“Economists instrumental in Robinson-Patman cases” – BRG counters response on economic implications of Robinson-Patman Act
This is an Insight article, written by a selected partner as part of GCR's co-published content. Read more on Insight
US Wholesale Outlet & Distr et al v Innovation Ventures LLC et al
Spartan Concrete Prods v Argos USVI Corp
Volvo Trucks North America Inc v Reeder-Simco GMC IncMarjam v Firestone
|Court||US Supreme Court|
|Cause of action||Anticompetitive conduct|
In response to our previously published article on GCR, Irving Scher wrote that Robinson-Patman Act secondary-line suits are “usually an incompatible pairing with economists”. While Scher makes important points about the legal thresholds of the Robinson-Patman Act, we disagree with his reasoning for why an economist’s role would be limited. As the standard for empirical rigour in antitrust litigation continues to increase, the changing landscape makes economists instrumental in Robinson-Patman cases for both plaintiffs and defendants aiming to set out reliable evidence. Multiple examples of prominent and/or recent Robinson-Patman cases demonstrate this, all of which involved a testifying economist in some capacity (US Wholesale Outlet & Distr et al v Innovation Ventures LLC et al, 21-55397, Ninth Circuit, 2023 and Marjam Supply Co v Firestone Building Products Co LLC et al, 2:11-cv-07119 DNJ 2019).
Additionally, three out of four notable cases cited in Jim Probasco’s Business Insider article “Robinson-Patman Act: A federal law aimed at leveling the playing field between small and large businesses” involved an economic expert (11 July 2022). The one case that did not, Spartan Concrete Prods v Argos USVI Corp, notes in its decision that:
…by relying on testimony of employees about the importance of price in the market and not presenting evidence of lost customers, Spartan made the same errors in establishing antitrust injury. So the District Court did not err when it found that Spartan did not provide sufficient evidence for antitrust damages, as Pede’s assumptions and generalized statements about price fall short of the requirement to show an ‘actual injury attributable to’ the alleged price difference (Spartan Concrete Products LLC v Argos USVI Corp, no 18-1942, Third Circuit 2019, p12-13).
The Morton Salt presumption
The Robinson-Patman Act requires that price discrimination must likely “‘…injure, destroy, or prevent competition’ to the advantage of a favored purchaser” (Volvo Trucks North America Inc v Reeder-Simco GMC Inc, 546 US 164, p3 (2006); FTC, “Price Discrimination: Robinson-Patman Violations”). Competitive injury, as Scher notes in his article, “may be presumed if a favoured competitor received ‘prolonged and substantially better’ pricing” (ie, the Morton Salt presumption). However, Scher understates the economist’s role in proving this presumption. At its core, the Morton Salt presumption is an economic issue. The measurement of price itself and the comparison of it across various dimensions are often central issues requiring economic expertise. In the case of pharmaceuticals, for example, the concept of price is complicated by multiple rebates, discounts and multi-payor arrangements that invalidate naive comparisons of ‘list’ price.
This means, then, that the Morton Salt presumption is not self-evident, as Scher seems to imply, since there is no clear guidance on what qualifies as a prolonged or even substantial price difference.Expert economic analysis adds weight and rigour to test a Morton Salt inference through detailed investigation of transactional data, supply chains and related documentation in order to assess the alleged price differential between favoured and disfavoured buyers. As explained by Karen Kim in a Columbia Law Review article supported by guidance from FTC Chair Lina Khan, “[p]laintiffs…need to engage economic experts at early stages of the litigation to establish the Morton Salt presumption” (Karen Kim, “Amazon-Induced Price Discrimination Under the Robinson-Patman Act”, Columbia Law Review, vol 121, no 6 2021). Kim goes on to conclude that:
…estimating the price differential between the wholesaler’s price charged to favored versus disfavored buyers requires significant statistical analysis beyond the expertise of lawyers (emphasis added).
In addition, to provide direct evidence of antitrust injury, plaintiffs might consider an economic study of the potential “causal connection between the price discrimination and actual damages suffered”, such as through lost sales or profits (Marjam v Firestone, case no 2:11-cv-07119, p3).
This type of investigation would likely require rigorous economic analyses – beyond the purview of lawyers – to estimate a price “that would have [been] paid but for the price discrimination” (Kim, p178).In contrast, defendants might consider economic studies “breaking the causal connection between a price differential and lost sales or profits”.
Economists increasingly critical
Scher also advances the claim that economists are not necessary to prove that alleged favoured and disfavoured customers are competitors. However, proving direct competition between customers has been the source of active debate in the recent Robinson-Patman case concerning 5-Hour Energy (US Wholesale Outlet & Distr et al v Innovation Ventures LLC, no 21-55397). In this case, the Ninth Circuit instructed a California federal judge to reconsider denying the plaintiff’s bid for injunctive relief. The court ordered this review after discovering that Costco (the favoured purchaser) was in fact operating at the same functional level of the disfavoured wholesalers in the matter.
To establish whether two customers are direct competitors, an economist might study factors such as their geographic markets, the cross-elasticity of demand and other demographics of their customers to estimate an “overlapping customer base” (Kim, pp175, 178; US Wholesale Outlet & Distr et al v Innovation Ventures LLC, no 21-55397, p23). Economists, as opposed to lawyers, are best equipped to undertake such studies.
Economists can make several other evidentiary contributions to these cases. For example, defendants may advance an affirmative cost-justification defence, which would require an economist to study the causal link between cost savings and functional discounts. Precisely because the technical burden of proof to make a cost-justification argument is high, expert economic analysis is relevant to mounting this defence (Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice, 5th edition (2015), pp 784-785). Additionally, if plaintiffs are seeking damages, an economic expert is necessary to estimate lost profits due to the conduct by establishing a ‘but-for’ price under counterfactual circumstances.
While we agree that qualitative proof (eg, business documents, depositions and other market facts) is vital to provide support for a price discrimination case, rigorous economic analysis is increasingly essential in Robinson-Patman cases. If the FTC’s recent investigations of competition in the soft drink and alcohol industries are any indication, the number of economic questions raised by Robinson-Patman secondary-line claims are likely to increase substantially (Josh Sisco, “Pepsi, Coke soda pricing targeted in new federal probe”, Politico, 9 January 2023; Josh Sisco, “Feds target alcohol pricing in new antitrust probe”, Politico, 30 March 2023).