Jury Clears Chrysler of RP Discrimination: Lower Prices Were “Functionally Available”

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Jury Clears Chrysler of RP Discrimination: Lower Prices Were “Functionally Available”

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Steven J. Cernak, Jessica Sprovtsoff

Last week, a federal jury in Northern California found that Fiat Chrysler’s U.S. entity did not violate the Robinson-Patman Act (RP) prohibition on price discrimination with its dealer incentive programs. Even though this is another RP victory for defendants, the case shows how fact-intensive these cases can be and why manufacturers selling through distributors must pay close attention to all of RP’s intricacies.

The case involved Stevens Creek, a dealer of Chrysler-branded vehicles in San Jose. It filed suit in 2013 claiming that Chrysler discriminated against it and otherwise treated it unfairly in various ways. The sole surviving claim that went to the jury last week was that Chrysler’s volume pricing discounts for dealers violated Section 2(a) of RP.

RP is a heavily criticized Depression-era statute that has seen no federal enforcement for more than fifteen years. Private litigants still often make claims, however, and manufacturers that sell through distributors must structure prices and discounts with RP’s elements in mind. Recently, some antitrust commentators have called for a “rejuvenation” of RP enforcement.

Section 2(a)’s prohibition of price discrimination requires several elements that can be summarized as follows:

  1. A difference in price
  2. In reasonably contemporaneous sales to two competing buyers from a single seller
  3. Involving commodities
  4. Of like grade and quality
  5. That may injure competition.

Here, Stevens Creek claimed that the net prices of the vehicles it purchased from Chrysler were higher than those charged competing dealers. This alleged disparity was caused by Chrysler’s annual incentive program for dealers that gave dealers payments for hitting volume targets based on sales objectives. Stevens Creek claimed that the result of this alleged discrimination was a loss of hundreds of sales worth approximately $1.7M.

The jury, however, found that these incentives were “functionally available” to Stevens Creek. This judge-made doctrine finds no Section 2(a) liability where the lower prices are available to the plaintiff. However, that availability must be more than theoretical—the plaintiff must be able to qualify for the lower prices in order to make them “functionally available.”

Chrysler had argued that Stevens Creek could have qualified for the payments by following the strategy of nearby Chrysler dealers and lowered its prices and sold more vehicles; instead, it chose to keep prices high and so did not qualify for the incentive payments. The jury found that there was insufficient evidence of a “difference in price” and never reached the more difficult question of competitive injury, seemingly agreeing with Chrysler that Stevens Creek could have attained sales that would have generated incentive payments.

With so few RP cases generating judgments or opinions, each one must be analyzed for lessons for other parties. (We did so for another important opinion earlier this year.) Here, a well-designed and implemented program of sales objectives and payments allowed Chrysler to convince a jury that the lower net prices really were available to Stevens Creek. As a result, no RP violation was found.

A key way to head off most RP challenges (and to win those that are made) is to design and implement effective pricing and distribution programs in the first place. Attorneys from Schiff Hardin’s Antitrust & Trade Regulation team stand ready to help you do just that—we’ve even written the book on it.

*Schiff Hardin represents Fiat Chrysler in other matters but did not participate in this case.