Auto Parts Distributor Avoids Liability In Robinson-Patman Suit

12 August 2013 Dashboard Insights Blog

On July 19, 2013, the Ninth Circuit affirmed an award of summary judgment to an aftermarket auto parts distributor that had received better prices than a competitor. Gorlick Distribution Centers, LLC v. Car Sound Exhaust System, Inc., 2013 U.S. App. LEXIS 14635 (9th Cir. 2013). In rejecting the competitor’s claim that the defendant’s receipt of favorable prices had violated the Robinson-Patman Act, the court held that the defendant had no reason to know that its prices were illegal. The case provides valuable guidance in a rarely litigated—but often irritating—area of antitrust and distribution law.

Much maligned by antitrust practitioners and economists, the Robinson-Patman Act generally prohibits sellers from setting different prices for competing purchasers of like commodities, except where justified based on bona fide differences in volume or cost of sale, or to meet an equally low price of a competitor. 15 U.S.C. § 13(a)-(b). Although the Robinson-Patman Act primarily focuses on sellers, Section (f) of the Act also makes it illegal for purchasers of commodities to “knowingly . . . receive a discrimination in price which is prohibited by” the Act. 15 U.S.C. § 13(f).  Parties injured by any violation of the Robinson-Patman Act may bring a private cause of action, although in practice such lawsuits are rare. 15 U.S.C. § 15(a).

In the case before the Ninth Circuit, the plaintiff, a West Coast-based auto parts distributor called Gorlick Distribution Centers, sued a competing distributor, Allied Exhaust Systems, for allegedly receiving preferential prices for Car Sound-branded aftermarket mufflers and catalytic converters. Allied didn’t dispute that it received favorable prices for the relevant products—in fact, Allied didn’t even dispute that it knew that it received favorable prices. Rather, Allied’s argument was that it wasn’t liable, because there was no evidence that Allied knew that the favorable prices it received were anything other than bona fide volume discounts. In other words, as the Ninth Circuit framed the issue, Allied could not be held liable unless it knew that “the prices it received likely did not qualify for a Robinson-Patman Act defense.”

Agreeing with Allied’s view of the law, the Ninth Circuit affirmed the district court’s award of summary judgment in Allied’s favor. The record was clear that Allied had made Car Sound its flagship brand of mufflers and catalytic converters, promoting this brand actively and to the exclusion of all other brands. Gorlick, by contrast, promoted multiple brands of mufflers and catalytic converters, and as a result, it purchased a much smaller quantity of Car Sound products than Allied. For these reasons, the Ninth Circuit agreed that Allied could reasonably have believed that its preferential prices were due to bona fide volume discounts.

Notwithstanding the volume differential, Gorlick argued that Allied should have known that its prices were discriminatory, because Allied had received certain volume discounts that were even better than Car Sound’s listed prices. The court rejected this argument as a matter of policy, holding that “the Robinson-Patman Act doesn’t prohibit buyers from haggling for a better deal.” Additionally, the Ninth Circuit rejected Gorlick’s argument that Allied had a “duty to inquire” whether its off-list pricing was in any way discriminatory.

In addition to rejecting Gorlick’s Robinson-Patman Act claim, the Ninth Circuit dismissed Gorlick’s claim that Allied had violated Section 2 of the Sherman Act by allegedly conspiring with Car Sound to cease the shipment of Car Sound products to Gorlick in the Pacific Northwest region. The court held that such a restraint, even if proven, would amount to a vertical restraint of trade that actually enhances interbrand competition, rather than limiting it. In support of this holding, the Ninth Circuit noted that Allied had made substantial investments to pioneer the sale of Car Sound products in the Pacific Northwest, bringing it in competition with established brands such as Catco, Eastern, and Flowmaster (among others). Notably, however, one judge on the panel dissented in part from this judgment, suggesting that the record on this score was incomplete and that the case should have been remanded to the district court for further findings of fact.

While the Ninth Circuit’s decision brings some welcome guidance to purchasers, its implications for sellers are limited. The case confirms that favored purchasers risk liability under the Robinson-Patman Act only in the rare cases where they have actual knowledge that the prices they receive violate the Act. For sellers, however, the Robinson-Patman Act imposes no such “knowledge” limitation; rather, sellers face liability even for unknowing violations of the Act. Here, indeed, in addition to suing Allied, Gorlick also sued the manufacturer, Car Sound. Although the Ninth Circuit’s opinion certainly suggests that Car Sound may have had a good defense to Robinson-Patman liability, Car Sound nevertheless settled the case shortly after it was filed. Thus, while the Gorlick case is a welcome decision that takes a small step towards limiting the scope of the Robinson-Patman Act, the Act will no doubt remain a thorn in the side of manufacturers and distributors for years to come.

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