The Robinson-Patman Act provides price discrimination in the sales of commodities of like grade or quality. In Water Craft Management LLC v. Mercury Marine, No. 04-31139 (5th Cir. 2006), plaintiff Water Craft, a retailer of outboard motors, sued its supplier, Mercury Marine, alleging that Mercury engaged in price discrimination prohibited by the Robinson-Patman Act by offering Water Craft’s largest competitor, Travis Boating Center, discounts that far exceeded those offered to Water Craft. Mercury invoked the "meeting competition" defense to price discrimination claims, i.e. that the lower price offered to Travis was a good faith attempt to meet the low price offered to Travis by Mercury’s competitor. After a bench trial, the district court agreed with Mercury that the meeting competition defense applied and entered judgment in favor of Mercury. Water Craft appealed to the Fifth Circuit, arguing that the district court erred in applying the meeting competition defense because (1) the district court’s factual finding that Mercury’s price discrimination was a good faith response to its competitor’s low prices was erroneous and (2) where a defendant offers a price to the favored purchaser that is not as low as the price offered by the defendant’s competitor, as was the case here, the defendant cannot, as a matter of law, avail itself of the meeting competition defense. The Fifth Circuit rejected these arguments and upheld the district court ruling. 

Reviewing the district court’s factual findings for clear error, the Fifth Circuit noted that the focus of the meeting competition defense to price discrimination is the defendant’s good faith belief that the price concession is being offered to meet a low price offered by its competitor. In United States v. United States Gypsum Co., 98 S.Ct. 2864 (1978), the Supreme Court identified indicia of good faith for determining whether the meeting competition defense should apply. Among these considerations are whether the defendant had received reports of discounts from other customers, whether the seller attempted to corroborate reported discounts by checking such reports against documentary evidence and market data, and whether the seller was threatened with a termination of purchases if it did not discount its price. 

In this case, the evidence showed that Mercury attempted to sell to Travis several times and was rebuffed because of its competitor’s lower price. Mercury attempted to corroborate its approximation of its competitor’s bid by consulting persons with knowledge of it and analyzing reports of discounts and pricing in the marketplace. Furthermore, as in the case where a defendant lowers its prices to avoid termination by a customer, the fact that Travis would not buy from Mercury until it lowered its price and the fact that Mercury’s purpose appeared to be to win new business away from its competitor are similarly indicative that "the final lower price was necessary to compete, not a predatory attempt to undermine competition." Since Mercury received reports of discounts being offered by its competitor from several sources, proactively attempted to corroborate these reports, and appeared to be motivated by the prospect of winning a new customer away from a competitor with a lower price, the Fifth Circuit opined, Mercury had shown the indicia of good faith identified in United States Gypsum

Water Craft nevertheless argued that Mercury’s discount was offered not as a response to its competitor’s lower price but, rather, for the purpose of winning Travis’s business so it could participate in and benefit Travis’s rapid growth in the region. Although there was evidence suggesting that Mercury initially pursued Travis, which was rapidly expanding in the region and would sometimes buy out Mercury retailers and then not sell Mercury motors through them, the court found that the particular discount offered to Travis was "driven entirely by price negotiations in which Travis, like any savvy buyer, used [the price offered by Mercury’s competitor] to extract deep discounts from Mercury." As such, the Fifth Circuit ruled, the district court did not clearly err in finding that Mercury’s price discrimination was a good faith response to a competitor’s lower price. 

The Fifth Circuit was similarly unconvinced by Water Craft’s contention that Mercury’s discount to Travis did not meet competition because Mercury’s price to Travis was not as low as the price offered by Mercury’s competitor. In support of this argument, Water Craft cited Falls City Industries, Inc. v. Vanco Beverage Inc., 460 U.S. 428 (1983), in which the Supreme Court explained that "a seller’s response must be defensive, in the sense that the lower price must be calculated and offered in good faith to ‘meet not beat’ the competitor’s low price." According to Water Craft, this statement from the Supreme Court indicates that the discriminatory price must meet and not exceed the competitor’s low price. Characterizing this reading of FallsCity as "counter intuitive" and "strained," the Fifth Circuit further noted that the focus of a meeting competition defense is the defendant’s intent to meet a competitor’s price, not the actual correspondence between prices. Moreover, Falls City itself indicates that the meeting competition defense applies even where, as here, the defendant knew that its discriminatory price was not as low as its competitor’s price because it stated that a defendant may engage in price discrimination where it was reasonable to believe that a competitor was offering a price equal to or lower than the defendant’s discriminatory price. 

Accepting Water Craft’s argument would also run counter to the Congress’s intent in passing the Robinson-Patman Act. The purpose of the Act was to protect small retailers against price favoritism shown by manufacturers to larger retailers. Water Craft’s argument would require a defendant to offer a discriminatory price that is even lower than necessary to win business from the defendant’s competitor in order for the defendant to avail itself of the meeting competition defense. This result is clearly contrary to the Act’s purpose of reducing disparities between small and large retailers.

Finally, the Fifth Circuit also rejected Water Craft’s attempt to narrow the meeting competition defense because the availability of this defense is necessary to reconcile the Robinson-Patman Act with the general goal of the antitrust laws of fostering competition. As recently as Volvo Trucks North America, Inc. v. Reeder Simco GMC, INc., 126 S.Ct. 860 (2006), the Supreme Court has reaffirmed that the Act must be construed consistently with the overarching policies of the antitrust laws. As the Supreme Court put it in Great Atlantic & Pacific Tea Co. v. Pacific Tea Co., Inc., 99 S.Ct. 925 (1979), "the right of a seller to meet a lower competitive price in good faith may be the primary means of reconciling the Robinsion-Patman Act with the more general purposes of the antitrust laws of encouraging competition between sellers."     

Authored by:

Anik Banerjee

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