Reading too much into Reeder-Simco?

• Date: 01 October 2007
• Author: Suhr, Jeremy M.
• Published date: 01 October 2007
• Author: Suhr, Jeremy M.

This Note argues that a careful analysis of the Supreme Court's opinion in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. demonstrates that, despite the expansive dicta appearing in part IV of that opinion, the Court did not intend to reshape the course of its Robinson-Patman Act jurisprudence in any significant way. The Court's opinion operated well within the confines of established Robinson-Patman Act doctrine, even if its searching review of the evidence presented at trial represented a rare foray into the arena of factual error correction. After Reeder-Simco, however, many commentators emphasized the dicta in part IV of the opinion and argued that Reeder-Simco portended the end of a pillar of Robinson-Patman Act doctrine, the Morton Salt Inference. In light of the expansive interpretations that many commentators adopted after Reeder-Simco, this Note surveys citations to the opinion to determine whether such broad readings of the case have taken hold in the lower courts as well. The results show that courts have generally read the opinion narrowly and continue to apply the Morton Salt Inference in secondary-line Robinson-Patman Act cases.

TABLE OF CONTENTS INTRODUCTION I. THE SUPREME COURT'S OPINION IN REEDER-SIMCO DID NOT REJECT THE MORTON SALT INFERENCE AND SHOULD BE READ NARROWLY A. Just the Facts: What Reeder-Simco Is Actually About B. Why Reeder-Simco Should Be Read Narrowly II. A SURVEY OF CITATIONS TO REEDER-SIMCO: WHILE COMMENTATORS HAVE CONSTRUED IT BROADLY, LOWER COURTS HAVE INTERPRETED REEDER-SIMCO NARROWLY AND CONTINUE TO EMBRACE THE MORTON SALT INFERENCE CONCLUSION INTRODUCTION

The Robinson-Patman Price Discrimination Act of 1936 ("RPA") (1) has long stood out awkwardly among the collection of statutes generally referred to as the Antitrust laws. (2) Passed amid the turmoil of the Great Depression, the RPA reflects different values than those embodied in the rest of antitrust law. (3) The Supreme Court has repeatedly stated that "[t]he antitrust laws ... were enacted for 'the protection of competition, not competitors'" (4) and that "[i]nterbrand competition ... is the primary concern of antitrust law." (5) In discussing the RPA, however, the Court has long noted that it has a "prophylactic purpose" (6) and that "in enacting the Robinson-Patman Act, Congress was especially concerned with protecting small businesses." (7) To achieve this end, Congress drafted the RPA (8) to broaden and redefine the Clayton Act's "injury to competition" language to permit "a finding of injury to competition by a showing of 'injury to the competitor victimized by the discrimination.'" (9)

The RPA provides a cause of action against essentially two major kinds of competitive injury that might result from acts of price-discrimination: (1) claims alleging injury at the primary-line, and (2) those alleging injury at the secondary-line. (10) Primary-line cases involve conduct, generally predatory pricing, that injures competition at the level of the discriminating seller and its direct competitors. (11) Secondary-line cases, the majority of RPA claims and the central concern of the act, (12) "involve price discrimination that injures competition among the discriminating seller's customers ... [and] cases in this category typically refer to 'favored' and 'disfavored' purchasers." (13) Such secondary-line discrimination occurs when a seller favors some of its customers over others. For example, a small "disfavored" grocery store would have a garden variety secondary-line claim when a supplier grants larger discounts to a giant "favored" national grocery store than it grants to the smaller store. (14)

In 1948 the Court set forth a relatively plaintiff-friendly test for finding the required injury to competition in the secondary-line context. In Federal Trade Commission v. Morton Salt Co., (15) the Court announced the principle, since known as the "Morton Salt Inference," that "an injury to competition may be inferred from evidence that some purchasers had to pay their supplier 'substantially more for their goods than their competitors had to pay.'" (16) Under the Morton Salt Inference, therefore, secondary-line plaintiffs may satisfy the "injury to competition" requirement of every RPA claim (17) simply by showing that the defendant-seller had given substantially lower prices to a "favored" rival purchaser over a substantial period of time. Thus, while antitrust law generally protects "competition, not competitors," (18) courts have long noted that the RPA's "statutory language and the legislative history both show that Congress" in this instance adopted a "policy of protecting individual merchants as a means of protecting competition." (19) Indeed, in 1983 the Court reaffirmed the Morton Salt Inference of injury to competition via evidence of injury to a competitor, although it also held that defendants may "overcome" that presumption by introducing "evidence breaking the causal connection between a price differential and lost sales or profits." (20)

While acknowledging the uniqueness of the RPA, the Supreme Court and lower courts have nonetheless struggled with how to treat the RPA in light of the policies underlying the rest of antitrust law. Indeed, the Court has described one prior case as suggesting "that as a general rule the Robinson-Patman Act should be construed so as to insure its coherence with 'the broader antitrust policies that have been laid down by Congress.'" (21) More recently, in considering a primary-line predatory pricing claim in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., (22) the Court explicitly adopted a construction of the RPA that synthesized the standard used for such primary-line RPA claims with that used for similar predatory pricing claims under section 2 of the Sherman Act. (23) The Court held that below-cost pricing was an element to recovery for predatory pricing claims under both section 2 and the RPA because low prices are "in general a boon to consumers" and plaintiffs must therefore show that a defendant's below-cost pricing "would likely injure competition in the relevant market." (24) Finally, the Court again declared that "'the Robinson-Patman Act should be construed consistently with broader policies of the antitrust laws.'" (25)

Despite such expansive language in Brooke Group about construing the RPA consistently with broader antitrust polices, lower courts have generally continued to treat secondary-line cases differently and have applied the Morton Salt Inference. Even though the Morton Salt Inference--by treating injury to a competitor as sufficient to presume injury to competition--runs contrary to the general thrust of antitrust law, at least four circuits have affirmed its continued viability post-Brooke Group. (26) Likewise, at least two district courts have continued to apply the Morton Salt Inference in secondary-line RPA cases after Brooke Group. (27)

Against this backdrop, the Supreme Court's grant of certiorari in March 2005 (28) in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. ("Reeder-Simco") (29) reasonably raised questions as to whether the Court intended to eliminate the Morton Salt Inference, as some commentators had suggested. (30) After all, the secondary-line RPA plaintiff in Reeder-Simco had prevailed in a jury trial, with the jury instructed on the Morton Salt Inference. (31)

When the Court overturned the plaintiff's judgment in Reeder-Simco, commentators already hostile to the RPA and Morton Salt greeted the opinion with glee, (32) with one article describing it as "[p]lac[ing the] Robinson-Putman Act on Life Support." (33) Commentators expressed such sentiment even though Justice Ginsburg's opinion for the Court in Reeder-Simco did not reject or even criticize the Morton Salt Inference. Indeed, Justice Ginsburg even cited Morton Salt in reiterating that the Court has "recognized that a permissible inference of competitive injury may arise from evidence that a favored competitor received a significant price reduction over a substantial period of time." (34) Certainly, the Court provided commentators with some cause to read the opinion as sharply curtailing the reach of the RPA: Reeder-Simco added another line to the refrain, already voiced in Brooke Group and prior cases, that the Court would "continue to construe the [RPA] 'consistently with broader policies of the antitrust laws.'" (35) The Court also quoted the landmark case of Continental T. V., Inc. v. GTE Sylvania, Inc. in asserting that "[i]nterbrand competition, our opinions affirm, is the 'primary concern of antitrust law.'" (36)

While the appearance of such language in a secondary-line RPA case might seem significant, (37) these passages were plainly dicta. The language quoted above, and seized upon by opponents of the RPA, appeared only after the Court had already reexamined the evidence presented at trial. (38) The Court concluded that the plaintiff had failed to show that "Volvo sold at a lower price to Reeder's 'competitors'" given the customer-specific competitive-bidding situation at issue. (39) On balance, one would not expect the Court to reject in dicta a doctrine central to the RPA, first adopted in 1948 and affirmed repeatedly since then. Rather, the Court would be far more likely to confront the doctrine head-on and offer a clear and reasoned articulation for its rejection. (40)

This Note argues that Reeder-Simco effected relatively little change to RPA doctrine, contrary to the broad interpretations adopted by many commentators. Part I closely analyzes the Court's opinion in Reeder-Simco and argues that the best reading of the opinion is a narrow one. Part II then surveys the commentary and cases that have appeared since Reeder-Simco, finding that courts have generally interpreted Reeder-Simco narrowly, despite the defense bar's initial predictions that Reeder-Simco had all but sounded the death knell of the Morton Salt Inference...