Making Sense of a Rare Robinson-Patman Act Plaintiffs’ Verdict

THE JURY VERDICT

In December 2023, following a nearly two-week long trial, the jury returned a verdict in the wholesale Plaintiffs’ favor. The jury awarded $350,000 in damages to the Plaintiffs for Medtech’s violation of Section 2(a) of the RPA stemming from (1) the favorable prices and rebates offered to membership club stores and (2) Medtech’s participation in a wholesale membership club’s DOW program. The jury also awarded the Plaintiffs $330,000 for Medtech’s violation of California’s UPA.

WHAT IS THE ROBINSON-PATMAN ACT?

1. The RPA in Brief

The RPA is a federal law that was enacted in 1936 to protect smaller retailers from larger rivals that commanded better prices from upstream sellers by leveraging superior purchasing abilities. The lawmakers who introduced the legislation that became the RPA viewed larger companies’ ability to obtain better deals as an impermissible competitive advantage that threatened small businesses. Enacted to blunt that competitive advantage, the RPA precludes sellers from offering one purchaser a better price than another purchaser for goods of “like grade and quality” sold in the same market when the effect of favoring one purchaser “may be substantially to lessen competition” between the purchasers.

In RPA parlance, favoring one purchaser over another – by, for example, offering lower prices or exclusive, favorable rebates – is known as “price discrimination.”

Unlike other antitrust laws, the RPA does not require plaintiffs to show an adverse effect on competition generally. Instead, RPA plaintiffs merely need to show harm to competition between them (the disfavored purchaser) and a competitor (the favored purchaser) that received better prices as a result of price discrimination.

Section 2(a) of the RPA precludes sellers from charging different prices to two competing buyers for “commodities of like grade and quality” where it is likely to create an adverse effect on competition. Section 2(d) “makes it unlawful for a manufacturer to discriminate in favor of one purchaser by making ‘payment[s]’ to that purchaser ‘in connection with the … sale, or offering for sale of any products … unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products.” U.S. Wholesale Outlet & Distribution, Inc. v. Innovation Ventures, LLC, 74 F.4th 960, 966 (9th Cir. 2023) (quoting 15 U.S.C. § 13(d)).

The RPA does not forbid all pricing differences. Among other statutory defenses, it allows some price discrimination when a lower price is needed to “meet competition” from another seller or when lower pricing is made available to other purchasers (but those purchasers do not do what is necessary to access it).

MOTION FOR A NEW TRIAL

In February 2024, following the jury verdict discussed above, Medtech filed a motion for a new trial pursuant to Federal Rule of Civil Procedure 59. In its motion, Medtech argued that the court erred by (1) “omitting the word ‘substantial’ from jury instructions on the requirement that a price discrimination harm competition; (2) excluding Defendants’ proposed instruction on de minimis lost sales or lost customers; (3) erroneously instructing the jury on the functional discount defense; and (4) finding that Volvo Trucks N. Am, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006), did not apply[.]”

1. “Substantial” Harm

The Defendants argued that the court erred by failing to instruct the jury that the Plaintiffs needed to demonstrate substantial harm to competition to prevail. Section 2(a) of the RPA provides that:

“It shall be unlawful for any person … to discriminate in price between different purchasers of commodities … where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them[.]” 15 U.S.C. § 13(a) (emphasis added).

The court acknowledged that “although the word ‘substantially’ appears in the text of the statute, it was not clear whether Congress intended the word ‘substantially’ also to modify the phrase ‘to injure, destroy, or prevent competition,’ which was added after amendment to the Sherman Act.” After discussing cases interpreting the RPA, the court held that “controlling authority suggests that Section 2(a) does not require a showing of substantial harm to competition in secondary-line cases” and rejected the Defendants’ argument on this point. Specifically, the court noted that the word “substantial” was absent from the US Court of Appeals for the Ninth Circuit’s (Ninth Circuit) decision in U.S. Wholesale Outlet & Dist., Inc. v. Innovation Ventures, LLC, 89 F.4th 1126, 1134 (9th Cir. 2023), which required plaintiffs to demonstrate that “the effect of such discrimination may be to injure, destroy, or prevent competition to the advantage of a favored purchaser” to prove a Section 2(a) violation.

2. De Minimis Loss in Sales or Customers

The court similarly rejected the Defendants’ argument that it erred by declining to instruct the jury that de minimis lost sales or lost customers does not result in RPA liability. In 2015, the Defendants noted, the US Court of Appeals for the Second Circuit dismissed an RPA case because the “plaintiffs could not generate evidence tending to show that they lost more than a de minimis number of customers to the favored purchasers, indicating that competition was not substantially harmed or threatened by the price difference in question.” Cash & Henderson Drugs, Inc. v. Johnson & Johnson, 799 F.3d 202, 210 (2d Cir. 2015). Here, however, the court noted that “the Ninth Circuit has previously determined … that even a de minimis impact on competition is sufficient” to violate the RPA. For example, in Chroma Lighting v. GTE Products Corp., 111 F.3d 137, 1997 WL 175062, at *2 (9th Cir. 1997), the Ninth Circuit held that “15 specific examples of lost sales and profits, in conjunction with testimony from several customers stating that they switched to [the Favored Purchasers] because of the price difference” was sufficient to prove competitive injury.

3. Functional Discounts Defense

The Defendants further argued that the court erred in instructing the jury on the so-called “functional discount” defense. The US Supreme Court has held that a seller may provide a functional discount to a purchaser without violating Section (a). A functional discount is a “reasonable reimbursement” made to a purchaser to compensate that purchaser for performing a service for the seller. The service may include, for example, marketing services provided by the purchaser for the seller. The functional discount defense requires only a “reasonable,” not an “exact,” relationship between the services performed and discount provided, and it is the plaintiff’s burden to demonstrate that alleged price discrimination was not the result of a functional discount.

While a successful invocation of the functional discount defense does not require mathematical certainty, the US Supreme Court has noted that the functional discount defense does not “countenance a functional discount completely untethered to either the supplier’s savings or the wholesaler’s costs.” Texaco Inc. v. Hasbrouck, 496 U.S. 543, 563 (1990).

The Defendants here argued that the “[jury] instructions failed to convey that functional discounts served as a complete defense to the Section 2(a) claim” because, in part, of “the Court’s characterization of functional discounts as a ‘concept’ … rather than a defense.”

The court rejected this argument, holding that “no reasonable reading of the [jury] instructions, taken as a whole, would permit the jury to come to an erroneous understanding of the functional discount defense.” One instruction provided that “‘[i]f you find that the differences in prices here were functional discounts, then any discriminatory pricing did not have a reasonable possibility of harming competition’ and another provided that ‘[i]f you find that the evidence is insufficient to prove any one or more of these elements, then you must find for the Defendants and against the Plaintiff on that Plaintiff’s claim under the Robinson-Patman Act.’” “Taken together, [the instructions] made clear that Plaintiffs’ failure to prove that the price differences were not justified as a functional discount foreclosed Defendants’ liability for the Section 2(a) claim,” the court held.

The Defendants’ similar arguments regarding the court’s treatment of the functional discount defense in its response to a jury note and the verdict form provided to the jury were also rejected in light of the unambiguous jury instructions.

4. Application of Volvo

Finally, the Defendants argued that the court erred in declining to instruct the jury on the applicability of the last US Supreme Court case addressing the RPA, Volvo Trucks N. Am, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006), in which the court held that the RPA was not violated because the allegedly favored and disfavored purchasers were not “in competition” with one another. Because, in the court’s view, Volvo was not factually similar to the Clear Eyes price discrimination at issue, any jury instruction on Volvo would have been inappropriate.

In Volvo, certain dealers – the beneficiaries of Volvo’s alleged price discrimination – “received discounts from Volvo only after they were invited to bid on projects by their retail customers.” The “bidding process [in Volvo] did not fall under the typical ‘chainstore paradigm’ where the favored purchaser is a chainstore or large department store.” The court rejected the Defendants’ arguments that a wholesale retail club offering its own discount program or “[the wholesale membership club] act[ing] like a broker for Defendants by assisting with high-volume sales of Clear Eyes” removed the case from the traditional “chainstore paradigm” and placed it in a factual scenario similar to Volvo.

The court held that, unlike the dealers in Volvo, the Plaintiffs were in competition with the favored wholesale price clubs for customers within the meaning of the RPA. In support of its conclusion, the court cited a test recently articulated by the Ninth Circuit. “[T]o establish that ‘two customers are in general competition,’ it is ‘sufficient’ to prove that: (1) one customer has outlets in ‘geographical proximity’ to those of the other; (2) the two customers ‘purchased goods of the same grade and quality from the seller within approximately the same period of time’; and (3) the two customers are operating ‘on a particular functional level such as wholesaling or retailing.’” U.S. Wholesale Outlet & Distribution, Inc. v. Innovation Ventures, LLC, 74 F.4th 960, 973 (9th Cir. 2023) (quoting Tri-Valley Packing Ass’n v. FTC, 329 F.2d 694, 708 (9th Cir. 1964)).

Relying on U.S. Wholesale Outlet & Distribution, Inc., the court concluded, any “potential operational differences” between the Plaintiffs and the favored wholesale price clubs did not remove this case from the traditional chain store paradigm and place the Defendants beyond the reach of the RPA.

PERMANENT INJUNCTION MOTION

The Plaintiffs sought injunctive relief. Acknowledging the “burdensome” impact on the Defendants, the court granted the majority of provisions requested by the Plaintiffs, including requiring that the Defendants:

• Allow the Plaintiffs to carry and purchase Clear Eyes “on the same price and terms and conditions” on which the Defendants sell Clear Eyes to respective competing large wholesale membership clubs, “including the availability of any discounts, billback, rebates … or other terms that impact the net price” paid by competing clubs;
• Allow the Plaintiffs to “participate, on proportionally equal terms” in all promotional programs and payments . . . in connection with the handling, sale, or offering for sale of Clear Eyes” that the Defendants make available to other large wholesale membership clubs; and
• Submit a semiannual report for five years to the Plaintiffs’ counsel stating the list price the Defendants are then charging to competing large wholesale membership clubs, and the effective date of any increase or decrease in price, “along with an itemization and summary of any discounts, rebates, promotional terms, or other payments” that the Defendants make to respective competing large wholesale member clubs.

With this said, the court did deny one of the Plaintiffs’ requests relating to “most favored nation” guarantees during supply chain shortages, finding the request “goes far beyond curing the effects of the illegal conduct at issue in this action[.]” That denial was consistent with other case law finding that the RPA does not dictate how manufacturers allocate products when supplies are tight.

Injunctive relief is highly uncommon in RPA cases but not novel. For example, more than 20 years ago, the Federal Trade Commission (FTC) entered into a consent order, including injunctive remedies, with a major spice manufacturer found to be in violation of the RPA. That order required the seller to document all information on which it based its “meeting competition” defense under Section 2(b) of the Act for a period of 10 years. In other cases, courts have regarded monetary damages as adequate in RPA cases because losing defendants tend to alter their pricing practices to protect against future liability and avoid serial lawsuits.

IMPLICATIONS

Though this rare RPA plaintiffs’ verdict came in a private lawsuit, it may embolden the FTC to double down on its attempts to revive the RPA, including seeking injunctions. All members of the supply chain for goods should be aware of both the potential for similar, private civil actions and the possibility of expanded FTC investigations and litigation.

The outcome of L.A. International is likely most instructive for companies that sell things resold to small businesses via club stores. However, the FTC’s stated interest in bringing RPA cases in a variety of industries suggests that any business serving multiple retail channels via heterogeneous pricing and trade strategies may learn from the decision.

In 2022, the FTC released a policy statement stating that the RPA was one of multiple tools in its arsenal to challenge allegedly anticompetitive rebate and fee agreements offered by prescription drug manufacturers. Then, in January 2023, the FTC opened a confidential investigation into two of the nation’s largest soft drink manufacturers, focused on alleged price discrimination in the United States’ soft drink market. In the summer of 2023, the FTC expanded its efforts once again through a Civil Investigative Demand issued to a major wine and spirits distributor.

Moreover, the Plaintiffs’ win in this case comes just a month after FTC Commissioner Alvaro Bedoya’s remarks at the American Bar Association Antitrust Law Section’s annual meeting about agency interest in filing cases under this long-dormant statute and bringing the RPA “car out of the garage.” With recent precedent on the books, the FTC may finally be poised to hit the gas.

McDermott’s Antitrust & Competition Group advises businesses on how to prepare for, respond to, and avoid investigations and private litigation.

Summer Associates Phoebe Flint and Dillon Johnson contributed to the development of this On the Subject.