The purpose of this 2003 RPA update is to explain a major and ever-increasing national business scandal which is about 1,000 times more important to the economy and nation than the Enron scandal (which of course is the reason that the nation's monopolized press reports on the Enron scandal and not the RPA-violation scandal):
Recent RPA litigation (2000-2003) and a trial (2003) has have enabled me to put together the well-kept business secrets which have enabled major retailers to push traditional wholesalers, warehouse distributors, jobbers and smaller retailers out of business, without such victimized businesses being aware of how this has been occurring.
Among the victims are the nation's (even many of the world's largest) manufacturers, but they are afraid to resist what is happening for reasons to be discussed. For further information, see Why Most Large Retailers, Wholesalers and Manufacturers Are Violating the RPA and Discriminating against Small Retailers.
For reasons discussed elsewhere in this RPA website, government agencies and officials have abandoned their duty and have given major retailers the freedom to continue their destruction of American business, including manufacturing, distribution and retail, with resulting and predictable losses of employment, increased reliance on manufacturing and service-outsourcing to low-wage foreign countries, change from a manufacturing and high-tech economy to a final-stage service economy, reduction in wages, decline in standard of living, loss of political and civil rights, related increase in wealth of the favored few who benefit from the nation's economic policies, and race to dismantling (and transferring to the wealthy) the advantages which made the United States great for its people and the rest of the world. For further discussion, see Role of Justice Dept. and FTC in RPA Enforcement.
The secrets I have uncovered, and which now can be revealed, is that the major retailers are paying for their inventory about 1/2 as much as is being paid by the competing distribution systems. In other words, a tire, book or auto-part manufacturer is selling to a major retailer at a effective discount of about 66% from a suggested retail or jobber price per unit while it is selling to a competing wholesaler (which resells to jobbers or retailers) for an effective discount of about 33% per unit. Thus, an item with a suggested retail price of $10.00 would be sold to a major retailer for $3.34 (a 66% discount from the suggested retail price) whereas a competing wholesaler would be paying $6.67 for the same item (an effective discount of only 33%).
The "effective price" for major retailers is not found anywhere, and in fact is never calculated or even known to any of the manufacturers or favored purchasers, because of the complexities involved in calculating the price to favored, major retailers. There are more than 100 elements which make up the price and many of them depend on placing a value on the contractual relationship between manufacturer and favored purchaser.
The disfavored (or "traditional") purchaser (generally, a "wholesaler" or "warehouse distributor" who buys from the manufacturer and resells the products to jobbers, who resell to retailers, or resells directly to retailers) does not have a similar contractual relationshp with the manufacturer and has far fewer elements of cost which make up the disfavored purchaser's effective price. Thus, the disfavored wholesaler's purchase price per unit is often readily calculable.
The major retailer (i.e., the "favored purchaser"), uses its volume to demand and obtain favored contractual terms with the manufacturers, each of which terms costs the manufacturer money, and saves huge amounts of money for the retailer, which effectively and substantially increases the manufacturer's costs to serve the favored retailer, and substantially decreases the favored purchaser's costs, and enables the favored retailer to offer the goods at substantially lower retail prices and substantially higher profitgs, but at the expense of the manufacturer, which is not in a position to provide the same benefit to the manufacturer's traditional customers.
The traditional (i.e., disfavored) purchasers from the manufacturers are not aware of this disparity in effective price and continue to try to compete by reducing their price (and profit margin) to try to keep their customers (but not able to obtain the profit margin needed to pay expenses), by cutting expenses such as advertising, salaries, pension plans, health plans, number of employees (which in the long run prevents competition and drives the business out of business through attrition, i.e., the loss of business caused by reduction of the categories of expense needed to remain competitive).
As it stands right now, the nation's smaller and independent wholesalers, jobbers and retailers cannot survive, but most (99.9%) of them do not realize this, and they are like the nation's farming community 20 years ago, who knew that something was wrong but didn't know what to do, and now 20 years later no longer exist. The individual farmers undoubtedly believed that someone, somewhere was going to save them and did nothing to save himself/herself. In fact, nobody did anything and the farmers, one by one, lost their farms by foreclosure, bankruptcy and sale at distress prices to the larger farming interests. The same thing is happening to our nation's independent and smaller businesses, but they do not have the institutions set up to warn them about this or tell them what they can do.
First of all, let me define what I mean by "Independents". I use this term to refer to all wholesale, warehouse, jobber and retail businesses which are not part of the major retail distribution systems. The term is not with fixed meaning. A major retailer such as Kmart, Ames, Woolworth and Bradley's can become an "Independent" without being aware of the change. I use "Independent" to refer to the distribution victims of the nation's major retailers, and thus includes most traditional wholesalers (or warehouse distributors), 2-step wholesalers (purchasing directly from manufacturers and selling direct to consumers or users), jobbers, retailers, smaller retail chains, large retail chains (such as Kmart and Woolworth) which were unable to extract as low a per-unit price as the leading major retailers in their industry.
Thus, we see that the lowers are everyone but the major retail chains which obtain the lowest per-unit price.
The RPA prohibits favored pricing because it was enacted to prevent the destruction of competition and businesses in such way, but because of the government's failure to enforce the RPA, the RPA has become of decreased importance in preventing price discrimination, which has resulted in the growth of major retailers, and destruction of independent competition.
The institutions which Independents rely upon for protection or at least information are:
These listed institutions have obviously failed to do their expected job, for reasons which are obvious when you think about it. The political system has been purchased by the major financial interests, resulting in a crippling or elimination of the discussions and warnings about the prevailing business practices which could have generated organized opposition.
The wealthy business interests have purchased Congress and our elected officials lock, stock and barrel, so that you can expect no help from the political sector.
Because the political sector has been bought off, mergers, acquisitions, consolidations and losses of independent businesses have been taking place for the past 30 years without interruption, resulting in a loss of independent publishers of magazines, newspapers, books and industry journals, so that the ones which remain pretty much parrot the party line because they want to remain in business as long as they can before succumbing to the inevitable. The inevitable to any presently surviving business is going out of business when the large retail interests finally put them out of business. For example, when most book sales in the U.S. are done through one major retailer, who needs an industry journal (Publishers Weekly) as a medium for book publishers to advertise to retailers. Thus, PW and other industry publications can't survive in the long run, except as a house organ for the prevailing major retailer.
Trade associations also have failed their members because many trade associations are run as businesses, with professional managers making sure they don't take sides on any important issues because of the effect this might have on membership fees. The result is that the large retailers dominate the agenda of these trade associations while the independents are led to believe (falsely, in many cases) that they have a trade association looking out for them. For further information, see Many Trade Associations Are Indifferent or Adverse.
With nobody looking out for the independents, the results we see today are entirely predictable.
But the question today for any specific independent businessperson (and now I include smaller manufacturers in this definition) is what you, the individual, can do about your situation?
The answer is clear to me, and I have thought about this for the past 20 years or so. Let me tell you what the answer is.
The truth is hard to believe. But the known facts make it painfully evident. The nation's (and even world's) major manufacturers are paying the nation's largest retailers to expand their retail operations by setting up many tens of thousands of new stores, to put existing, traditional, independent wholesalers, jobbers and retailers out of business -- all paid for by these manufacturers, in violation of the Robinson-Patman Act.
Anyone owning, selling to or buying (for resale) from any of these traditional distribution businesses understands what I am referring to. There is a steady increase in the inability of these traditional businesses to compete against the ever-growing major retail chain stores.
Even the nation's wholesalers and their trade organizations are alarmed and trying to figure out what to do, before the nation's wholesalers become extinct and their trade associations fail for lack of membership.
Nobody has put any of this into any mass-market publication, whether newspaper, magazine or book, so that what I'm saying here is not commonly known or even available for anyone interested.
It took years of effort for the undersigned attorney working in the area of private RPA enforcement (actually, a redundancy, because there is no goverment enforcement of the RPA) to finally understand what has been happening for the past 30 years - starting with the Nixon administration.
What is happening is this: the nation's largest retail chains are demanding and getting huge price breaks allowing the retailer to buy their goods (after all rebates, fees, allowances, payments, services, privileges, contractual provisions, and sweetheart dealings are taken into account) at a discount of about 100% more than the discount given to the wholesalers in the competing traditional distribution system (consisting of 2-step or 3-step wholesalers, jobbers and retailers).
The manufacturers are giving these low prices under enormous pressure from the major retailers, who can and do threaten to take their purchasing power to a competitor if the demanded terms are not met. The manufacturer recognizes that it is in trouble either way, and goes along for the ride because it is f...ed either way. If it doesn't give the retailer the unlawfully low price, the retailer will switch the purchases to the manufacturer's competitor, which would cause the first manufacturer a loss of up to 50% of the affected product lines. If the first manufacturer caves in, it will lose anyway, but over a longer period. The loss will be of its profitable, traditional wholesaler customers who will be put out of business by the unlawfully low prices which the manufacturer is forced to give to its major retailer customers. The manufacturer's only hope is to be able to raise prices from time to time and hope that the retailer doesn't act too fast in demanding the benefits of such price increases by demanding and obtaining even lower prices, which accelerates the process of (a) putting the manufacturer's profitable, traditional wholesaler customers out of business; and (b) draining the manufacturer of its net worth and putting the manufacturer out of business, and enabling the major retailer to pick up the manufacturer's goodwill and valuable brands (trademarks) for pennies in a bankruptcy proceeding).
The only reason this is occurring now, and not back in the mid 1970's or earlier, is that the United States government and its agencies no longer enforce the Robinson-Patman Act, and the major retail corporations are taking advantage of this national asset giveaway (i.e., the giving away of the nation's manufacturing net worth, and the stealing of the business, profits and assets of the nation's traditional distribution systems), and becoming larger and larger, while their competitors are being put out of business - while the U.S. government elected and appointed officials are playing their fiddles (while modern-day Rome is burning).
The nation's major retailers are using the lower prices to expand their retail operations and as they expand, by opening up new stores around their hapless traditional-distribution victims (i.e., the traditional retailers and jobbers), the traditional distribution systems lose their retail sales and, predictably, the retailers, then the jobbers, then the wholesalers go out of business, with the major retailers acquiring their business, customers, profits and assets at no cost - all paid for by the illegal prices the major retailers are receiving from the nation's and world's major manufacturers.
Now that you have learned what's going on, you might be tempted to say, "Of course, I've known that this has been going on for years." The problem is that nobody really saw the whole picture, and more importantly nobody described the whole picture for anyone to deal with the problem intelligently.
Most commentators have referred to this phenomenon as "more efficient" business practices by the major retail chains. Actually, what the major retail chains (in concert with the victimized manufacturers who for the most part are only now realizing they are the victims as well) are doing is similar to robbing many small banks (i.e., the traditional wholesale, jobber, retail businesses in the United States) and claiming the spoils of such robberies as ordinary income (and "more efficient" business practices), when in fact bank robberies normally result in prison sentences in countries where bank robberies of this type are prohibited.
Although the government agencies have been immunized by judicious distribution of a very small part of the bank-robbery spoils, to ensure reelection of the persons who make these continuing robberies possible, there is a remedy of private relief through a private lawsuit to enforce the Robinson-Patman Act.
Most businesses (roughly 99,999 out of 100,000) figure out that they would rather reduce their profit margins to try to retain their customers at a cost of perhaps $200,000 to $2,000,000 per year, more or less, than to spend $50,000 to $250,000 to go into court against the major retailers and/or the manufacturers and recover millions of dollars in damages for violation of the RPA.
Too many of the traditional distributors have paid the ultimate price for this decision, and will continue to do so until they learn that the Courts are there to assist them in recovering part of the losses they have incurred through these continuing and accelerating violations of the RPA.
You undoubtedly wonder why the nation's and world's leading manufacturers are participating in activities which result in the destruction of their profitable customers (i.e., the traditional distribution system consisting of independent wholesalers, jobbers and retailers), themselves, and the American economy and political system.
This is like asking a bank robber who has a $1,000 on deposit in a bank why he would want to steal $1,000,000 from the bank in which he has the deposit. An obvious answer is that the robber loses nothing even if he steals his own money (and even if the theft caused the bank to fail and assuming there was no insurance, the robber would be $999,000 ahead of the game). Another more appropriate answer is that as long as the bank robber's competitors are robbing banks and getting away with it he might as well do so too, because it will be more profitable for him in the short run, and nobody seems to be worrying about the long run.
Corporate officers, managers, shareholders, professional investors, and analysts are all geared to robbing the bank in the short run, and make more money pushing the short run than they think they would if they geared themselves to the long run, 10 or 20 years away from now. Thus, there is some validity to the practice of "Take what you can get now, particularly when you're not sure if the company is going to be here 5 years from now."
By our elected officials making it known to the largest companies that there are no enforceable rules to be followed, the largest companies do whatever they need to do to maximize their own profits, at the expense of all others, and violating various (non-enforced) laws along the way, which results in destruction of competition and the constant growth of the largest law-breaking companies. You see what's happening, with near impunity: the largest companies pay little if anything in taxes (leaving the payment of taxes to you and me); the top officers of the largest companies take $100's of millions in excessive salaries, even while their company is going broke (of course, which is the contributing reason why the company is going broke); there is no government agency trying to stop any of this grand theft, until somebody cashes in for more than several billion dollars, and then the slow wheels of justice grind away to take a few dollars and several years away from the corporate thieves to make a supposed showing to you and me that there is justice after all and that it really doesn't pay to steal billions of dollars from the public; the mergers continue and provide billions of dollars to the corporate shareholders, officers, investment bankers, lawyers and accounting firms which are responsible for getting rid of American jobs to pay for these corporate shenanigans, which in the end usually seem to wind up in disaster for all except the thieves (as you can well predict by now). Politicians wait their turn at the end of the trough to pick up the crumbs which are thrown to them by the thieves, which I estimate to be about $10 for every $1,000,000 stolen by the thieves. In other words, for a "contribution" of $10,000, a thief can expect to be allowed to steal from the public about $1 billion. Maybe I'm wrong, and the amount is closer to $100 million per $10,000 "contribution". But the prospects for enormous profit are with the wrongdoers as long as they pay off the watchdogs by giving them the money to run for and obtain office and do nothing thereafter.
Manufacturers are aware that there are no government agencies or officials attempting to enforce the antitrust laws, including (especially) the Robinson-Patman Act, which encourages them to discriminate in price when required to do so by their largest customers.
The largest customers make increased demands upon their vendor manufacturers to give even more discriminatory prices and benefits to the largest customers, thereby making it less possible for the manufacturers to give equal pricing to the independent competing purchasers. The manufacturers don't want to lose the business they have with the major retailers (even though it is unprofitable if one took the time to add up all the costs) because nobody is requiring manufacturers to add up these costs, and the manufacturer's officers, managers, shareholders, investors, banks, analysts and others are looking only at short-term results (for which they obtain excessive compensation) and not the long-term results (for which everyone pays later, and not those who took their money early).
So, milking companies in the short run and leaving them when they go broke is a more profitable activity for the persons running major companies than the investors, cities, states and towns, employees, property owners, taxpayers and others who depend upon the continued well-being of corporations but have little input through their elected officials to require the corporations to adhere to the law. Take a look at the companies going in and out of bankruptcy. Many of them have no hope of competing with Wal-Mart, but they don't tell the public that, and are used one more time to give hundreds of millions of dollars to their controlling officers and allies instead of returning the corporate assets to the owners.
Thus, there is a breakdown of law enforcement and a rush to grab as much market share (and current commissions and incentives) as possible, even though the overall system suffers, together with the communities, employees, taxpayers, standard of living, economic system and political system. The owners of the corporations which are doing this are not necessarily United States citizens. They view themselves as citizens of the world, ready to shaft any group of citizens in any country of the world to maximize their corporate profits, knowing that the shafted citizens can do nothing about it as a group.
The only hope for shafted persons which I see at this time is to bring a suit for damages under the Robinson-Patman Act, which (believe it or not) does have a lot more impact and prospects for success than the efforts of independents in competing in the marketplace against the major retailers.
There are various things you can do in light of what we now know. Here they are:
It is not surprising that my real remedy for independents is to commence an RPA action to recover for its damages (during the past 4-year period).
What should be surprising information to the reader is that RPA lawsuits actually work. I'm not at liberty to discuss in this article all the facts which support my conclusion, but I am willing to talk about these non-public facts privately, to individual persons who call for additional information.
Clearly, the remedy for many independents is to commence a lawsuit for relief as soon as possible.
These lawsuits have the effect of making violation of the RPA less profitable to the retailers and cooperating (even victimized) manufacturers, and encourage the manufacturers to provide better prices to independents.
If enough independents sue before it is too late, the problem will be solved, but in the meantime the independents who sue will be the relative winners, and the independents who do not sue will be the relative losers.
You should know that in the long run your major retailer competitors cannot survive independent competition if there is a level playing field (with every competitor receiving the same per unit price and same promotional and advertising programs). I'm adding "same promotional and advertising programs" because the manufacturers are using discriminatory programs with the major retailers to lower their per unit price, and the legal attack must not forget to include these discriminatory promotional and advertising programs. When such programs are designed by the manufacturer and major retailer most carefully, they can result in no liablity of the major retailer for creating and receiving such discriminatory program payments, while the independent competitor is left with the choice of suing its supplier (the manufacturer) or doing nothing and allowing the favored major-retailer competitor get the lower effective price.
Thus, you may have to come to grips with the problem of whether you want to sue one or more manufacturers. You could do this through an RPA-oriented trade association such as the Coalition (which to date has never sued a manufacturer, I should add), and seek only injunctive relief, or you could do this directly yourself, for monetary damages and injunctive relief, but at the risk of losing the manufacturer as your supplier.
To the extent you sell your business (and reserve the right to sue in your agreement of sale) or go out of business, your options get better. You can sue your manufacturers without fear of reprisals (unless you want to obtain a job at a major retailer). Once you are out of business, you no longer have to worry about losing your supplier-manufacturer.
As an aside, if you go into bankruptcy, your major creditors will be the manufacturers you would like to sue, but they will be dominant among your creditors on the creditors' committee and presumably be unwilling to give approval to having an action brought against themselves. So, this means that you should not go into bankruptcy, but plan your affairs to avoid bankruptcy, and to leave business in a way which enables you to bring suit.
RPA suits can and should be settled, which is a major reason you should think of commencing such a suit to recover some of your damages. Settlement will seldom if ever obtain full recovery for any aggrieved plaintiff, but what do you care if it produces for you a check for $250,000 or $1,000,000 or more. Any settlement would be in proportion to your losses, which of course is proportionate to the size of your business. A large wholesaler can expect to recover substantially more than a small wholesaler.
A business which does not buy directly from a manufacturer will not be able to commence an RPA action for monetary damages (in absence of commercial bribery allegations), but could sue for injunctive relief. It seems to me that there is little reason for a single jobber (who does not buy directly) to sue for injunctive relief unless the jobber joins with other jobbers, and even then I would question whether such suit might not be brought more easily through a trade association, which can give some protection from reprisal to its members. Some additional information is contained at Liability: Easier to Prove Than the Amount of RPA Damages and How to Prove Damages in an RPA Action.
Do not expect any relief other than what you try to obtain for yourself. The normal channels of relief have been immunized by your competitors (including government agencies, government officials, universities, newspapers, magazines, book publishers, the leading industry publications). Your only hope is to bring pressure for change through level-playing-field type organizations, and for more immediate relief to commence one or more lawsuits to recover damages for yourself, individually. [Incidentally, the courts were designed to provide relief in our system for the oppressed, as an institution which is less apt to be dominated (or as dominated) by the persons holding the overall power in our society.] Group lawsuits for damages have advantages and disadvantages, and an individual willing to commence and finance a lawsuit on its own may have a better chance of obtaining meaningful damages than being part of a large group put together to reduce the individual costs of litigation. I envision that I can be of help in this type of litigation by working with the plaintiff's local litigation law firm and lending my knowledge and experience in the Robinson-Patman Act and RPA litigation, as well as accumulated experience in various industries having RPA problems (such as auto parts, tires, beverages, books, magazines, and other consumer-product areas). But the large group of plaintiffs does give an entire industry a wake-up call at an affordable cost per plaintiff and will tend to cover its own costs if not show a monetary return.
To reiterate, it seems that the only reasonable policy for most disfavored businesses which buy directly from manufacturers is to sue the manufacturers and/or the favored major-retail competitors, and to do so as soon as possible, and as often as possible. In this way you will be able to obtain a lower price per unit (through settlements) and be able to bring pressure on the manufacturers to provide a more level playing field to all purchasers, including yourself.
Banks sue when you don't pay them. Landlords sue for unpaid rent and eviction. Wal-Mart has sued Mastercard and Visa for stifling lower-cost use of debit cards. Disney and Universal sue for infringement of their copyrights. And you have little or no excuse for not suing to enforce your rights under the Robinson-Patman Act. If you don't sue, nobody is going to come to your direct aid, and you will be waiting for the "tide which raises all ships" (or something like that, which is how the masses are conned into waiting for their share while the rich get richer and richer through the existing unlevel playing field).
If you have any questions, please give me (attorney Carl E. Person) a call, at 212-307-4444; or email or fax your questions to me at email@example.com or 212-307-0247. I look forward to hearing from you and answering any questions you may have concerning your RPA problems or the current RPA litigation.
What is needed is clear, which is a return to published price lists and a level playing field, with everyone being able to purchase the same products at the same per-unit prices, in accordance with the volume being purchased.
What must be eliminated are the individual agreements which manufacturers are coerced into signing with the major retailers which contain about 100 elements of price which effectively give the favored retailers an effective discount of about twice the discount being given to the wholesalers purchasing for the smaller, competing, independent retailers.
The written agreements actually create a transfer of the net worth of the manufacturer to the major retailer, without the manufacturer being aware of such effect, or more probably with the officers of the manufacturer not caring too much because the officers are in it for short-run compensation based on short-run sales objectives and stock-market prices for the manufacturer and its securities, so that the officers don't mind giving away the store (i.e., the manufacturers' net worth) as long as the officers get their compensation before they are fired and some other group of officers take over to do the same thing. Actually, officers seem to have no more honesty or patriosm than our nation's elected officials, who in the short run sell out the country for the few dollars needed to finance their re-election.
I have maintained for years that elected officials should be compensated based on the financial health of the country (say, give the politicians a pot to divide up equal to 1% of the economic growth of the economy as affecting the non-wealthy citizens, including employees, retired persons, the young and the infirm), which would create a wholly different orientation for politicians, to try to benefit voters instead of shafting them whenever possible.
WHen the government was enforcing the RPA during the early 1970's and before, published price lists were in use and everyone knew where they stood as to price. Of course, there were various specials which were given to larger customers more than to smaller customers, and there were discriminatory advertising and marketing programs, but these discriminatory features were handled through vigorous enforcement by the FTC and through private litigation, and were not that much of a problem, as companies know which survived 30 to 50 years of vigorous competition, only to fall victim during the past few years to the DNA Code and lack of industry-wide, published price lists.
Accordingly, anyone commencing an action under the RPA should seek relief to prohibit the DNA Code through requests for injunctive relief prohibiting the DNA Code and private agreements between major retailers and manufacturers, and limit the major retailers to making their purchases only from published, industry-wide price lists which are available to all competitors, and which contain appropriate volume discounts for those purchasers which qualify for them.
This objective must be obtained because if it is not, there is no hope for survival of independent competitors except by converting their business into something which avoids competition with the major retailers (which only develops the market for them and which they will take over in due course, thereby requiring the independent competitor to keep looking for, developing and then leaving new markets).
Everyone for good reason should be leary about commencing litigation, or for that matter being a defendant in litigation. Thus, to start out, a company injured by price discrimination will have the same distaste for litigation as the companies which should be sued.
The big difference is that the competitor major retailers which should be sued are making perhaps tens or hundreds of millions of dollars or more per year through violation of the Robinson-Patman Act, and there economic interest is to keep violating the RPA as long as there are no prospects for criminal penalties or any lawsuits which could reasonably result in liability and costs in excess of the illegal profits being obtained through violation of the RPA.
The injured competitors have a different economic analysis. They are suffering financially and cannot afford litigation, particularly because litigation is unlike investing in real estate, where the profit potential is often fairly ascertainable. Instead, litigation can be won or lost, and the amount of a win can sometimes be far less than deserved.
Nevertheless, when comparing the estimated cost of RPA litigation to the reasonable prospects for recovery, it is clear that RPA litigation can be highly justified. The factors which need to be analyzed include: (i) the amount of damages which can be proven; (ii) the extent to which the plaintiff's attorney is working on a contingent-fee basis and the hourly rate or other payment for the non-contingent attorney's fees; (iii) the state of the plaintiff's records, including hard copy and data processing; (iv) a litigation plan which reduces out-of-pocket expenses and involves a sufficient but not excessive number of appropriate defendants. You want to make sure you have enough defendants (against whom you as plaintiff have meritorious claims) to obtain appropriate recovery of your damages, but you don't want too many defendants; and you want some defendants who have significantly less exposure than the main defendants because the lesser defendants may decide it more practical to settle early in the litigation, which settlement will assist in financing the rest of the litigation. For further information, see When Do Defendants Settle RPA Cases, If At All?.
Ideally, the lawsuit should be against only manufacturers and competitors, raising issues under Sections 2(a) and 2(f) of the RPA against both types of defendants, and as against the manufacturers raising the additional issues of discriminatory advertising and promotional programs under Sections 2(d) and 2(e) of the RPA (which can only be brought against manufacturers to the extent the programs are bona fide advertising and promotional programs; if they are "sham" programs, they can be brought as unlawful rebates under Sections 2(f) against competitors receiving the sham program benefits).
The action should be brought locally (in the federal district court covering the plaintiff's principal place of business), making sure that each of the defendants can be sued in such court. The competitors in the plaintiffs' area will of course be amenable to service of process because they are doing business in such area, and the manufacturers will also be amenable to service of process because they are making sales to various businesses in such area. It seems important not to sue companies which can raise issues of not doing business in the plaintiff's state because of the delays and diversions which the litigation will experience trying to resolve these jurisdictional issues.
The plaintiff can retain a local law firm (admitted to the local federal district court) which has commercial litigation experience in federal court, even if the experience does not include RPA or other antitrust litigation. The plaintiff will need to retain an experienced RPA attorney to assist the local law firm or lawyer in preparing the complaint, defending the complaint against motions to dismiss, preparing or participating in the preparation of discovery requests, obtaining and using experts, and consulting with the local attorney concerning disclosures to be made by the plaintiff. For further information, see Discovery in a RPA Price Discrimination Action and Virtual Law Firms in Price Discrimination Field.
The local lawyer should be the firm to do most of the work, and use the RPA attorney when needed, but basically by long-distance means, not by having the RPA attorney making frequest trips to the court or to discovery proceedings such as depositions. For further information, see Assistance Offered to RPA Plaintiffs' Attorneys.
Costs can be kept low by taking depositions by telephone, and by having experts be given assumptions of fact instead of turning them loose to review hundreds of thousands of defendants' documents at an expert's high hourly rate.
Litigation costs are capable of being controlled, and an occasional settlement by lesser defendants will provide more than adequate financing for the out-of-pocket expenses and possibly the legal fees (if the local counsel and RPA counsel are working to a significant extent on a contingent-fee basis).
Litigation in America is designed around settlements. There are not enough courtrooms and judges to provide a bench trial or jury trial for most of the cases which enter the judicial system. Very few cases go to trial and they are often settled as well. The purpose of litigation is not to try a case, but to settle a case on terms which are less than you would like to receive, and more than the defendant wants to pay.
RPA litigation when properly commenced against companies which are violating the RPA can and should be financially successful. Some cases will do better than others, but from an overall standpoint RPA cases are useful for injured plaintiffs to recover damages from the companies causing injury to the plaintiffs.
When a single plaintiff sues for violation of the RPA, the costs of defending the suit are often far greater than the amount of money which the plaintiff would be willing to accept in settlement (which amount probably is far less than the maximum amount of damages which the plaintiff might be able to prove after considerable time and expense). Thus, many defendants will consider settling an RPA lawsuit prior to trial, or try to settle the case at the time of trial, even during the trial itself. It is more difficult to settle a case with numerous plaintiffs because of the need to have a substantially higher settlement amount to cover the needs of the multiple plaintiffs.
This means that a single plaintiff probably can expect to obtain a higher recovery through settlement than if the plaintiff joined with 20 plaintiffs, for example, to try to pursue a collective RPA lawsuit against common defendants.
The same is not true about settlement prospects, however, as to any other type of antitrust litigation. The private (non-governmental) plaintiff has almost no chance of winning a Sherman Act or Clayton Act case, which diminishes the settlement value of that type of case. On the other hand, a RPA case is seldom dismissed at the outset (unlike most other types of antitrust cases), and you and I know that the defendants are violating the RPA so that the evidence is there to obtain for the plaintiff during the discovery phase of the action, so that the plaintiff should be able to avoid a summary judgment.
You should know that the defendants can be expected during discovery to produce the evidence you need to prove that the defendants are violating the RPA. The defendants' activities are so completely involved in violating the RPA as to every transaction with major retailers that there is no possibility that the defendant can avoid providing evidence which proves the continuing RPA violations. I have seen this to be true in each of my RPA cases.
If you have any specific questions about RPA litigation, such as whether you should join with other plaintiffs, or the dollar amount you might have to spend, or the way you can estimate your damages, or any other issues you may have, please give me (Carl E. Person) a call, 212-307-4444. I will be happy to talk about these matters with you.
Some major retailers are now demanding that manufacturers provide them with no-cost inventory, with the manufacturer to be paid only after the inventory is sold by the major retailer, plus a period of about 90 days after such sale. Thus, at the outset, the concept of "payment on scan" is not actually accurate. The major retailers are demanding the right to hold the manufacturer's inventory for months or years without payment, and then to hold the manufacturer's sales proceeds for another quarter year or so.
In fact, it would be possible for "payment on scan" to actually credit the manufacturer's bank account with its part of the proceeds of a sale at the moment the sale is made (which is at the "scanning" of the purchased item when the customer is at the retailer's checkout counter). But the major retailers are not really interested in letting their vendors get paid that soon. Currently, before implementation of POS, the major retailers are withholding payment from manufacturers for a period of about one year, when delayed payment for deductions is taken into account, and POS if adopted to actually make payment on scan would enable the manufacturer to get paid more quickly (although the deduction problems would remain, with the major retailers probably taking money out of the manufacturers POS payment account for "deductions" in the same way they do now, before implementation of POS.
Deductions, for those persons not familiar with the concept, are amounts which major retailers deduct from unpaid invoices for actual or imaginary imperfections in the manufacturer's product or delivery of the product, with the manufacturer not being able to do anything about the deduction except enter into periodic negotiations with the retailer to try to get paid something (usually 50%) of the amount unilaterally deducted by the retailer, and then to receive such partial repayment 1-2 years after the original sum had been due and owing. Deductions account for a sizeable percentage of the discriminatory discount being obtained by the nation's major retailers, and the creating and making of such deductions are the backbone of the major retailer's centralized backoffice operations, using "billback clerks" to accomplish this discriminatory practice.
But, getting back to POS, there are some matters which need to be mentioned.
First of all, POS is an attempt to make an end run around the Robinson-Patman Act, by creating the appearance of a consignment of product without purchase by the major retailer, with payment to be made out of the customer's payment for the product, with the resulting argument that the customer is purchasing directly from the manufacturer and not from the retailer. If this is so, then the major retailer is not a purchaser of the product and the Robinson-Patman Act, which prohibits price discrimination, would not apply, or so the major retailers are hoping.
Another thing to consider is that if product is not paid for until it is sold, then the major retailer would be able to order far more products than they truly expect to sell, to ensure that they have everything in stock, but knowing that only a percentage will actually be sold. The evil involved in this is that the manufacturer cannot tell its suppliers and employees and trucking companies to wait for their payment until after the products are sold by the major retailer, which puts a terrible cash squeeze on the manufacturer, if it has to carry the regular as well as unneeded inventory of the major retailers for a year or two or longer, and to do this for all of the manufacturers' customers, if it is required to do so under the Robinson-Patman Act.
Another point to be understood is that traditional distributors of the manufacturers' products (through traditional wholesalers, jobbers and retailers) carry slow-moving products at higher levels of distribution and are able to keep their distribution channels in business because of this service they provide. But if major retailers are able to stock slow-moving inventory at no cost to the major retailer, then this will put traditional warehouses and their customers out of business, which will have a severe impact on the profits of the manufacturers, and probably drive them in and out of bankruptcy.
As it is now, traditional distribution channels are able to barely survive because they carry slow-moving stock, whereas the mass marketers (the major retail chains) carry fast-moving stock and extract unwarranted higher discounts from the manufacturers as to these purchases. But if major retailers can carry slow-moving parts with no cost or penalty, there would be less need for anyone to buy from wholesalers or their jobber customers, and major retailers would take over all of the manufacturers' distribution, which anyone can see would be destructive of the manufacturers' businesses, because of the lack of competition. The manufacturers, in giving in to the major retailers as to POS, if this occurs, will sound the death knell of the remaining independent (and profitable) business of the manufacturers, which will hasten the financial demise of the manufacturers, and put their valuable trademarks on the auction block for their major retailer customers to purchase, and use through outsourcing to manufacturers in foreign countries (with far lower labor costs).
It should be noted that major retailers have been skimming the cream of retail sales, offering generally the fast-moving inventory and not the slow-moving inventory, and have been unable to compete with the traditional distributors (i.e., wholesalers, jobbers and their retailers) to the extent of this difference in stocked inventory. But if this difference is eliminated, through POS, then the major retailers will take over all of the business of the traditional distributors and, after this is done, cut back their costs by eliminating the slow-moving inventory (because of the lack of competition) and injure the interests of the nation's consumers.
The real issue, of course, is whether the Robinson-Patman Act covers POS so that all competing customers of a manufacturer have to be offered the same terms.
The answer should be provided by the Federal Trade Commission, but since the FTC has been rendered ineffective to do its job, it is fairly predictable that the FTC will do nothing, or worse, decide that POS takes a major retailer outside of RPA coverage.
Because of the existing contractual and other arrangements between major retailer and the manufacturer prior to introduction of POS, it seems far more probable than not that a federal court would determine that POS is just one more aspect of the purchase arrangement (with too many badges of a seller-purchaser relationship) and not truly a direct sale from manufacturer to customer. For example, the major retailer would not be holding the sale proceeds in trust for the manufacturer; the major retailer would still be penalizing the manufacturer (through "deductions") for actual or fabricated failures in performance; the manufacturer would still be providing insurance to the major retailer as a seller to the retail customer; the manufacturer would still be shipping what the major retailer orders rather than what the manufacturer wants to ship for sale through consignment. These are only some of the many reasons that POS should not be held to be a true consignment and sale by the manufacturer directly to the major retailer's customers.
The number of article in my RPAMall is proliferating so much that I thought I should pull out various articles of greatest probable interest to anyone reading this Update (rpa_2003.html), to encourage readers to find information which may help them decide what to do about the business conditions which are truly threatening to destroy their businesses. Some of these articles discuss costs of litigation, and others discuss how discrimination is taking place, and others cover subjects which you should find helpful. If you have any questions, you can give me a call (Carl E. Person, at 212-307-4444 or email: firstname.lastname@example.org; or fax to 212-307-0247).
Carl E. Person, Editor, RPAMall, email@example.com