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Calculation of Section 2(d)/2(e) Damages

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I would like to state that damages are much easier to calculate under Sections 2(d)/2(e) than under Sections 2(a)/2(f). But the main difference is that the manufacturer loses all of its defenses except the "meeting competition" defense.

1st Step - Calculation of the Dollar Amount and Percentage of Discrimination

Basically, under Sections 2(d)/2(e), the plaintiff has to not only prove the value of what the plaintiff should have received from the manufacturer, but the plaintiff has to prove the injury (lost profits) suffered as a result. If, for example, the manufacturer gave the plaintiff's competitor a 6% advertising allowance, the plaintiff should be able to add up the total dollar amount of its purchases and calculate the dollar value of 6% (to prove the 1st of the 2 steps of proof). There are several caveats. If the favored competitor is a major retailer, it is undoubtedly purchasing its inventory directly from the manufacturer, and the 6% advertising allowance is paid for the retailer's involvement in various levels of distribution (i.e., wholesale, jobber and retail). It will be an issue of fact as to how much of the advertising allowance is applicable to the retail or jobber or wholesale level of distribution, and the plaintiff would only be entitled to so much of the 6% advertising allowance as the manufacturer made available to the levels of distribution in which the plaintiff is engaged.

More than likely, the 6% advertising allowance is provided for the retail level.

A plaintiff may wonder if the manufacturer possibly had given the 6% advertising allowance to the wholesaler from whom the plaintiff is purchasing the manufacturer's products. If this is so, is there any liability of the manufacturer? The answer: Yes. The manufacturer under the Robinson- Patman Act is not allowed avoid liability by delegating the obligation to a wholesaler to fulfill. The manufacturer remains liable, even if it gave the 6% to the plaintiff's wholesaler with strict instructions to pass the advertising allowance on to the wholesaler's retailer customers.

Another issue arises in calculating the 1st step, as to the dollar amount of sales made by the plaintiff as a "jobber" (e.g., selling auto parts to gas stations or other auto repair companies, for them to resell to the car owner) or as a "retailer" (selling goods directly to consumers for their end use). If the advertising allowance is for the retail distribution function, the plaintiff would probably have to carefully add up what purchases were resold to jobbers, and what purchases were resold through the retail function to consumers, and then claim the 6% allowance only as to the latter.

Please note that the 6% allowance is ordinarily applied to the purchase price paid to the manufacturer, which will be less than the purchase price paid by the plaintiff to its wholesaler. What appears as a 6% allowance when given to a wholesaler (paying say $10.00 for an item), becomes 4.8% when the plaintiff buys the same item from the wholesaler for $12.50.

When promotional and advertising payments are made other than on a per unit basis, such as the payment of $50,000 directly to a retailer allegedly for support in creating, printing and distributing the retailer's revised catalog, the percentage that the $50,000 payment represents of the retailer's purchases from the manufacturer needs to be calculated. First you need to know how much in total purchases were made, and how much in total payments such as the $50,000 were made to the retailer. If the retailer bought $10,000,000 throughout the 4-year period of your suit, and received $1,000,000 in various payments, services and other benefits, then you would calculate that the retailer received a promotional and advertising program having a value of 10% of the retailer's total purchases, and the plaintiff would be show that the dollar amount of the discrimination was equal to 10% of the total amount of purchases (to supply the plaintiff) made by the plaintiff's suppliers from the manufacturer.

The facts at issue in the lawsuit (as to this 1st step in proving damages) will often involve how much was paid, the value of services, the level of distribution for which the payments were made, the dollar amount paid by plaintiff's wholesaler for the inventory bought to supply the plaintiff at the appropriate level of distribution.

2nd Step - Calculation of the Damages Caused by the Discrimination

The antitrust laws are construed by the higher federal courts (and followed by the district court judges) to make it difficult for the plaintiff to win in a variety of different ways. One of them is to require that the precise dollar amount of proven discrimination be converted into an expert's opinion of how much in losses the plaintiff really suffered from the failure to receive the same price as the competitor. Let's same that the difference in price was $1,000,000. The federal courts do not allow the proof of this $1,000,000 overcharge as proof of damages. Instead, the plaintiff has to hire an "expert" who will be told that the plaintiff was overcharged $1,000,000 and what, in the expert's opinion, is the dollar amount of injury suffered by the plaintiff. Any reasonable person would say $1,000,000, but the federal courts have come up with something different, when it comes to antitrust. You have to have an expert spend a lot of time reviewing documents and trends and sales figures and costs and likelihood that customers would switch their business to the new store and write a report explaining why in the expert's opinion that plaintiff suffered damages of a different amount than $1,000,000.

This may help to explain the concept involved. Assume that a contractor to install electrical wiring in a new skyscraper was being charged $1.00 per year, and that his favored competitor was being charged only $.99 per yard. Further assume that this penny difference prevented the contractor from obtaining the contract to wire the new building at a loss of profits of $1,500,000. The discrimination of one cent per yard (times 1,000,000 yards, let's assume, or $10,000 in discrimination, cost the contractor a contractual profit of $1,500,000.

What needs to be done is to permit the plaintiff to go for the higher of the two calculations, instead of making it so difficult with the 2nd type of calculation.

In Summary

As you can see, nothing is very simple in antitrust litigation. A 2(d)/2(e) case is not like a case for failure to pay a specific borrowed amount. The result is that the defendant is going to be trying to convince the judge or jury that there was a provable dollar amount of discrimination, that this discrimination caused the loss of profits in an amount provided by an expert's opinion testimony. The defendant is going to try to prove that the plaintiff's indirect purchases were made for resale at a functional level not entitled to the payment or service, or at least not all of the payment or service, and possibly that the plaintiff never made any effort to obtain moneys under a program that the manufacturer had designed for indirect purchasers. Usually, the manufacturer makes such a program far more difficult to use (requiring too much in application and proof of expenditure before the moneys will be awarded). The courts will often hold that such programs are not available to the plaintiff and that the plaintiff should have received a specified dollar amount of advertising and promotional money (the 1st-step calculation).

The plaintiff has to prove by expert testimony (usually) that the plaintiff suffered losses by not receiving the specified dollar amount of promotional and advertising moneys. The focus will be on the loss of business to the major retailer and based on the facts, an expert will have to give his/her opinion on the dollar amount of damages suffered by the plaintiff as a result of the manufacturer's discriminatory program. It is unlikely that the legislators drafting the antitrust laws had such a convoluted damages scheme in mind.