 F.2d 365 (2d Cir. 1958).

115. See, e.g., Motive Parts Warehouse v. Facet Enterprises, 774 F.2d 380, 397 (10th Cir. 1985); Flotill Products v. FTC, 358 F.2d 224 (9th Cir. 1966), rev'd in part on other grounds, 389 U.S. 179 (1967); Tri-Valley Packing Association v. FTC, 329 F.2d 694 (9th Cir. 1964); see also Eastern Auto Distributors v. Peugeot Motors of America, Inc., 795 F.2d 329, 335-36 (4th Cir. 1986).

116. Thus, for example, in FTC v. Simplicity Pattern Co., 360 U.S. 55, 62-63, the Supreme Court held that fabric stores selling dress patterns primarily to accommodate fabric customers nevertheless competed with variety stores selling dress patterns strictly for profit.

117. FTC v. Fred Meyer, Inc., 390 U.S. 341, 358 (1968).

118. 16 C.F.R. § 240.4 (1997).

119. Id. § 240.5 (1997).

120. See Alterman Foods, Inc. v. FTC, 497 F.2d 993 (5th Cir. 1974); Hygrade Milk & Cream Co. v. Tropicana Products, 1996-1 Trade Cas. (CCH) ¶ 71,438 (S.D.N.Y. 1996); accord, Fred Meyer Guides, 16 C.F.R. § 240.10(b) (1997).

121. Id. § 240.8 (1997).

122. Id. § 240.9(a) (1997).

123. Grand Union Co., 57 F.T.C. 382 (1960), modified and aff'd, 300 F.2d 92 (2d Cir. 1962).

124. See FTC v. Simplicity Pattern Co., 360 U.S. 55, 58-59 (1959); General Motors Corp., 103 F.T.C. at 697.

125. George Haug Co. v. Rolls Royce Motorcars, Inc., 1997-2 Trade Cas. (CCH) 71,972 (S.D.N.Y. 1997), at 80,770.

126. Id. at 80,773.

127. Id. at 80,773.

128. Order Returning Matters to Adjudication and Dismissing Complaints (September 10, 1996).

129. Id.

130. Id.

131. Id.

132. Id.

133. Id.

134. Letter to Jack Hoeft, Chairman and Chief Executive Officer, Bantam Doubleday Dell Publishing Group Inc. from Donald S. Clark, Secretary, Federal Trade Commission, File No. 801 0059 (September 10, 1996).

135. American Booksellers Association, Inc., et al. v. Houghton Mifflin Co., Inc., et al., 1995-1 Trade Cas. (CCH) ¶ 70,931 (March 3, 1995) (Opinion and Order Denying Motions to Dismiss and Motion for a Stay).

136. Id.