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Legal Update

Jury Clears Chrysler in Dealer’s Robinson-Patman Act Price Discrimination Suit

3 November 2016
Mayer Brown Legal Update

On October 13, 2016, following a two-week trial and a day of deliberation, a federal jury found that Fiat Chrysler’s dealer incentive program did not violate the Robinson-Patman Act’s prohibition against price discrimination. The verdict brought to an end more than three years of litigation between Chrysler and Stevens Creek, a San Jose-based car dealership. The case highlights two competing themes that have played out in recent years: (1) structured dealer incentive programs remain susceptible to Robinson-Patman claims; and (2) Robinson-Patman plaintiffs continue to face difficulty in successfully prosecuting their claims in light of the available defenses.

Section 2(a) of the Robinson-Patman Act prohibits a manufacturer from charging competing retailers different prices for the same goods where the price discrimination threatens to injure competition. However, there will be no finding of liability where the lower price was “functionally available” to the complaining customer. This requires availability that is more than theoretical. As courts have explained, the functional availability defense applies where the favorable price was available “not only in theory but in fact.”1

At issue here was a Chrysler incentive program that provided incentive payments to dealers who met or exceeded predetermined sales objectives. Stevens Creek initially succeeded in meeting these objectives but fell short when a competing Chrysler dealer opened a new location in the region in late 2010. Stevens Creek argued that the incentive program did not take into account the entrance of new dealers and that Chrysler used a different formula for calculating the new competitor’s sales targets under the program. Additionally, Stevens Creek alleged that over a period of eleven months, the new competitor received more incentive payments while selling fewer cars. Stevens Creek claimed that once these incentive payments were factored in, the net prices of the vehicles Stevens Creek purchased from Chrysler were higher than those purchased by the allegedly competing dealer.

Chrysler argued to the jury that Stevens Creek had the option of lowering its prices and selling more vehicles, as neighboring dealers had done. Instead, Stevens Creek made the “irrational business decision” to keep its prices above competitive levels. The dealership responded that it could not have lowered its prices without significantly affecting its bottom line. Ultimately the jury agreed with Chrysler, finding the evidence of potential hardship caused by lower prices unconvincing and that the incentive program was functionally available to the dealership.

In many ways, this is not a novel case. Several dealerships have filed Robinson-Patman claims in recent years based on alleged discrimination in the application of dealer incentive programs, though none have proceeded as far as Stevens Creek.2 While the jury verdict for Chrysler will be weighed carefully by future Robinson-Patman plaintiffs, price discrimination claims by aggrieved dealers will remain an ongoing litigation risk. Manufacturers should be aware of the potential for these suits and structure their programs to allow for a functional availability defense. This requires making sure that each rival dealer has the ability to meet incentive requirements “not only in theory but in fact” and that the terms of the program are monitored to account for potentially disruptive events, such as the arrival of a new distributor.

1 Smith Wholesale Co., Inc. v. R.J. Reynolds Tobacco Co., 477 F.3d 854, 864 (6th Cir. 2007); Comcoa, Inc. v. NEC Telephones, Inc., 931 F.2d 655, 664 (10th Cir. 1991); Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 637 F.2d 105, 120 (3rd Cir. 1980).
2 See e.g., Complaint, Bedford Nissan, Inc. v. Nissan N. Am., Inc., 1:16-cv-00423 (N.D. Ohio Feb. 23, 2016) (ECF No. 1); Irma Braman, et al. v. General Motors, LLC, No. 1:12-cv-20671-JEM (S.D. Fl. July 3, 2013) (order of dismissal with prejudice in light of settlement); Danvers Motor Co., Inc. v. Ford Motor Co., 543 F.3d 141, 147-48. (3rd Cir. 2008); Cascade Motorsports of Oregon v. Am. Suzuki Motor Corp., 2004-2 Trade Cas. ¶ 75, 549 (D. Or. Aug. 16, 2004).

Authors

  • Adam L. Hudes
    T +1 202 263 3298
  • Stephen M. Medlock
    T +1 202-263-3221
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