United States: Supreme Court limits breadth of Robinson-Patman Act in competitive bidding situations
Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc.

On January 10, 2006, the Supreme Court held that a manufacturer may not be held liable for secondary-line price discrimination (price discrimination that injures competition among the discriminating seller’s customers) under the Robinson-Patman Act, in the absence of a showing that the manufacturer discriminated between dealers competing to resell its product to the same retail customer. This decision makes clear that each individual bidding situation is the appropriate relevant market for determining whether a manufacturer impermissibly price discriminated among its resellers.

Background

This case arose in the context of Volvo’s unilateral decision to reduce the number of its authorized dealers as part of a firm-wide reduction program. Reeder-Simco GMC, Inc. ("Reeder"), an authorized Volvo dealer and the plaintiff in this matter, suspected that it was one of the dealers that Volvo was attempting to eliminate. According to Reeder, as part of its elimination strategy, Volvo was favoring its other dealers by offering greater price concessions to them in competitive bidding situations. The competitive bidding worked as follows: First, Reeder, a seller of new and used Volvo trucks, including heavy-duty trucks, would solicit invitations to submit bids to retail customers. The customers, if interested, would then list their individual specifications or product requirements, and decide which dealers they would invite to bid. Second, if a Volvo dealer—such as Reeder—was among those selected to bid by that particular customer, that dealer would request from Volvo a discount off the wholesale price. Third, Volvo would decide on a case-by-case basis whether to offer a discount and, if so, the rate of the discount. Reeder’s allegations center on the third part of this competitive bidding process—it claimed that Volvo’s discounting decisions consistently disfavored Reeder in comparison to other Volvo dealers.

The law

In order to establish its Robinson-Patman claim, Reeder had to show that (1) the relevant Volvo truck sales were made in interstate commerce; (2) the trucks were of "like grade and quality"; (3) Volvo discriminated in price between Reeder and another purchaser of Volvo trucks; and (4) the effect of such discrimination may be to injure, destroy, or prevent competition to the advantage of a favored purchaser. The Court did not dispute that Reeder met the first two requirements. Reeder’s downfall, however, was that it could not meet the third and fourth requirements—Reeder could not provide credible examples of instances where Volvo favored dealers with whom Reeder was directly competing for the same customer.

The Supreme Court decision

As proof of discrimination, Reeder offered examples of cases where Volvo had given lower price concessions to Reeder than it had given to other Volvo dealers in other bidding situations where Reeder was not a competitor. In some of these examples, Reeder was the successful bidder and won the customer contract and in others, it did not. The Court entirely discredited all of this evidence because of its "mix-and-match, manipulable quality." The Court reasoned that for purposes of establishing a Robinson-Patman claim in a competitive bidding process, the relevant market would be limited to the needs and demands of the retail customer and those few dealers from whom it has decided to solicit bids. Thus, Reeder’s attempt to establish favoritism by comparing discounts it received to those given to other dealers participating in different relevant markets was inadequate.

In the rare instances where two dealers competed head to head for the same customer in what the court would define as "the same relevant market," Volvo’s stated policy was that it would provide the same exact price concession to each dealer. Reeder alleged that Volvo did not adhere to this policy and offered two examples of cases where it was allegedly disfavored in comparison to a competing Volvo dealer. In Reeder’s first example, neither Volvo dealer ultimately won the bid. In its second example, Volvo initially offered the same concessions to Reeder and the other dealer. Once the other dealer won the bid, however, Volvo agreed to the bidding customer’s request to honor the lower prices that Volvo had in effect at the time the customer submitted its bid. Thus, Volvo ultimately gave the other dealer a greater concession than that initially provided to both dealers. The Court discredited this evidence of favoritism in the head-to-head context for a couple of reasons. First, in the example where a competing dealer won the bid, the bid only would have yielded approximately $30,000 in profits, an amount the Court noted "was not of such magnitude as to affect substantially competition between Reeder and the ‘favored’ Volvo dealer." Second, neither of these examples seemed to deter interbrand competition—to the contrary, the Court recognized that Volvo’s "selective price discounting fosters competition among suppliers of different brands." As such, the Court noted that by declining to extend Robinson-Patman’s coverage to cases such as this, the broader policies of the antitrust laws are upheld and in fact, furthered.

Justices Stevens and Thomas dissented from the Court’s opinion on the ground that Robinson-Patman rightfully extends to situations such as those faced by Reeder. The dissent noted that each time Reeder managed to resell trucks it had purchased at discriminatorily high prices, it was forced either to accept lower profit margins than were available to favored Volvo dealers or to pass on the higher costs to its customers (who then might well go to a different dealer next time). According to the dissent, Robinson-Patman was enacted to protect disfavored purchasers in this exact situation.

What this means for participants in competitive bidding situations

This decision helps to shape the scope of the Robinson-Patman Act, particularly in competitive bidding situations. In many industries, it is common for manufacturers to participate in bid-support programs—such as the program in the Volvo case—where retailers’ end customers (such as schools, local governments and other public agencies, as well as private customers) use competitive procurement methods. Customers use competitive bid programs to obtain the lowest available pricing in a market at a particular point in time. These programs generally result in lower product cost to the customer than would be available under more monolithic pricing schemes and thereby increase interbrand competition. The Court’s statutory interpretation in the Volvo case is pro-competitive because it encourages manufacturers to engage in these bid-support programs, by severely limiting the manufacturers’ Robinson-Patman risk. By treating each individual bidding situation as the appropriate market for assessing whether a manufacturer improperly discriminated in price, the Court has slammed the door on unmeritorious Robinson-Patman claims, while preserving the fundamental principle underlying the Robinson-Patman Act: that manufacturers should keep their similarly-situated resellers on a level playing field when they actually compete head to head to resell the manufacturer’s products.

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