Texaco V. Hasbrouck: The Supreme Court Reviews Functional Discounts under the Robinson-Patman Act

• Date: 01 June 1991
• Author: William P. Bivins
• Published date: 01 June 1991
• DOI: 10.1177/0003603X9103600205
• Subject Matter: Article

The Antitrust Bulletin/Summer

1991

Texaco v. Hasbrouck: the Supreme

Court reviews functional discounts

under the Robinson-Patman

Act

BY WILLIAM P. BIVINS, JR.*

Introduction

413

The Supreme Court has recently reviewed the longstanding prac-

tice

of

functional discounts, whereby sellers have sold to buyers

at different prices reflecting the buyers' different levels in the

chain

of

distribution. In Texaco v. Hasbrouck, Ithe Supreme

Court has effectively broadened the restrictive guidelines previ-

ously upheld in Morton Salt'

and

in Perkins v, Standard Oil.3

Although refusing to exempt functional discounts from applica-

General Counsel, DSM Chemicals North America, Inc.,

Augusta, Georgia.

1

__

U.S.

__

(1990), 110 S. Ct. 2535.

2F.T.C. v. Morton Salt Co., 16 F.2d (7th Cir. 1947), 334 U.S. 37

(1948).

3396 F.2d 809 (9th Cir. 1968),395 U.S. 642 (1969), reh'g denied,

396 U.S. 871 (1969).

©1991 by Federal !.<:galPublications. Inc.

414 ; The antitrust bulletin

tion

of

the Robinson-Patman Act, the Court has held that they

may be justified either as savings in the seller's cost

of

manufac-

ture, delivery or sale, or as reimbursement to the buyer for its

costs

of

performing marketing

and

distributive functions. How-

ever, contrary to certain prior administrative

and

judicial inter-

pretations, such discounts need not be made available to other

buyers willing

and

able to perform the same distributive func-

tions.

Hasbrouck is a so-called tertiary line case, a case dealing with

the competitive effects

of

the seller's discriminatory prices at the

level

of

customers

of

customers

of

the seller. Factually,

Hasbrouck is a simple case dealing with the competitive disrup-

tion that results when a favored buyer passes along part or all

of

its supplier's trade discount to its customers who compete with

direct-buying customers of the supplier. When such direct-buying

customers

of

the supplier do not receive a similar discount, they

will be at a competitive disadvantage with respect to customers

of

the favored buyer. Hasbrouck resolves much speculation regard-

ing the possibility

of

a more liberal interpretation

of

the

Robinson-Patman Act in light

of

modern, fast-moving marketing

and

distributional requirements. Unwilling to judicially amend

the Act, the Court has chosen instead to interpret the Act

consistent with its statutory wording

and

original congressional

intent. But the Supreme Court has offered new possibilities to

sellers in that now, they may justify their functional discounts on

the basis

of

reimbursement to favored buyers for the buyer's cost

of

distributive services. Moreover, the Court refrained from

engrafting the concepts

of

sections 2(d)

and

2(e)

of

the Act which

would have required equal availability

of

such discounts to all

other buyers who were willing to perform similar distributive

services.

After briefly reviewing the background

of

functional dis-

counts under the Robinson-Patman Act, this article summarizes

the Hasbrouck decision and highlights some

of

the difficulties

of

applying the requirement

of

the Act to marketing

and

distribu-

tion decisions faced in modern commerce. Suggestions are then

offered in resolving such difficulties in a manner consistent with

Functional

discounts:

415

the Act while permitting apragmatic response to competitive

conditions.

The

Robinson-Patman

Act

Brief

legislative history

It

is remarkable

that

50 years after the enactment

of

the

Robinson-Patman

Act,'

the historical

and

legislative foundations

of

the Act continue to be so important. Such unusual reliance on

historical foundations results from the pervasive ambiguity and

complexity

of

the Act. The populist traditions which sought to

assure equal competitive opportunity for small businesses

and

the

Depression-era mentality which sought

to

preserve an inefficient

system

of

distribution in order to preserve jobs, explain in large

part

the difficult

and

inefficient structure

of

the Act. Judicial

opinions

and

legal scholarship have frequently reflected the

flavor

and

detail

of

this history.'

The Robinson-Patman Act was enacted on July 19, 1936,

primarily as an amendment to section 2

of

the Clayton Act. 6

Prior

415

U.S.C.

§§ 13(a)-(f) (1976) (hereinafter,

the

Act).

5See generally, W.

PATMAN,

COMPLETE

GUIDE

TO

THE

ROBINSON-

PATMAN

Acr

1-10 (1963); 1

ABA

ANTITRUST

SEcrION,

MONOGRAPH

No.

4, THE

ROBINSON-PATMAN

Acr:

POLICY

AND

LAW:

5-19 (1980);

Hansen,

Robinson-Patman Law; A Review and Analysis, 51

FORDHAM

L.

REV.

1114-24 (1983).

The

conflict between

independent

food

distributors

and

corporate

chain

stores, a

major

factor leading to

enactment

of

the

Robinson-Patman

Act,

is depicted in detail in

Fulda,

Food Distribution

in the United States, The Struggle Between Independents and Chains, 99

U. PA. L.

REV.

1051 (1951).

6

Section

2

of

the

Clayton

Act

as originally enacted (Ch. 323, §2,

38

Stat.

730 (1914),

current

version at 15

U.S.C.

§13 (1976)

(amended

1936» was similar

in

wording

to

the

subsequent

Robinson-Patman

amendment,

up to

the

first proviso.

The

important

difference

after

that

point

was

the

exemption

from

the

proscriptions

of

the

Act

for

differ-

ences in price

based

on

quantity:

"Provided,

that

nothing

contained

herein

shall

prevent

discrimination in price between

purchasers

of