On July 19th, the Ninth Circuit Court of Appeals issued a per curiam decision in Gorlick Distribution Centers, LLC v. Allied Exhaust Systems, Inc.,1 a rare Robinson‐Patman Act (R‐P) court of appeals decision addressing a claim that a purchaser knowingly received unlawfully discriminatory prices from a supplier in violation of Section 2(f) of the statute.2
The case involved the automotive parts industry, in this instance, muffler and catalytic converters manufactured by Car Sound Exhaust System, Inc. (Car Sound). Car Sound had earlier settled Gorlick Distribution Centers, LLC’s (Gorlick) claim under Section 2(a) of the R‐P Act that Car Sound had unlawfully discriminated in price against Gorlick in favor of Allied Exhaust System (Allied). Gorlick thereafter continued its companion claim that Allied had violated Section 2(f) of the R‐P Act by knowingly receiving unlawfully discriminatory prices from Car Sound. In particular, Gorlick contented that Allied received volume discounts when it did not meet the requirements for such discounts, was given free shipping on some of its purchases when Car Sound did not offer such a benefit to customers, and was awarded higher year‐end sales rebates than were merited.
A purchaser in a Section 2(f) case has available to it all of the defenses that are available to a supplier charged with providing discriminatory prices to the favored purchaser in violation of Section 2(a) of the R‐P Act. In other words, a Section 2(a) violation by the supplier is a preliminary requirement of a Section 2(f) claim against a purchaser. Moreover, it must be proven in a 2(f) case that the allegedly favored purchaser had “knowledge” that it was receiving an unlawfully discriminatory price from the supplier involved.
The Ninth Circuit Decision
The Ninth Circuit panel, which included Chief Judge Kozinski, noted at the outset that in granting summary judgment dismissing the suit, the district court had assumed that the prices Allied was charged were prohibited by the R‐P Act.3 Allied argued in defense, however, that it didn’t know what prices other distributors received, and therefore it couldn’t “knowingly” have received unlawfully discriminatory prices. The Ninth Circuit agreed, and ruled that Gorlick had not provided sufficient evidence to establish that Allied was more than an “innocent beneficiary” of discriminatory prices, and therefore Gorlick had not established the “knowledge” requirement of Section 2(f).4 In reaching this conclusion, the court considered and rejected in turn each of the three arguments raised by Gorlick: (i) that Allied in fact had knowledge that it was receiving illegal prices from Car Sound; (ii) even if it did not have such knowledge, Allied’s “trade experience” should have put it on notice that those prices were prohibited by the R‐P Act; and (iii) Allied’s dealings with Car Sound put it on “ inquiry notice” that it was receiving prohibited prices.
1. Actual Knowledge
The Ninth Circuit panel first considered whether Gorlick had established “actual knowledge” by Allied that it was receiving unlawfully discriminatory favored prices from Car Sound. It concluded that Gorlick had not done so, based on the following facts brought out in pretrial discovery:
- Gorlick and Allied were very different types of Car Sound customers. Allied made Car Sound its “flagship” brand, and purchased Car Sound products in much higher volumes than Gorlick, and provided promotional services that Gorlick did not. According to the Ninth Circuit panel, there was no evidence that Allied knew that its pricing benefits resulted from anything other than the significant differences in how the two customers did business. 5
- Although Allied received discounts below Car Sound’s price list, the R‐P Act “doesn’t prohibit buyers from haggling for a better deal. To put a buyer at risk of liability any time he asks for a lower‐than‐listed price would do enormous damage to the ‘sturdy bargaining between buyer and seller for which scope was presumably left’ by our antitrust laws”[Citing the Supreme Court 1953 Automatic Canteen Section 2(f) decision6].
- In any event, it was possible that discount prices were made available to Gorlick as well, because there was evidence that at times it also purchased below list prices.7
- The fact that an e‐mail the supplier Car Sound had sent to Allied saying that because of its settlement with Gorlick, it “unfortunately” would have to offer Gorlick the same prices that it provided to Allied did not establish that Allied knew what prices Gorlick was getting before the suit was brought [a somewhat surprising conclusion in a summary judgment ruling]. 8
- An Allied meeting agenda showing it actually had planned to ask Car Sound to raise Gorlick’s prices did not establish that Allied in fact made such a request, or that that the request was granted [another surprising determination in a summary judgment ruling].9
2. Trade Experience Knowledge
The Ninth Circuit panel next considered Gorlick’s argument that Allied’s “trade experience” should have placed it on notice that the favorable prices it received were unlawful. The court declared that because Allied and Gorlick were very different types of customers, purchasing in very different quantities and with very different promotional assistance to Car Sound, the only argument open to Gorlick was that Allied should have known that these differences did not justify the price breaks it received. But, according to the court, Gorlick had not presented evidence that the deals Allied received were anything more than an incentive for the continued loyalty Allied had shown to Car Sound through Allied’s development of an electronic ordering system that reduced errors and streamlined its dealings with Car Sound, and for the fact that Allied had purchased roughly 15 times the dollar amount of Car Sound products than Gorlick did.10
In reaching its conclusion, the Ninth Circuit distinguished a 55‐year‐old FTC auto parts decision in which the allegedly favored buyers belonged to buying groups and knew that they were getting better prices than they could have gotten through their individual purchases.11 Allied, however, was not part of such an organization, and Gorlick had not explained why Allied nevertheless should have known that the favorable prices it received from Car Sound were unwarranted.12
3. Duty To Inquire
Finally, the court rejected Gorlick’s argument that the very favorable prices Allied received required it to inquire whether Car Sound was offering it unlawfully discriminatory prices. According to the Ninth Circuit, the only decision relied on by Gorlick for this alleged obligation was a 47‐year‐old Ninth Circuit decision in which the buyer had sought and obtained an assurance from its suppliers that none of the buyer’s competitors would be offered the same deal—a Most Favored Nations Plus requirement of a nature that Allied had not sought from Car Sound. 13
In sum, the Ninth Circuit concluded that Gorlick had failed to show that Allied had actual knowledge, trade knowledge or a duty to inquire whether the favorable prices it received might be prohibited by the R–P Act, and summary judgment dismissal was affirmed.14
The Ninth Circuit Gorlick decision underscores why an allegedly injured customer has a very difficult task in proving that a competing customer violated Section 2(f) of the R‐P Act—even when the applicable supplier has violated the statute and the favored customer is actually aware that it has received discriminatory prices. The receipt of better‐than‐published prices, without more, is insufficient, at least according to the Ninth Circuit. The plaintiff must also prove that the favored customer had actual knowledge, or should have known from its trade experience, that the prices it was charged were in fact unlawful. As the Ninth Circuit pointed out, R‐P:
“doesn’t prohibit buyers from haggling for a better deal...To put a buyer at risk of liability any time he asks for a lower‐than‐listed price would do enormous damage to the ‘sturdy bargaining between buyer and seller for which scope was presumably left’ by our antitrust laws.”15
Thus, if the buyer is purchasing at a much higher volume than the plaintiff, and/or is offering more marketing and promotional services to the supplier, the plaintiff may find it very difficult to prove that the favored customer has “knowingly” obtained an unlawfully lower price in violation of §2(f). This suggests that a buyer should not demand a price advantage, and should not seek information about the prices being charged to competitors.
While not mentioned in the Ninth Circuit decision, there often is another statutory protection available in cases such as Gorlick. If the favored customer has requested that the supplier meet the pricing offered by a competitor, both the supplier and the buyer likely have avoided R‐P entirely under the “meeting competition” defense available to the supplier.16