Do You Have an RPA Price Discrimination Claim?

The Robinson-Patman Act protects victims of unlawful price discrimination, whether the victims are consumers, wholesalers, retailers, or even manufacturers in some cases.

The injury has to be direct as distinguished from remote, and the injured person has to be within the target area of the price discrimination activities or someone who the defendant understood would be injured by the discriminatory activities.

The easiest case is a retail store which pays more for goods than its competitor across the street pays at the same time for the same type and quality of goods, both retailers purchasing from the same manufacturer or wholesaler.

Also, competing wholesalers who buy from the same manufacturer should be given the same unit price for their purchases. Failure to give the same price to the competing wholesalers is a violation of the RPA by the selling manufacturer.

A consumer who purchases goods at a higher price from a retailer may also have a claim when the retailer was paying more for the goods than a competing retailer.

Obviously, when a small hardware store pays 33-1/3% more for a wrench set than a major hardware chain, the small hardware store finds itself unable to compete on price, and usually loses a significant amount of business to the major hardware stores which buy most of their inventory at prices substantially lower than the small hardware store pays to the same manufacturer (or wholesaler) for the same goods.

There are defenses which the defendant manufacturer or wholesaler may assert, and these need to be considered, but usually they are not applicable. These defenses are two in number: (i) meeting competition; and (ii) cost justification.

The meeting competition defense applies, for example, when a selling manufacturer learns from one of its customers that the customer is being offered a better price by a competitor of the manufacturer. The selling manufacturer, if it reasonably believes the customer's information, is entitled under the RPA to meet the competitor's price, even though competitor's of the retail customer are being charged a higher price by the selling manufacturer. Manufacturers try to extend this defense to overall pricin g schemes, and usually should not be successful in this effort, because the defense is not designed to permit overall discriminatory pricing schemes, and is intended designed to meet a specific competitive threat which the manufacturer comes across with a single customer.

The other defense is seldom claimed, the defense of cost justification. Most small businesses, when thinking about Robinson-Patman Act claims for the first time, assume that volume discounts are lawful because they seem to be cost justified, in the sense that when one buys large quantities there are obvious savings to the seller (manufacturer or wholesaler), and these savings are passed on to the retailer customer through volume discounts. Although this seems reasonable, it is not the case, generally. The amount of discounts (volume and otherwise) which the superstores or big box retailers are getting from manufacturers is far in excess of any amount which could be justified from a cost savings standpoint, and the manufacturer or wholesaler in defending a Robinson-Patman Act suit does not generally claim cost justification because it cannot justify 100% of the discriminatory discount, and there is little or no advantage in trying to prove that 10 cents of a dollar discount is cost justified. The plaintiff's claim for damages, as will be discussed elsewhere, can be just as much when the unlawful discrimination is 90 cents as when it is $1. The question is how much business the retailer lost by reason of the price discrimination, whatever the amount of such discrimination was.

Thus, in summary, anyone injured by unlawful price discrimination may have a claim for damages, especially a retailer paying more for the same type and quality of goods than a competing superstore or chain, and a wholesaler paying more for the same type and quality of goods than a competing wholesaler. Also, an indirect purchaser (a retailer buying from a wholesaler) would have a claim against the manufacturer when the wholesaler is charged an unlawful discriminatory price, in comparison to the amount charged by the manufacturer to competing wholesalers, or even on direct sales to large superstores.

In instances where there is unlawful price discrimination alleged between a manufacturer's direct sales to superstores and the same manufacturer's sales to wholesalers, the price to superstores can be slightly lower, lawfully, than the price paid to wholesalers by competing retailers, because the superstore is getting a functional discount for assuming the role of a wholesaler to itself, for which the manufacturer is entitled to prove reasonable compensation.

There is another whole world of liability which you should consider, which I have loosely included in the term price discrimination, but technically is known as service discrimination. Thus, when a manufacturer provides advertising allowances and services to a wholesaler or retailer, these promotional allowances or services are required by law to be made functionally or proportionally available to the competing retailers and wholesalers, or the disfavored customer is entitled to recover damages for violation of the Robinson-Patman Act.

It appears that many manufacturers selling to pharmacies, hardware stores, toy and game stores, food stores, home supply stores, book stores, auto parts and supply stores, and certain other consumer-oriented stores are providing unlawful discounts as well as promotional programs and rebates which are not made available to the smaller retailers and wholesalers.

The claim for damages of such disfavored retailers and wholesalers, therefore, is bolstered by the additional unlawful activities of the manufacturer. It seems common that the range of the unlawful price and service discrimination amounts to about 20% to 40% in most cases, which has caused a substantial loss to small retailers in the United States over the past few years.

A plaintiff alleging unlawful price discrimination (or damages from violation of any other antitrust statute) can only go back 4 years for damages dating from the date of the filing of the action. Accordingly, it makes sense to file an action as soon as possible. If the unlawful activity continues (as it probably will), the injured retailer or wholesaler could sue once again, after termination of the first lawsuit.

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Copyright © 1997 by Carl E. Person