In the magazine distribution business, wholesalers purchase magazines from distributors and resell them to retailers. In the early 1990’s, magazine wholesalers operated in defined geographic territories, facing little competition from other wholesalers. Large chain retailers with businesses in many territories, however, desired wholesalers who were capable of serving multiple or all of their retail outlets across geographic territories. The chains began shifting business to such wholesalers and inviting bids from them for contracts wherein the chains would agree to a multi-year commitment in exchange for discounted prices. One wholesaler, Charles Levy Circulating Co. (“Levy”), allegedly gained a large share of the market by entering into such contracts with the chains. Many other wholesalers, however, either went out of business or experienced declining profits as this new trend took hold.

Some of the wholesalers competing with Levy brought suit against the magazine distributors, alleging that the distributors engaged in price discrimination in violation of Robinson-Patman Act §2(a) by providing secret discounts, rebates, other payments, services of value and other benefits to Levy. In December 2004, on a motion for summary judgment, the Southern District of New York dismissed all of the plaintiffs’ theories of price discrimination except plaintiffs’ claim that the defendant distributors’ magazine return polices resulted in price discrimination with Levy as the favored purchaser and the plaintiffs as the disfavored purchasers. The court stated that the plaintiffs would prevail on their return policy claim if they showed that the defendants’ return policies affected the price for magazines, that the policies in fact resulted in discriminatory prices, and that any such discriminatory pricing is attributable to the distributors and not the publishers. On September 22, 2005, however, the Southern District, in United Magazine Co. v. Murdoch Magazines Distribution, Inc., S.D.N.Y., No. 00 civ. 3367 (PKC), dismissed plaintiffs’ return policy theory on a motion for summary judgment.

The plaintiffs’ return policy theory was essentially that the distributors allocated more magazines to the plaintiffs than Levy with knowledge of what percentage of these magazines would sell so that the plaintiffs would have a higher proportion of unsold magazines they would have to return. The plaintiffs argued that this damaged them because they had to absorb the cost of laying out these extra magazines and returning them when they didn’t sell. The defendants responded with evidence that they did not discriminate in the allocation of magazines they made to wholesalers and that differences between wholesalers in what proportion of magazines they were able to sell were not attributable to the distributors. The plaintiffs responded that the distributors gave Levy “assistance so that its labor would be less by handling fewer magazines…which resulted in substantial savings over what Plaintiffs were required to spend thereby increasing Plaintiffs’ costs for the same magazine titles.”

The court held that plaintiffs’ return policy theory simply did not state a viable claim under Section 2(a) of the Robinson-Patman Act. The Act forbids price discrimination and “price” has been defined as the “‘net price received by the seller from the two buyers in question'” (quoting Conoco, Inc. v. Inman Oil Co., 774 F.2d 895, 902 (8th Cir. 1985)). In the words of the court, “The fact that a purchaser may incur expenses not incurred by a competitor may increase the purchaser’s costs, or reduce their profits, but it does not change the net price paid by either the purchaser or the competitor to the seller.” Further, the plaintiffs’ claim could not be sustained under the theory that there was “indirect” price discrimination. The “indirect” price discrimination that is actionable under the Robinson-Patman Act is limited to rebates, discounts, free goods, promotional payments, or some form of compensation given by the seller to the buyer. In this case, the purported assistance given to Levy did not appear to be a form of compensation. In fact, the court observed, even if the plaintiffs’ theory was legally cognizable, the plaintiffs offered no evidence at all as to the form of the purported assistance given to Levy to reduce its handling costs. Thus, the defendants were entitled to summary judgment.

An alternative ground for the court’s ruling was that the plaintiffs failed to raise a triable issue of fact as to whether they suffered antitrust injury. In Robinson-Patman Act cases, the plaintiff must show a causal connection between the illegal price discrimination and the injury suffered. There must be some direct evidence of this relationship. Plaintiff’s theory in this case was that the discriminatory pricing policy caused “price erosion,” which the plaintiffs defined as “‘decline of Plaintiffs’ margins.'” The only evidence proffered by the plaintiffs for this theory was a declaration of the Vice Chairman of one of the plaintiff wholesalers, David Thompson. In his declaration, Thompson stated that the competitive nature of the industry required the plaintiffs to always meet Levy’s price because they had to assume Levy was an actual or prospective competitor and that, in doing so, plaintiffs had to lower their profit margins on all of their bids since 1996 in order to offset the Levy’s discriminatory price advantage. The court noted that a self-serving affidavit that reiterates conclusory allegations is insufficient to survive a summary judgment motion. The court also noted that Thompson’s statement that the plaintiffs had been lowering their profit margins since 1996 to offset Levy’s discriminatory price advantage directly contradicted his own prior deposition testimony that the plaintiffs did not know that Levy was obtaining a lower price until 2003. Finally, the plaintiffs did not refute evidence produced by defendants that the declining margins throughout the magazine wholesaling industry were attributable to substantial unrelated factors. Indeed, Thompson’s affidavit acknowledged that the profit margins on the plaintiffs’ bids were falling even in the absence of any knowledge that Levy was competing in their markets or receiving favorable pricing from the defendant. Thus, in light of the lack of any serious evidence in support of a causal relationship between the alleged price discrimination and plaintiffs’ declining profit margins, the court was confident in its conclusion that dismissal of plaintiffs’ claim on summary judgment was proper.

Authored by:
Anik Banerjee