Robinson-Patman Act Evaluation on Case

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Background

In 2006 the Supreme Court of the United States of America went on record in its issuance of a number of decisions that witnessed the rein in antitrust plaintiffs within a series of various fact and legal based circumstances. In this paper the case between Volvo Company based in North America and Reeder-Simco Company (Reeder) is evaluated to assess the Robinson-Patman Act. Reeder was a dealer of the Volvo trucks and the company purported that Volvo on different occasions would offer lower discounts to them than it offered to other dealers, effectively violating the Robinson-Patman Act that prohibits such discrimination of prices. Reeder gathered and provided evidence that demonstrated the variation of the discounts that Volvo offered to them from that which is offered to other dealers that distributed the same Volvo trucks with Reeder. The discount contained in the evidence was however for unrelated customer bids that were contested by different clients from different territories. Based on the fact that Reeder and other competing dealers were not distributing the Volvo trucks to the same clients, the Supreme Court resolved that the difference in pricing due to the difference in the discount offered, could not have affected the sale volumes of Reeder. The Court in its conclusion indicated that the Robinson-Patman Act was not violated because the act only prohibited discrimination in prices in cases where it would threaten to hinder fair competition (Elaine & Skitol, 2006, p. 2). The Court in consideration of the one instance that Reeder presented as evidence claiming to receive lower discounts than the competing dealers, resolved that the effect of a single sale was not substantial to significantly injure the competition. For this reason, therefore, the law was not violated and in dicta, the signal of the court showed that restrictions on the range to which the act could be applied can be extended further (Elaine & Skitol, 2006, p. 3). The basic objective of the antitrust law is to offer protection against inter-brand competition as opposed to individual competition. The court, therefore, chose not to extend the coverage of the Act to circumstances in which no evidence proved that the favored buyer could be possessing favoritism in market power. In this case, the favored buyers were dealers who operated like independent chain stores and therefore the selective discount offers from Volvo may have been a measure to offer stiffer competition to suppliers of the competing brands in the affected territories.

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Introduction

Robinson Patman Act was enacted in 1936 to constitute part of the statutes that are collectively referred to as the antitrust laws. Due to the circumstances of the great depression during which the act was passed, it demonstrates differing values from the ones contained in the rest of the antitrust law (Larue, 1995, p. 1917). The Supreme Court has clarified that the antitrust laws were generally enacted not to protect competitors but to shield brands from unfair competition. The court has however noted that the purposes of the act were prophylactic and it was therefore enacted mainly to offer protection to the small businesses. The Robinson Patman Act was meant at redefining and broadening the Clayton’s Act that had focused on means to avoid injuries to competition in the market (Larue, 1995, p. 1917).

The Robinson Patman Act primarily offers protection against two main lines of competitive injuries that may come about due to discrimination in price; the general claims attributing injuries to the primary line and the claims that attribute such injuries to the secondary line. The primary line claims are those cases involving market conduct that fixes predatory prices that injure fare competition affecting those competing with the discriminating seller. On the other hand, secondary line claims are those cases involving discrimination in prices that leads to competition injuries that affect the clients of the discriminating seller (Kirkwood, 2007, p. 348). Most of the claims in the act fall in this category involving favored and disfavored buyers. This kind of discrimination comes about when a seller deliberately extends favor selectively to some of the clients. For instance, a disfavored small poultry dealer can have a secondary line claim in cases where his poultry supplier offers greater discounts to other bigger favored poultry dealers.

The Supreme Court in 1948 introduced a friendly method for plaintiff testing to find the injuries to brand competition within the area of the secondary line claims. In the case involving Federal Commission versus Morton Salt Company, the US court declared the impeding principle which has since been referred to as the inference of the Morton Salt. The principle indicates that injuries to the competition may be taken from the evidence that buyers pay their suppliers more money than their competitors for the supply of the same quality and quantity of goods (Larue, 1995, p. 1917). According to the inference of Morton Salt, the plaintiff in the secondary line can effectively offer satisfaction to the Act’s requirements of the injuries to competition. This is through demonstrating that the seller who is the defendant, has over a long time offered lower pricing to goods directed to the favored competing buyer (Kirkwood, 2007, p. 349). For this reason, in as much as the antitrust law gives protection to the act of competition rather than to the competitors, the courts have realized that the Robison Patman Act’s statutory rules and its legislative roots have demonstrated a congress that was adopting policies to protect individual business people as a way of offering protection to the general competition. It is only in 1983 that the Supreme Court reaffirmed the inference of the Morton Salt of injuries to competition through evidence of injuries to a competitor. However, the Court had indicated that defendants can successfully overcome such kind of presumptions by providing relevant evidence that would break the link between the differences in pricing and the loss in sale volumes (Elaine & Skitol, 2006, p. 3).

Though the Act has its own unique nature, the Supreme Court and other courts have been struggling in finding ways and means of treating the Act on the basis of the policy that underlines the general Antitrust Law. Actually, the Court has in a prior instance suggested that as a general norm the Act would be construed so that it remains coherent with the general policies of the antitrust laws as provided by the congress. In another more recent primary line claim involving the Brooke Group limited versus Brown and W. Tobacco Corporation, the Supreme Court chose to adopt the construction of the Act that invoked the use of similar primary line Act cases, which have such predatory price claims as contained in the Sherman Act. The Court indicated that such differences in the product prices were indeed an act towards the recovery for the predatory prices as claimed under the Sherman Act or the Robinson Patman Act. This is because the lower prices offered to the customers are generally a boon from the suppliers and the Plaintiffs should demonstrate that the defendant’s lower prices have indeed injured market competition in the given trading territory. In addition, the Court also indicated that the Act would always be construed with consistency to the general policy contained in the antitrust laws.

Though this kind of expansive language existed in the Brooke Group concerning construing the Robinson Patman Act in a consistent manner and within the general guidance of the antitrust policies, for a long time the lower courts have always treated such secondary line claims with a difference through the use of the inference of the Morton Salt. The use of the inference of the Morton salt may take injuries to competitors as enough lead to the presumption for injuries to competition, however; this kind of presumption would run contrary to the spirit of the antitrust law (Elaine & Skitol, 2006, p. 4).

In consideration of these, the Court’s offer of certiorari in the case involving the Volvo Trucks of North America, Inc Versus Reeder Simco (Reeder), was not clear as to whether the Court was effectively eliminating the use of the inference of the Morton Salt or not. After the overturning of the plaintiff ‘s judgment by the Court over the Reeder’s case, the commentators who had already demonstrated hostility over the Robinson Patman Act and the inference of the Morton Salt welcomed the opinion with glee. This reaction was despite the fact that the opinion from Justice Ginsburg over Reeder did not seem to reject the inference of the Morton Salt. Actually, Justice Ginsburg quoted the inference of Morton Salt as he indicated that the Court had finally recognized the fact that inferences of competitive injuries can originate from evidence showing that the favored competitor had benefited from a large lowering of prices over a long time (Elaine & Skitol, 2006, p. 4). Actually, the Court offered the commentators with a cause to air the opinions in a sharp manner that curtailed the application of the act. Reeder echoed the same words of the refrain as it had been said by the Brooke group and other past cases maintaining that the Supreme Court would go on in construing the Robinson Patman Act with consistency with wide policies based on antitrust laws. At the same time, the Court noted the famous case of Continental T.V versus GTE Sylvania in emphasizing that the inter-brand competitions are the basic basis and concern of the antitrust law (Elaine & Skitol, 2006, p. 4).

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Though the language based on the secondary line act claims appeared to be important the passages are only dicta. The said language which was taken over by the opponents of the Robinson Patman Act appeared after the Supreme Court had finished reexamining the exhibits presented. The Court observed that the plaintiff could not demonstrate that Volvo was selling at more discounted prices than the Reeder’s competitors, considering the client-specific nature of the situation of the market that is driven through competitive bidding (Kirkwood, 2007, p. 349). In general terms, one may not expect the Supreme Court to have rejected in dicta the doctrines that are basic to the act that was adopted in 1948 and reaffirmed severally thereafter. Instead, I would expect the Court to strongly confront directly the doctrines and offer appropriate and reasonable articulation towards this rejection. It is notable that Reeder effected very small changes to the doctrine of the act which is against the expectations and interpretations used by most of the commentators.

The Opinion in Reeder-Simco

To be able to understand comprehensively the nature of the Court’s ruling it is imperative for one to carefully consider the circumstances in which Reeder operated and how its market differs from an ordinary secondary line act’s claim case. In a typical case, therefore, it is possible to have disfavored customers complain that their suppliers have offered lower pricing for goods sold to the favored customers. In such a case the disfavored and the favored customers have both bought the goods from the defendant (seller), after which they go out and compete against one another in the effort of reselling the goods. The market in the case of Reeder however had a different approach in which no direct competition was observable among the Volvo dealers and therefore this explains why the claim had to fail.

The market for the Volvo trucks was through a process of competitive bidding which was based on the specifications from the consumers. Therefore, the retailers who have normally established business enterprises and truck firms would give their specifications to the dealers, after which they would ask for the presentation of competitive bids from these dealers who are linked to the manufacturers as agents. The retailers would eventually select the dealers offering the best prices and buy the truck(s) from them (Macavoy, 2006, p. 381). Reeder and the other competing dealers would approach Volvo as their suppliers whenever they got the customers’ specifications to negotiate for possible discounts or concessions deductible from the marked prices of the trucks. In this market, it is a common practice for the manufacturers to consider offering discounts to the dealers based on customer requirements. Whether or not to offer a discount and the rate of the discount if approved is therefore based on a case by case basis and it is determined by the specifications given to the dealer by the customer. In the actual computation of the rate of discount to be offered for each case, Volvo evaluates the customer specifications based on; the history of purchases of other or same brands from Volvo and the existing general demand of the requested truck brand at the time of purchase. Volvo then evaluates the exact rate of discount for those who qualify and submits it to the dealer. It is this information that the dealer uses to prepare the bid to be submitted to the customer. If the customer rejects the bid then the dealer will have no further obligation to purchase the said truck, however, if the bid is accepted the dealer would purchase the truck(s) from Volvo in accordance with the customer specifications (Elaine & Skitol, 2006, p. 4).

Volvo had assigned a total of 150 agents to different regions at the time of the hearing of the Reeder’s case. Reeder who was one of the 150 agents had been assigned a region that had a total of ten counties in Arkansas and two others in Oklahoma. Volvo policies, however, do not restrict the dealers from taking bids outside their assigned regions, and also the dealers were free to bid against each other. However, Reeder was on record for having not been in the habit of bidding against the other Volvo dealers. In cases where two dealers were issued with the same bid from a customer, then it was in accordance with Volvo’s strict policy requirements to offer exactly the same treatment in discounts and/concessions for each of the dealers competing in the bid.

It was in 1997 that Volvo rolled out a special marketing program by the name “Volvo Vision”. Through the program, Volvo introduced a strategic plan that was meant to confront the challenges affecting the market which included establishing ways to reduce the number of dealers to 75 only. Volvo was then supposed to expand the regions of the remaining dealers to cover for those who were to be removed. It is around this time that Reeder learnt that Volvo had offered one of the dealers a discount higher than what it was used to receiving. Following this discovery, Reeder suspected that it could be one of the dealers targeted for elimination by Volvo. Reeder, therefore, went ahead and filed a suit against the supplier Volvo in February 2000, alleging that Volvo had violated the Arkansas F.P Act and the Robinson Patman Act. Reeder argued that the violations had resulted in great losses caused by its competitive disadvantage brought about by favoritism by Volvo, who allegedly offered better concessions to other dealers than it did give to Reeder which was against the antitrust laws (Elaine and Skitol, 2006, p. 5).

In a very rare occurrence in the past antitrust claims, Volvo and Reeder got the dispute a jury trial. It was established that reliable discrimination indications existed in the pricing and that the competition was affected between Reeder and other competitors. The effect was against Reeder who suffered losses due to the pricing differences. The jury indicated that Reeder had suffered losses amounting to more than $1.3 Million due to the action by Volvo in violation of the Robinson Patman Act (Elaine and Skitol, 2006, p. 2). During the appeal, a panel that was partly divided rejected Volvo’s claims that the competitive bids scenarios do not result in Act case claims. The panel indicated further that the jury may have established that Reeder competed against favored dealers and that may have established competitive injuries from the exhibits presented by Reeder. The exhibits presented by Reeder basically showed a comparison of the discounts offered by Volvo to Reeder after bidding against non-Volvo agents and the discounts that Volvo offered to other dealers after bidding against non Volvo agents for different sales. The exhibits revealed that Reeder had only bid against the Volvo agents only twice during the entire 5 years as Volvo’s agent. In one of the instances where Reeder competed directly with another Volvo, none of them won the bid. In the 2nd instance, Volvo had offered the same discount to Reeder and the competing Volvo dealer, Southwest Missouri. The customer is said to have settled on Southwest Missouri because they had had successful dealing together in the past. The client demanded a lower price after having settled on the Reeder’s rival and it is at this time that Volvo increased the discount it had given to Southwest Missouri to suit the demand of the customer (Rodell, 2006, p. 970).

However, Judge Hansen disagreed with the opinion of the court arguing that Reeder did not substantially demonstrate that it had competed in the same front with the other Volvo dealers and therefore there was no observable competitive injury based on the evidence presented. Volvo, therefore, appealed to the Supreme Court with a reframed case that sought to know whether a manufacturer may bear the liability involving secondary line pricing discrimination as contained in Robinson Patman Act even in the absence of evidence to demonstrate that the said manufacturer actually discriminated against dealers that compete in reselling its goods to the same client (Rodell, 2006, p. 972).

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Reeder’s Case Interpreted

The intense evaluation in which Reeder’s evidence was subjected to effectively endorsed the inference of the Morton Salt. Reeder’s question was in relation to what the market defines the Act claims. The Supreme Court has in the past demonstrated its understanding of the Robinson Pitman Act statutes and the inference of the Morton Salt as to be applied in cases where the plaintiff proves that the supplier has indeed discriminated against competing buyers over a long period of time. Reeder coerced the court into answering the question as to when buyers are considered to be competitors. In ordinary secondary line cases, this question is often obvious while in the circumstances under Reeder’s case the question is a complex one (Kirkwood, 2007, p. 349). For example, in a wholesale store that serves retailers reselling the products in the same area and same customers, the small distributors may complain of unfair competition if the supplier would decide to offer higher discounts to the favored big distributor in the region. However, in Reeder’s case, the market is composed of independent market transactions that involve competitive bids that are normally submitted to different customers that in most cases involved only one Volvo dealer. Such a market scenario is similar to a small shop in North Michigan that would complain that Morton Salt was giving higher discounts on the supplier of its salt located in Florida. Such a case would be very inappropriate to seek for the application of the Act.

The Supreme Court’s nature of the evidence provided demonstrated its full acceptance of the inference of the Morton Salt. The Court evaluated the available evidence to examine whether Reeder indeed was in competition with the other dealers. The Court rejected claims from Reeder because the exhibits had failed to demonstrate that Volvo had actually discriminated against it in favor of one of the rival Volvo dealers. The legal structure that the Supreme Court identified as to control the Reeder was in agreement that the reliable ways to prove injuries to brand competition includes relying on the inference of the Morton Salt and that continued injuries to the competitors may result in injury on the competition (Elaine and Skitol, 2006, p. 5).

Due to the fact that comparisons failed to demonstrate that Volvo sales to Reeder were at higher prices than those of the competitors the comparisons may not prove the existence of competitive injury. The comparison methods failed because no case was presented to show that Reeder was indeed in competition with any of the rival Volvo dealers with a focus on the same customers. The Court declined to allow inferences of competitive injuries from such exhibits that differed both in the market focus and in the timing of the sales of which some had a span of up to seven months. A favored dealer in this case, therefore, does not exist and the Reeder’s evidence is not sufficient to prove the existence of such a dealer. Whereas Reeder could have competed against other Volvo dealers for a chance to place bids on sales over a wide range of geographic regions, the nature of competition initially was on the basis of various factors. These factors included the presence of a vel non-kind of relationship among the possible product bidders, the clients, geographical regions and the dealer’s reputation. Once the client had settled on a specific dealer to supply the bid, the market is considered to be limited to the basic needs that are of particular demand by the product user with only very few Volvo dealers competing for the same sales. The dealers who had bids in the same region could also not claim to have been competing for the same clients due to the discrete nature of the sale procedures (Elaine & Skitol, 2006, p. 5)

The violation of the Robinson Patman Act as provided by Reeder’s exhibits in the two different instances in which the exhibits demonstrated the existence of competition with other Volvo dealers over the same bid. In cases where more than one dealer bids for the supply to the same client, it is only one dealer that is expected to win the bid and thereafter supply the product as per the contract. Therefore, even in consideration of such rare cases where the Volvo dealers had to compete against each other, Reeder did not consider that the other dealers who lose could also complain as well as being disfavored against. However, Reeder supplied single evidence of having lost to another Volvo dealer in a transaction that only involved 12 Volvo trucks valued at $30,000 in gross profit (Elaine and Skitol, 2006, p. 3). In accordance with Volvo’s policies, the two dealers had received a similar concession only to increase the concession of the other dealer after winning the bid. In the other instance where Reeder competed directly with a Volvo dealer, it was established that Volvo had to increase the Reeder’s discount to 18.9% up from 17% to make the concession similar to the other Volvo dealer. However, none of the two won the bid (Rodell, 2006, p. 971). This made it clear that in cases where there was any difference in pricing; there was no significant magnitude that would have placed the favored dealer at an advantaged position.

Volvo dealers selling Volvo trucks engage regularly with negotiations with their potential clients. In some rare circumstances, the potential customers may negotiate prices with more than one Volvo dealer. In other cases, the clients who would be familiar with the truck business and the available choices may choose to negotiate with a few of the dealers and get views of each one at a time. The act would then be able to protect the dealers in all these available negotiation options. However, the act has since adopted a concept of dealing with transaction-specific competitions in which the Supreme Court has eliminated protection in most of the cases except for those rare exceptions where the potential customer negotiates with two Volvo dealers. Considering the fact that Reeder’s case involves products that were being ordered for already established customers and not for stocking, the case is obviously falling to Robinson Patman kind of suit (Elaine and Skitol, 2006, p. 6).

Reeder on alleging violation of the act by Volvo, submission of the evidence demonstrated conflicting signals to the sitting jury. The judge’s instructions to the Jurors were clear on the aspects of pricing discrimination and competition injuries. The Jury eventually issued the verdict in complete favor of Reeder. At the same time, the Court of Appeal did not establish any misnomer in both the instructions and the sufficiency of the evidence produced by Reeder before the jury. It is notable that Volvo did not appear to challenge the findings of the Jury on the alleged discrimination of prices. The argument of Reeder on this particular case was that Volvo was seeking to reduce the number of its agents of which Reeder felt threatened. In avoidance of violations of the agreements, Volvo opted to fulfill this objective extending lower discounts to Reeder as compared to other dealers. Reeder presented enough evidence to support this theory that seemed to agree with the strategy of Volvo at that time of reducing the number of dealers and expanding the markets. It was clear that Volvo was ready to lose sales as it reorganized its dealers (Elaine & Skitol, 2006, p. 5).

For many years’ juries have often inferred requisite injuries to competition within the act based on the fact that manufacturers would sell products to a retailer at higher prices than to the rivals. Volvo however claims that there were no competitive injuries that occurred, considering that it did not discriminate against Reeder when it sought a discount for a bid that they competed for with another Volvo dealer targeting the same customer (Elaine and Skitol, 2006, p. 6). According to Volvo, the transactions of its businesses are treated as discrete entities that are shaped by the potential customer, the dealer, and the level of competition at the time of the transaction.

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In Reeder’s case, therefore, evidence lacks to demonstrate that any favored buyer has possession of the market power, the claimed favored buyers are agents similar to discrete chain stores where selective price concessions stimulate competitions between the main suppliers of differing brands. By failing to apply Robinson Patman’s concept in such a case, then the act would continue to be construed in use of the wider policies under the antitrust laws. I feel that the verdict by the Court was therefore timely and welcome and it set a pace for a new era. The verdict of both the Juries and the Court of Appeal has also left a great lesson from Reeder’s case. In general, our brands stand protected from competitive injury through the act and Reeder’s claim was a great lesson to many business people to avoid brand competitive injury and shield others from unfair competitor’s injury.

References

Elaine, F. & Skitol, R. (2006). Volvo vs. Reeder. Narrow Holding, Broad Implications, the Antitrust Source. Web.

Kirkwood, J. (2007). The Robinson-Patman Act and Consumer Welfare: Has Volvo Reconciled Them? 30 Seattle U. L. Review, Vol. 30, p. 349, 350.

Larue, P. (1995). Robinson-Patman Act in the Twenty-First Century: Will the Morton Salt rule be retired? 48 SMU Law Review 1917.

Macavoy, C.J. (2006). Legal Aspects of Selling and Buying. In Philip, F. Zeidman ed., 3d ed.

Rodell, S. (2006). Case Comment, Antitrust Law: The Fall of the Morton Salt Rule in Secondary-Line Price Discrimination Cases, 58 Fla. L. Rev. 967, 975.

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