Suppose a manufacturer sells the same products to two retailers who compete against each other in the same geographic area. The manufacturer gives one of the retailers more favorable terms and conditions than the other retailer. Unless the price differential can be justified by savings to the seller or some other defense, the disfavored buyer has a claim against the manufacturer/seller under Section 2(a) of the Robinson-Patman Act ("RPA") [74] for treble damages.[75] But apart from a possible claim against the manufacturer (seller), does the disfavored retailer (buyer) have a claim against his rival under the RPA? In passing the RPA, "Congress sought to target the perceived harm to competition occasioned by powerful buyers, rather than sellers; specifically, Congress responded to the advent of large chainstores, enterprises with the clout to obtain lower prices for goods than smaller buyers could demand."[76] Yet only two sections of the RPA actually concern buyer behavior and it would seem anomalous that one retailer should be allowed to sue another retailer for, in essence, having greater bargaining or haggling skill than his rival. Anomalous or not, our hypothetical disfavored buyer (retailer) would seem to be in luck, as Section 2(f) provides that "[i]t shall be unlawful for any person engaged in commerce … knowingly to induce or receive a discrimination in price which is prohibited by this section." Finally, GSRG's definition of the relevant geographic market was too narrow. The Southeast could only be the appropriate market if consumers in the Southeast could not turn to sellers outside that region.[77] A disfavored buyer, therefore, has a claim against his rival under the RPA if the favored buyer: (i) knows it received a discriminatory price, or (ii) knows it induced a discriminatory price, and the seller is liable under "this section"; that is, section 2(a) of the RPA.[78]

Although recent cases under Section 2(f) are rare,[79] the Ninth Circuit, in Gorlick Distribution Centers, LLC v. Car Sound Exhaust System, Inc.,[80] recently had an opportunity to review the kinds of "knowledge" a favored buyer must have to violate Section 2(f). In Gorlick, Car Sound Exhaust System, Inc. ("Car Sound") manufactured mufflers and catalytic converters and distributed these parts in the Pacific Northwest through Gorlick Distribution Centers, LLC ("Gorlick") and Allied Exhaust Systems, Inc. ("Allied"). Allied, the favored buyer, exclusively sold parts made by Car Sound, whereas Gorlick sold parts manufactured by a number of different companies.[81] Gorlick alleged, and it was generally undisputed, that Car Sound gave Allied lower prices, greater volume discounts and higher year-end rebates than it provided Gorlick. In addition, Car Sound did not charge Allied for shipping, handling or storage, but did charge Gorlick for these services. Gorlick alleged that, under these facts, Allied received preferential treatment in violation of Section 2(f).[82]  

After discovery Allied moved for summary judgment, arguing that it lacked the requisite knowledge required under the statute. The district court granted the motion on that basis and Gorlick appealed, arguing that the district court overlooked the fact that Allied had actual knowledge, trade knowledge, and a duty to inquire whether it was receiving prohibited prices. The Ninth Circuit, relying on the Supreme Court's 1953 Automatic Canteen Co. case,[83] affirmed the lower court.[84]

Knowledge of Better Terms

The statute seems straightforward enough: the favored buyer must know that it is favored. "Buyers are not liable if they are innocent beneficiaries of discriminatory prices."[85] In Gorlick, Allied believed that it received preferential treatment. Allied's salesmen bragged about the better terms they received and internal company memos highlighted its superior position.[86] Moreover, Allied knew that the prices it received were below those on Car Sound's published price list. According to Gorlick, this fact was decisive: "where a seller publishes its prices, any departure from the schedule places the buyer on notice that he is receiving discriminatory prices."[87] The Ninth Circuit interpreted this argument as requiring a ban on bargaining. Accordingly, relying on Automatic Canteen Co., the Ninth Circuit held that the RPA does not "prohibit buyers from haggling for a better deal."[88] Gorlick's rule would put a buyer at risk for liability every time it asked for a lower than listed price. Moreover, the manufacturer may make the discount generally available, and therefore the price may not be discriminatory at all. In fact, the court noted, all of Car Sound's dealers, including Gorlick, were offered bulk pricing even when they purchased less than the target quantities.[89] Discounts that are "generally available" do not run afoul of the Act.[90]

Knowledge of Seller's Defenses

The statute, therefore, requires more than knowledge of the discrimination in price. The favored buyer also must know that the seller has violated Section 2(a). In Automatic Canteen Company of America Co., the Supreme Court held that "there is no substantive violation if the buyer did not know that the prices it induced or received were not" justified by a defense available to the seller.[91]

In other words, the favored buyer must know that the seller violated Section 2(a) and the seller did not have an affirmative defense. RPA section 2(a) provides for two defenses: cost-justified differentials and differentials resulting from changed market conditions. In addition, Section 2(b) provides the defense of meeting competition.

Too Much Knowledge Can Be a Bad Thing

But how is the favored buyer to know whether the seller has a legitimate defense? Indeed, how is the disfavored buyer to know what the favored buyer knows? Too much knowledge or the wrong kind of knowledge could be construed to violate Section 1 of the Sherman Act. In the Great Atl. & Pac. Tea Co. case, which concerned the meeting competition defense, the Supreme Court explained that competitors needed to exercise caution in obtaining actual knowledge:

In a competitive market, uncertainty among sellers will cause them to compete for business by offering buyers lower prices. Because of the evils of collusive action, the Court has held that the exchange of price information by competitors violates the Sherman Act. Under the view advanced by the respondent [FTC], however, a buyer, to avoid liability, must either refuse a seller's bid or at least inform him that his bid has beaten competition. Such a duty of affirmative disclosure would almost inevitably frustrate competitive bidding and, by reducing uncertainty, lead to price matching and anticompetitive cooperation among sellers.[92]

In Automatic Canteen Co., the Supreme Court suggested a work-around to the issue of actual knowledge: the disfavored buyer can demonstrate that the favored buyer had notice of the seller's unjustified price discrimination based on "trade experience."[93] Applying this concept, the Ninth Circuit in Gorlick wrote that knowledge based on trade experience requires proof that Allied and Gorlick purchased from Car Sound the same quantities in the same manner with the same level of effort at substantial price differentials that are not justified.[94] The evidence, however, showed that "Gorlick and Allied were very different Car Sound customers."[95] Allied was Car Sound's number one account, selling fifteen times the dollar amount of product that Gorlick did. In addition, Allied had developed an electronic ordering system that reduced errors and streamlined its dealings with Car Sound. Accordingly, the effort required by Car Sound to serve Allied was considerably less than the exertion required to serve Gorlick.[96] The preferential treatment that Allied received, therefore, was simply "an incentive for its continued loyalty."[97]  

Gorlick also argued that since Allied knew it was getting preferential treatment from Car Sound it had a duty to inquire into the prices offered to its competitors by Car Sound. The court conceded, without deciding, that where a buyer induces discrimination in price, it may have a duty to inquire. But Allied had not induced the price differential and the court saw no reason to "drastically expand the scope of that duty."[98] Had the Ninth Circuit done otherwise, it "would have given give rise to a price uniformity and rigidity in open conflict with the purposes of other antitrust legislation."[99]

Conclusion

The Supreme Court has instructed that the RPA must be construed "consistently with broader policies of the antitrust laws."[100] Mindful of that instruction, the Ninth Circuit in Gorlick carefully construed the various kinds of "knowledge" required by Section 2(f). In so doing, it generally preserved the ability of disfavored buyers to maintain a price discrimination claim against a favored buyer, while at the same time not enabling them to "extend beyond the provisions of the Act." [101]