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Third Circuit Rules Against Customer in Robinson-Patman Act Case Despite 10% Discount Defendant Provided to the Customer’s Sole Competitor

Related Lawyers: Irving Scher
Related Practice Areas: Antitrust / Competition
Authors: By Irving Scher*

Robinson-Patman Act decisions are rare. This often is because legitimate complaints against a supplier providing favorable pricing to a complaining customer’s competitors either are settled out of court or prior to a decision on the merits. So it is of interest when a price discrimination suit that was dismissed after a bench trial reaches and is affirmed by a court of appeals. This happened in July when the Third Circuit affirmed such a decision, ending a saga that could be entitled “The Empty Chair."[1]

Background

The appeal in Spartan Concrete Prods. v. Argos USVI Corp. stemmed from a dispute over the sale of ready-mix concrete in St. Thomas. Spartan Concrete, which operated in St. Croix, arrived to compete with Heavy Materials, the only other provider of ready-mix concrete on St. Thomas. A price war arose, and after three years Spartan discontinued business in St. Thomas.[2] Spartan then brought suit against Argos USVI, a St. Thomas vendor of bulk cement, which is necessary to make ready-mix concrete. Spartan claimed that Argos gave Heavy Materials a 10% volume discount during the period Spartan operated in St. Thomas, which was not made available to Spartan. The discount allegedly caused its losses, eventually driving Spartan out of business in St. Thomas. The district court dismissed the suit after trial on the ground that Spartan had not suffered “antitrust injury,” as required by Section 4 of the Clayton Act in a treble damage suit under the federal antitrust laws.[3] Spartan appealed.

The Third Circuit Ruling

Spartan’s argument on appeal was quite simple. Argos was the only supplier of bulk cement on St. Thomas during the three years of competition between Spartan and Heavy Materials, which were the only two suppliers of ready-mix concrete on St. Thomas. It was undisputed that cement costs accounted for almost 13% of Spartan’s total costs, and that during the entire period, Argos gave Heavy Materials—which accounted for on average, 77 to 80 percent of Argos’s bulk sales—a 10 percent volume discount. Spartan claimed that the discount “gave Heavy Materials such a competitive advantage on St. Thomas that Spartan had to cease operations there."[4]

As noted above, the district court had dismissed the suit despite Spartan having established all the elements of a price discrimination violation of Section 2(a) of the Robinson-Patman Act, because Spartan had not proven “antitrust injury”—“some showing of actual injury attributable to something the antitrust laws were designed to prevent,”[5] as required for all federal antitrust treble damage claims. Specifically as to the Robinson-Patman Act, “a plaintiff must prove a causal connection between the price discrimination and actual damage suffered.”[6] The Third Circuit confirmed that Spartan had failed to meet this obligation in the evidence it provided. The court summarized Spartan’s evidence of antitrust injury as follows:

  • Spartan’s management consultant testified that there was a “generalized atmosphere that drove Spartan out of the marketplace.”[7]
  • Two Spartan employees testified that “customers chose to purchase from either Heavy Materials or Spartan primarily on the basis of price.”[8]
  • Heavy Material’s manager and owner “admitted price played a factor in the market.”[9]
  • It was the “brutal price war” “fueled by” the discount to Heavy Materials that “caused Spartan to go out of business.”[10]

The Third Circuit responded, first, that Spartan’s management consultant premised his testimony that Spartan went out of business because of the price difference was on “an assumption.” He did not point to any analysis performed to verify that assumption, and conceded that there were no records to show the reasons customers purchased from one or the other of the competitors. Perhaps of most significance, the court stressed: “Nor did Spartan identify or provide testimony from lost customers.”[11]

According to the Third Circuit, these “assumptions and generalized statements about price fall short of the requirement to show an ‘actual injury attributable to the alleged price difference.’”[12] In particular, Heavy Materials’ owner had testified that large purchases were based on quality rather than price, Spartan confirmed that it lost profits because of its short-term plan to sell below marginal cost, and that it lost revenue when it wrote off a large sum in bad debts from customers. The Third Circuit concluded: “All of this evidence breaks the ‘causal connection’ required for antitrust injury by suggesting that these factors—rather than price discrimination—contributed to Spartan’s lost sales and profits.”[13] It concluded: “Spartan has presented no evidence” linking the 10 percent volume discount to Heavy Materials to Spartan’s inability to compete in the St. Thomas market, and its ultimate exit from that market. Spartan had not only begun a price war that enabled it to compete with Heavy Materials for three years, and to gain a 30 percent market share during that period, but it “cannot show antitrust injury merely by its closure on St. Thomas."[14]

As a coda, the Third Circuit noted that Spartan’s measures of damages were legally insufficient because they failed to account for losses other than the discount to Heavy Materials in its attempt to prove its damages claim, which is required to provide a “reasonable estimate of damages that is not the product of speculation or guess work.”[15]

Analysis

There are three important lessons that can be taken away from the Third Circuit’s Spartan Concrete decision.

  • First, from a Robinson-Patman enforcement standpoint, courts require exacting proof of injury caused by discriminatory prices, not generalities, assumptions, speculation or guesswork. In particular, the district court in this case made the point that there was no customer testimony supporting the claim that business was lost because of the price discrimination provided to the favored customer. That “empty chair” at trial might even had been of more importance if the case had been tried before a jury.
  • Section 4 of the Clayton Act, which applies to all treble damage claims under the federal antitrust laws, requires proof of “antitrust injury,” which has been defined by the Supreme Court as a showing of “actual injury” attributable to something the antitrust laws were designed to prevent.”[16] The relationship between the defendant’s illegal activity and the alleged injury suffered must be reasonably proven. There must be direct evidence of such injury. As already noted with respect to the Third Circuit’s Spartan Concrete decision, generalities, assumptions, speculation or guesswork is insufficient.
  • Damage claims in federal antitrust cases must take into account lost sales or profits attributable to factors other than the claimed anticompetitive conduct. Failure to do so will defeat the claim.

Footnotes

[1] Spartan Concrete Prods. v. Argos USVI Corp., 2019 WL 2896614 (3d Cir. July 5, 2019).

[2] Id. at *1.

[3] Id.

[4] Id.

[5] Id. at*4, citing J. Truett Payne Co. v, Chrysler Motors Corp., 451 U.S. 557, 562 (1981).

[6] Id., citing Stelwagon Mfg. Co. v. Tarmac Roofing Sys., Inc., 63 F.3d 1267, 1273 (3d Cir. 1995).

[7] Id. at *5.

[8] Id.

[9] Id.

[10] Id. at *6.

[11] Id. at *5.

[12] Id., citing J. Truett Payne Co. at 562.

[13] Id. at *5.

[14] Id. at *6. Of interest, the Third Circuit pointed out more than once that Spartan and Heavy Materials reached a truce in their price war by going their separate ways with Spartan agreeing to sell on St. Croix while Heavy Materials would keep selling on St. Thomas. Id. at *1, *2, *6. While recognizing that this might have been conspiratorial and re-created a monopoly in St. Thomas, the Third Circuit said no more about the matter. Perhaps this was because the district court had denied a belated motion by Argos to file a counterclaim challenging the conduct.

[15] Id. at n.2.

[16] J. Truett Payne Co. at 562.

*Irving Scher is senior counsel in the New York office.