Ninth Circuit Rejects Extending Buyer Liability For Price Discrimination

An effort to extend buyer liability for price discrimination was rejected by the U.S. Court of Appeals for the Ninth Circuit in its affirmance of the dismissal of price discrimination and vertical restraint of trade claims made by car parts dealer Gorlick Distribution Centers LLC against its competitor Allied Exhaust Systems Inc.

The appellate court affirmed summary judgment in favor of Allied on the Robinson-Patman Act and Sherman Act claims alleged by Gorlick in Gorlick Distribution Centers LLC v. Car Sound Exhaust System Inc.  Gorlick claimed that Allied got discriminatory terms from Car Sound Exhaust Systems Inc., a manufacturer of aftermarket auto parts.

Gorlick sued Allied and Car Sound in July 2007, claiming that Car Sound illegally offered Allied preferential terms, including lower prices on merchandise, volume discount pricing (even when volume requirements were not met), free shipping in the Pacific Northwest and higher year-end sales rebates.  Gorlick viewed this as illegal price discrimination, and sued under section 2(f) of the Robinson-Patman Act, claiming that Allied knew that the preferential terms were not warranted by cost differences.  Gorlick also argued that the agreement between Allied and Car Sound resulted in an unreasonable vertical restraint of trade under Section 1 of the Sherman Act.  Car Sound settled with Gorlick in 2008.

Price discrimination claims under the Robinson-Patman Act have fallen into disfavor in recent decades as a result of increasingly restrictive court interpretations of price discrimination claims and lessened government enforcement of price discrimination prohibitions.  Robinson-Patman was passed to prevent price discrimination, specifically to protect smaller buyers from the harm that dominant buyers could cause to competition by obtaining lower prices than small buyers could demand.  However, buyers are not liable if they are merely innocent recipients of discriminatory prices.  In order to hold a buyer liable for paying a discriminatory price, the plaintiff must show that the buyer knew that it was receiving a lower price than a competitor and that the seller would have “little likelihood of a defense” for offering a lower price.

The Ninth Circuit agreed with the district court that Gorlick presented insufficient evidence that Allied had such knowledge.  The court stated that although Allied was aware of the favorable pricing and terms, “Gorlick presents no evidence that Allied knew these benefits resulted from anything other than significant differences in how the two companies did business.”

The Ninth Circuit held that Gorlick could not base a price discrimination claim on the limited duty of a buyer to inquire whether it is receiving illegal discriminatory prices because there was no evidence that such a duty existed here.  Gorlick failed to produce evidence that would have given rise to a duty to inquire, such as evidence that Allied had induced Car Sound to offer the preferential pricing only to Allied.  Distinguishing Ninth Circuit precedent applying such a duty to inquire, the court stated that “[h]olding that Allied had a duty to inquire into the prices offered to its competitors would drastically expand the scope of that duty, and we decline to do so here.”

The Ninth Circuit also rejected Gorlick’s claim that the vertical restraints of trade adopted by Allied and Car Sound were unreasonable under the Sherman Act.  The court held that while such restraints may have injured Gorlick, they did not harm competition in the market given the competition that Car Sound faced from other manufacturers.  The court stated that “[s]o long as other manufacturers compete with Car Sound, which they do, and Gorlick sells those other brands, which it does, vibrant interbrand competition will act as a check on any intrabrand advantage that Allied may receive on Car Sound products.”