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From Antitrust Law Daily, July 22, 2013

Favored auto parts distributor lacked knowledge to be liable under Robinson-Patman Act

By Jeffrey May, J.D.

The U.S. Court of Appeals has returned a “capitalist rumble” between auto parts distributors Gorlick Distribution Centers and Allied Exhaust Systems “to the forum where it belongs: the market.” Noting that “[f]avorable prices that improve one distributor’s competitive position do not necessarily violate the antitrust laws,” the appellate court affirmed summary judgment in favor of Allied on Gorlick's Robinson-Patman Act and Sherman Act claims (Gorlick Distribution Centers, LLC v. Allied Exhaust Systems, Inc., July 19, 2013, per curiam).

Gorlick challenged preferential terms that Car Sound Exhaust System, a muffler and catalytic converter manufacturer, allegedly offered to Allied but not to Gorlick. Allied was Car Sound’s “number one account.” It purportedly received the following preferential terms: free shipping of its product to the Pacific Northwest; lower prices on merchandise; volume discount pricing even when the volume requirements weren’t met; and higher year-end sales rebates.

Gorlick alleged that Allied violated section 2(f) of the Robinson-Patman Act, which prohibits the knowing receipt of price discrimination. Allied did not dispute, for the most part, that it received advantageous terms. Instead, Allied argued that it did not know what prices other distributors received, and therefore could not knowingly have received discriminatory prices.

The appellate court rejected Gorlick's argument that, at the summary judgment stage, a court had to infer that the favored buyer knew it was receiving unfair prices because the seller was offering it bulk discounts even when it failed to buy bulk quantities. The court rejected the view that a favored buyer was on notice that it was receiving discriminatory prices when the seller departs from its published prices. “The receipt of better-than-published prices, without more, does not satisfy section 2(f)’s knowledge requirement,” according to the court.

The court also rejected Gorlick's contentions that Allied should have known that it was receiving discriminatory prices based on its “trade experience” or that it had a duty to inquire whether the favorable prices it received might be prohibited by the Robinson-Patman Act.

Sherman Act claim

An alleged agreement between Allied and Car Sound regarding the manufacturer's shipping policy that purportedly handicapped Gorlick's ability to sell Car Sound products at competitive prices would not have constituted a Sherman Act violation, the court also ruled.

Even assuming that a vertical agreement existed and that it affected the price of Car Sound products, Gorlick produced no evidence that the vertical restraint actually injured competition in the market for automotive exhaust products as a whole. In addition to Car Sound, there were other manufacturers that provided substitutable products, several of which Gorlick sold. These competitors acted as a check on Allied’s ability to increase prices.

“Far from hampering competition, the alleged vertical restraint helped ensure that Allied would continue promoting Car Sound parts, so they could compete effectively against products offered by other manufacturers,” the court explained.

Concurring/Dissenting Opinion

Circuit Judge Richard Paez issued a separate opinion, concurring in part and dissenting in part. While agreeing with the disposition of the Robinson-Patman Act claim, Judge Paez would have remanded the Sherman Act claim to the district court for further development of the record on the alleged anticompetitive effects of the challenged agreement. The lower court had rejected the Sherman Act claim, after concluding that Gorlick failed to establish that Allied and Car Sound acted in concert to limit Gorlick’s access to Car Sound products in the Pacific Northwest. In the alternative, it held the Sherman Act claim time-barred.

Although the majority had concluded that “[s]ending this issue back to the district court would be a waste of time and judicial resources,” Judge Paez believed that the appellate court should not have reached the merits of Gorlick’s Sherman Act claim.

The case is No. 10-36083.

Attorneys: David C. Lundsgaard (Graham & Dunn PC) for Gorlick Distribution Centers, LLC. Timothy G. Leyh (Danielson Harrigan Leyh & Tollefson LLP) for Allied Exhaust Systems, Inc.

Companies: Allied Exhaust Systems, Inc.; Car Sound Exhaust System, Inc.; Gorlick Distribution Centers, LLC.

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