How to Prove Your Damages in an RPA Action

How to Prove Your Damages in an RPA Action

by Attorney Carl E. Person, 11/15/99

Copyright (c) 1999 by Carl E. Person

The plaintiff in a Robinson-Patman Act ("RPA") price discrimination action has to prove its damages. The following is a summary of what to expect relating to the proof of damages:

Overall Summary

Plaintiffs, prospective plaintiffs and others want to know how to prove damages in an RPA case. This overall summary answers that important question, in several paragraphs.

[Note: you should read the Detailed Summary following this Overall Summary for a longer explanation.]

An RPA plaintiff must first prove an RPA violation (i.e., price discrimination) and that the plaintiff suffered some damage as a result of the violation. This initial proving of the fact of injury or damages will ordinarily take place through affidavits, pre-trial depositions or trial testimony of a limited number (perhaps 5-10) of the plaintiff's customers or past customers testifying that they bought certain goods from the competitor instead of plaintiff because of the difference in price and/or an affidavit, deposition or trial testimony of the plaintiff that the plaintiff lowered its price and reduced its profit margin as a result of the discriminatory price, thereby causing plaintiff damages. This establishes the fact of injury to the plaintiff, but not the dollar amount of the plaintiff's injury or damages.

The dollar amount of the plaintiff's damages are ordinarily proven through the use of an expert's testimony. An expert economist (probably a university professor) will be retained by the plaintiff's attorney. The expert will use financial and transactional information provided by the plaintiffs and obtained by the plaintiffs through discovery of the defendants and non-party witnesses (such as suppliers and manufacturers). This information should enable the expert to determine market share in the plaintiff's geographic (competitive) area during the various years at issue. The expert will then calculate the lost market share suffered by the plaintiff, in the expert's opinion, by reason of the RPA violations.

For a plaintiff no longer in business, the expert might calculate the goodwill of the plaintiff's business prior to the RPA violations and the amount of losses suffered by the plaintiff before it went out of business. The damages, with some adjustments, would be the total of the goodwill and the losses so calculated by the expert.

Generally, the plaintiff is unable to calculate its own damages and needs an expert to make the calculation, and to testify as to such "expert opinion" on the plaintiff's damages.

A typical expert report (or opinion) is perhaps 100 pages long, including numerous tables and charts assembled or prepared by the expert. At trial, the expert is first qualified as an expert and the expert's report is then offered in evidence. The defendants' attorneys will vigorously cross examine the expert on the report to try to find weaknesses, including errors, exaggeration and failure to take all material market conditions into account. The defendants will offer one or more experts of their own, who will be cross examined on their reports by the plaintiffs' attorney.

As the court stated in Davenport Grain Co. v. J. Lynch & Company, Inc., 109 F.R.D. 256 (D. Nebr. 1985):

"It is true, as argued by the plaintiffs, that in an antitrust action the plaintiff need prove only some damage resulting from the antitrust violations, and that the actual calculation of damages may be the result of experts' computations on market shares and other factors, but need not be limited to a precise calculation of damages arising from each specific event claimed to violate the antitrust laws. Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 114 n. 9 ... (1969)...."

The evidence required to prove the plaintiff's case (as to liability and damages) will be obtained by the plaintiff's attorneys in ways including the following "pre-trial" procedures:

  1. Business, tax and accounting records supplied by the plaintiff to plaintiff's counsel (and to the defendants, if requested by them);
  2. Affidavits prepared by the plaintiff's attorney for the plaintiff to review and execute describing relevant events affecting plaintiff's business (used by plaintiff to oppose any motion by defendants for summary judgment); [Note: "declarations" are generally used in the federal courts instead of "affidavits" and require no notary public.]
  3. Business and financial records, marketing analyses and data processing records supplied by defendant competitors and non-party manufacturers and suppliers during the pre-trial discovery process as requested by the plaintiff's attorney;
  4. Affidavits prepared by plaintiff's attorney for a limited number of plaintiff's customers and former customers to sign explaining that they diverted their purchases from plaintiff to defendant competitor because of lower prices and/or better services (which the defendant competitor could afford to provide because of its favored pricing arrangements with manufacturers and suppliers);
  5. Transactions between defendant competitors and plaintiff's customers and former customers obtained during pre-trial discovery from defendant competitors or pursuant to "d" above (the plaintiff's attorney will need a list of the plaintiff's most important customers and past customers for the purpose of having the defendant competitor produce or compile records showing how much such customers purchased from the defendant competitor);
  6. This same information can also be obtained directly from the plaintiff's customers and former customers through affidavit or pre-trial subpoena and deposition.
  7. Pre-trial depositions of key personnel of defendant competitors and the manufacturers and suppliers to plaintiff and plaintiff's competitors;
  8. Pre-trial affidavits and depositions of former employees or officers of the defendant competitor or the manufacturers and suppliers to plaintiff and the defendant competitor; and
  9. Marketing research performed by plaintiff's expert (such as market share of the relevant market enjoyed by plaintiff and defendant's competitors at different times during the period at issue, which the expert will use with the other evidence (paragraphs 1-8 above) to base his/her expert opinion.

Detailed Summary

The following is a detailed summary of legal concepts involved in proving damages under the RPA:

1. Purchase or Sale in Interstate Commerce Involving a Discriminatory Price.

The plaintiff must show a series of discriminatory transactions (in which the defendant competitor paid less than the plaintiff for the same type and quality of goods) and that at least one of the two purchases in each case (i.e., the purchase by the favored purchaser and/or the purchase by the disfavored purchaser) took place in interstate commerce. The RPA requires some interstate commerce and does not apply if both sides of the two transactions are within the same state, such as when the seller (manufacturer or supplier) and the two purchasers (plaintiff and the defendant) and the goods involved in the two transactions are all within the same state. The plaintiff's attorney through discovery will obtain evidence showing the extent to which the defendant competitor obtained rebates, discounts, allowances, fees, sham advertising and promotional payments, unpaid invoices, markdown money, slotting fees and allowances, "gathering allowances" and other ways in which rebates have been given to the defendant competitor and not to the plaintiff. The total of these payments will decrease the cost of the purchases made by the defendant competitor to a substantially lower price than plaintiff was paying for the same goods.

2. Plaintiff Suffered "Antitrust Injury".

The plaintiff has to prove "antitrust injury", which means "injury that flows from that which makes the defendants' acts unlawful". The RPA was enacted to prevent small businesses from losing their sales and customers to the chain stores by reason of chain store purchases at lower per unit prices. The plaintiff's loss of sales due to the defendants' acts (of inducing and/or knowingly receiving favored, discriminatory prices) is precisely the result which the RPA was enacted to prevent, which amounts to "antitrust injury". As the Supreme Court stated in Texaco, Inc. v. Hasbrouck, 496 U.S. 543 (1990):

"[U]nder <185> 4 of the Clayton Act, which is essentially a remedial statute providing treble damages to any person "who shall be injured in his business or property by reason of anything forbidden in the antitrust laws," a plaintiff must make some showing of actual injury attributable to something the antitrust laws were designed to prevent. Thus it must prove more than a violation of Section 2 (a), since such proof establishes only that injury may result. Cf. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477. Pp. 561-563."

As the Supreme Court stated earlier in J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557 at 562 (1981):

"To recover treble damages, then, a plaintiff must make some showing of actual injury attributable to something the antitrust laws were designed to prevent. Perkins v. Standard Oil Co., 395 U.S. 642, 648 (1969) (plaintiff "must, of course, be able to show a causal connection between the price discrimination in violation of the Act and the injury suffered"). It must prove more than a violation of Section 2 (a), since such proof establishes only that injury may result."

Also, in William Inglis & Sons Baking Co. v. Continental Baking Co., 942 F.2d 1332 (9th Cir. 1991), mod. on oth. grounds, 970 F.2d 639 (1992), the Ninth Circuit Court of Appeals stated:

"According to our caselaw, Inglis was able to satisfy the causation requirement by "establish[ing] that the anticompetitive activities were a material cause of some of its injury"; whether Inglis proved that Continental caused all of the claimed injury is properly an issue affecting only the amount of damages proved. Dolphin Tours, Inc. v. Pacifico Creative Service, 773 F.2d 1506, 1510 (9th Cir. 1985) (emphasis supplied); see also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 114 & n. 9, 23 L. Ed. 2d 129, 89 S. Ct. 1562 (1969) ("[The plaintiff's] burden of proving the fact of damage under section 4 of the Clayton Act is satisfied by its proof of some damage flowing from the unlawful conspiracy; inquiry beyond this minimum point goes only to the amount and not the fact of damage." (emphasis in original))."

In Stelwagon Manufacturing Company v. Tarmac Roofing Systems, Inc., 63 F.3d 1267 (3rd Cir. 1995), cert. den. 116 S. Ct. 1264 (1996), the Third Circuit Court of Appeals stated:

"[T]o recover such damages, "a plaintiff must establish cognizable injury attributable to [the] antitrust violation and some approximation of damage." J. Truett Payne, 451 U.S. at 561. In other words, a plaintiff must prove a causal connection between the price discrimination and actual damage suffered. n14 Feeser, 909 F.2d at 1539, citing Perkins v. Standard Oil Co., 395 U.S. 642, 648, 23 L. Ed. 2d 599, 89 S. Ct. 1871 (1969). Traditionally, however, antitrust plaintiffs have not been held to an unduly rigorous standard of proving antitrust injury. J. Truett Payne, 451 U.S. at 565. Because damage issues in these cases are rarely susceptible to the kind of concrete, detailed proof of injury which is available in other contexts[, t]he [Supreme] Court has repeatedly held that in the absence of more precise proof, the factfinder may "conclude as a matter of just and reasonable inference from the proof of defendants' wrongful acts and their tendency to injure plaintiffs' business, and from the evidence of the decline in prices, profits and values, not shown to be attributable to other causes, that defendants' wrongful acts had caused damage to the plaintiffs." Bigelow v. RKO Pictures, Inc., [327 U.S. 251, 264 ... (1946)]. See also Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359, 377-79 ... (1927); Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 561-566 ... (1931)."

3. "Competitive Injury" Is Presumed or Inferred.

The courts have added a further requirement for some antitrust cases: that the plaintiff also show "competitive injury". Some of the antitrust statutes were designed to protect competition, not specific competitors, and in such instances the antitrust plaintiff has to show that it suffered competitive injury. The RPA has been construed by the U.S. Supreme Court not to require this showing of "competitive injury". The Supreme Court, in Texaco, Inc. v. Hasbrouck, 496 U.S. 543 (1990) held that "competitive injury" in an RPA case not involving a functional discount would be assumed as a logical matter from the discrimination. This means that the plaintiff establishes a "prima facie" case by showing the discriminatory price, without going further to prove "competitive injury". But competitive injury may not be assumed automatically when functional discounts are involved, because functional discounts are lawful when appropriate in amount and applicable only to that level of distribution.

4. Competitor Induced or Knowingly Received Favored Prices.

The plaintiff must show that the defendant competitor "induced" or "knowingly received" the favored prices at the same approximate time and for the same type and quality of goods. See Section 2(e) of the RPA, which interacts with Section 2(a) of the RPA. The word "knowingly" also includes "constructive knowledge" in which the defendant had sufficient information so that it should have known that it was receiving favored prices.

5. Proof That the Plaintiff Was Damaged

The plaintiff proves with affidavits or deposition testimony that the plaintiff lost a number of sales or customers (perhaps 5 to 10) during the discriminatory period due to the discriminatory prices OR that through the plaintiff's own testimony (by affidavit) that the plaintiff lowered its prices and thereby sustained losses (of a lower profit margin) to compete with the defendant's favored pricing. This is proof that the plaintiff was damaged, but not the amount of the damages.

Citing Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 114 n. 9 (1969), the District Court in Davenport Grain Co. v. J. Lynch & Company, Inc., 109 F.R.D. 256 (D. Nebr. 1985) stated: "It is true, as argued by the plaintiffs, that in an antitrust action the plaintiff need prove only some damage resulting from the antitrust violations, and that the actual calculation of damages may be the result of experts' computations on market shares and other factors, but need not be limited to a precise calculation of damages arising from each specific event claimed to violate the antitrust laws."

Note: Each plaintiff should make a list of the names, addresses, telephone numbers of each customer or former customer presumably qualifying as one of the 5 to 10 persons needed as witnesses together with a paragraph stating the circumstances, including dates, prices involved, product involved, and what was said. The plaintiff's own affidavit on this will not be admitted as proof because it would be hearsay as to the defendant. The plaintiff's lawyer will obtain the needed affidavit, deposition or trial or evidentiary hearing testimony from these listed witnesses for the plaintiff.

6. Proof of the Amount of Plaintiff's Damages:

If you lost just one contract, the proof of the amount of your overall damages due to the RPA violation would be comparatively easy - the amount you lost by not getting the contract. Instead, we have to prove the amount of your losses (i.e., your "damages"), as to many thousands of transactions over an extended period of time, perhaps 7.5 years or longer. This is done through use of an expert (such as a university professor of economics). The plaintiff has to provide the selected expert with information about the plaintiff's business, including tax returns, sales, profit margins, prices, profits, product lines, etc. The expert has several choices, but often will try to show by the "yardstick method" what percentage of the relevant market you had before the discrimination (if this is possible) and what percentage of the market you had after and by reason of the discrimination. The expert can then calculate the amount of your lost profits through determining the amount of market share you lost. If a plaintiff has been driven out of business due to the price discrimination, the expert will probably calculate the value of the good will of the business (when it was operating without the effect of such discrimination) together with the lost profits, and add up these two elements as the amount of the plaintiff's claim. The courts have held that juries are permitted to base their calculation of a plaintiff's damages on the opinion of an (presumably qualified) expert, assuming that the experts' report is based on relevant information and has at least some probative value to a jury. The expert should try to take into account the various factors which have affected the plaintiff's business. The defendants will try to attack the expert's report by claiming the report has errors, is overly optimistic, has erroneous assumptions, does not take certain adverse business factors into account, and anything else which might cast some doubt on the report.

An expert is allowed some economic imagination unless it becomes a fantasy. As the Seventh Circuit Court of Appeals stated:

"(plaintiff's "expert on damages need not be armed on the right hand with a slide rule, on the left hand with a computer. He is allowed some economic imagination so long as it does not become fantasy" ). MCI Communications Corp. v. AT&T, 708 F.2d 1081 (7th Cir. 1983)."

Hypothetical markets are often the only way to prove damages. Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 175 F.3d 18 (1st Cir. 1999), cert. den. 68 U.S.L.W. 3250 (1999); and Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421 (9th Cir. 1995), cert. den. 116 S. Ct. 515 (1995).

"To estimate the fact of damage, the plaintiff-buyer must show lost sales which were diverted to the favored customer, or lost profits due to the need to reducing prices to meet those of the favored customer." i.e., must show actual injury, defendant can show other factors: poor salesmanship, inferior service or adverse market conditions. Rose Confections, Inc. v. Ambrosia Chocolate Co., 816 F.2d 381, 391-93 (8th Cir. 1987).

If a plaintiff had been forced out of business, it could recover its "going concern value". This value is determined by the value of the good will and/or the amount of the plaintiff's anticipated profits. These items of damages take into account market conditions and changes. In Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 175 F.3d 18 (1st Cir. 1999), cert. den. 68 U.S.L.W. 3250 (1999), the First Circuit Court of Appeals stated:

"The going-concern value is what a willing buyer given all available information would have paid a willing seller. See 2 P. Areeda & H. Hovenkamp, Antitrust Law Section 365b4, at 243-44 (rev. ed. 1995) (noting that going-concern value "would ordinarily be the same as anticipated future profits, capitalized and discounted to the present and also discounted for future risk" (footnotes omitted)).

In Zoslaw v. MCA Distributing Corp., 594 F. Supp. 1022 (N. D. Cal. 1984), the District Court stated:

"But WEA is mistaken in presuming that the only rationale for awarding damages for going concern value is to force defendants to give up what they have wrongfully earned. A second, and equally compelling, reason for awarding such damages is to ensure that plaintiffs are fully compensated for harm they have sustained as a result of illegal price discrimination. That rationale applies to secondary line cases as forcefully as to primary line cases, and dictates that going concern value should be available as a remedy in both types of cases. Accordingly, the court will not strike the Zoslaws' claims for money they allegedly would have been able to earn had they not been forced out of business in 1977 by price discrimination. Defendants' argument that such damages are unavailable simply is not persuasive."

7. Proof of Plaintiff's Damages by a Just and Reasonable Estimate:

The RPA plaintiff need not, and indeed ordinarily cannot, prove its damages with precision. In Rossi v. Standard Roofing, Inc., 156 F.3d 452 (3rd Cir. 1998) the Third Circuit Court of Appeals held:

"[Plaintiff's] burden of proving the fact of damage under Section 4 of the Clayton Act is satisfied by its proof of some damage flowing from the unlawful conspiracy; inquiry beyond this minimum point goes only to the amount and not the fact of damages. It is enough that the illegality is shown to be a material cause of the injury; a plaintiff need not exhaust all possible alternative sources of injury in fulfilling his burden of proving compensable injury under Section 4. Once causation is established, the jury is permitted to calculate the actual damages suffered using a " ' reasonable estimate , as long as the jury verdict is not the product of speculation or guess work.' " In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1176 (3d Cir. 1993) (citing MCI Communications Corp. v. American Tel. & Tel. Co., 708 F.2d 1081, 1161 (7th Cir. 1983)) (other citations omitted). Thus, in antitrust cases, there are ultimately two related, but distinct, inquiries to establish antitrust injury. First, the plaintiff must prove the fact of antitrust injury, as part of his prima facie case; then, he must make a showing regarding the amount of damages, in order to justify an award by the trier of fact. Concerning the former, courts apply the ordinary standard of proof, but with respect to the latter, the standard is somewhat relaxed. See In re Lower Lake Erie Iron Ore, 998 F.2d at 1176 ("the relaxed measure of proof is afforded to the amount, not the causation of loss -- the nexus between the defendant's illegal activity and the injuries suffered must be reasonably proven.") (citations omitted); see also Bigelow v. RKO Radio Pictures, 327 U.S. 251, 264-65, 90 L. Ed. 652, 66 S. Ct. 574 (1946) (holding that when the plaintiff cannot prove his damages by precise computation, the jury "may make a just and reasonable estimate of the damage based on relevant data, and render its verdict accordingly")."

In Chroma Lighting v. GTE Products Corp., 1997 U.S. App. LEXIS 6725 (9th Cir. 1997), the Ninth Circuit Court of Appeals stated:

"Sylvania argues that Von Der Ahe failed to prove the amount of antitrust damages with sufficient specificity because he did not present evidence of the actual effect of alleged discriminatory sales "transaction by transaction." Appellant's Br. at 25. However, in an antitrust action, a plaintiff must establish only a " just and reasonable" basis for estimating the amount of damages. Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264, 90 L. Ed. 652, 66 S. Ct. 574 (1946). Furthermore, a finder of fact is permitted "to act upon probable and inferential, as well as direct and positive proof" in calculating antitrust damages. Id. (quoting Story Parchment Co. v. Paterson Co., 282 U.S. 555, 561-4, 75 L. Ed. 544, 51 S. Ct. 248 (1931)). Sylvania's "transaction by transaction" method for proof of damages is contrary to this relaxed standard."

In Greater Rockford Energy & Tech. Corp. v. Shell Oil Co., 998 F.2d 391 (7th Cir. 1993), cert. den. 114 S. Ct. 1054 (1994), the Seventh Circuit Court of Appeals stated:

"The proof required to show causation of damages is greater than that required to prove the amount of damages, where a plaintiff is afforded more latitude due to the "vagaries of the marketplace." J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 566 ...."

8. Proving Damages for a Plaintiff Already Driven Out of Business

In Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 175 F.3d 18 (1st Cir. 1999), cert. den. 68 U.S.L.W. 3250 (1999), the First Circuit Court of Appeals held:

"At that trial Coastal is confined to its actual lost profits as of the date it went out of business in 1993, plus its going-concern value calculated as of that date but for CAPECO's price discrimination. This means what a willing buyer would have paid for Coastal in early April 1993. n8 We emphasize that the going-concern value is not necessarily zero. The mere fact that Coastal had never earned profit to that point does not mean it had no value as a going concern. See Heatransfer Corp., 553 F.2d at 986 n.20 ("The Court does not believe that a going concern, which is the victim of an anti-competitive practice, must forego damages for sales it would have made as the result of the natural expansion of its business simply because it was victimized early in its existence before its attempts to expand could ripen into evidence of preparedness and intent to increase its output."); Terrell v. Household Goods Carriers' Bureau, 494 F.2d 16, 23 n.12 (5th Cir. 1974) (rejecting an argument that a business that was not profitable as of the time it went out of business should be valued at zero, and commenting that "to deny recovery to a businessman who has struggled to establish a business in the face of wrongful conduct by a competitor simply because he never managed to escape from the quicksand of red ink to the dry land of profitable enterprise would make a mockery of the private antitrust remedy")."

9. Going Concern Value of a Business - Allowed as Proof in RPA Action

In DeLong Equipment Co. v. Washington Mills Electro Minerals Corp.,, 990 F.2d 1186 (11th Cir. 1993), cert. den. 114 S. Ct. 604 (1993), the Eleventh Circuit Court of Appeals stated:

"[In] Chrysler Credit Corp. v. J. Truett Payne Co., Inc., 670 F.2d 575, 582 (5th Cir.), cert. denied 459 U.S. 908, 103 S. Ct. 212, 74 L. Ed. 2d 169 (1982) (defendant entitled to directed verdict on Robinson-Patman Act claims because "self-serving and unsupported assumptions cannot sustain a calculation of going concern value. The burden of putting forth substantial evidence is not satisfied by mere speculation and guess work."). However, as we note in the discussion of the new trial motion, DeLong provided substantial evidence of the damages resulting from its loss of the distributorship and consequent loss of sales and profits, based on evidence of its past performance in the marketplace and not simply on "speculation and guess work." As the Supreme Court has noted, antitrust damages of this sort are difficult to prove, and "it does not '"come with very good grace"' for the wrongdoer to insist upon specific and certain proof of the injury which it has itself inflicted." J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 566-67, 101 S. Ct. 1923, 1929, 68 L. Ed. 2d 442 (1981)...."

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Initial Publication: 11/28/99; Last Update: 11/28/99

Copyright © 1999 by Carl E. Person