Lewis v. Philip Morris Inc. , 355 F.3d 515 ( 2004 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Lewis et al. v. Nos. 01-6174/6502
ELECTRONIC CITATION: 2004 FED App. 0022P (6th Cir.) Philip Morris, Inc.
File Name: 04a0022p.06
Decided and Filed: January 15, 2004
UNITED STATES COURT OF APPEALS Before: MOORE and ROGERS, Circuit Judges; KATZ,
FOR THE SIXTH CIRCUIT District Judge.*
_________________ _________________
JAMES A. LEWIS , doing X COUNSEL
business as B&H Vendors; -
- ARGUED: John M. Shoreman, McFADDEN &
PENN VENDING COMPANY ; SHOREMAN, Washington, D.C., for Appellants. Jerome I.
- Nos. 01-6174/6502
EAGLE COIN MACHINE ; - Chapman, ARNOLD & PORTER, Washington, D.C., for
BELFIORE MUSIC & > Appellee. ON BRIEF: John M. Shoreman, Douglas B.
,
CIGARETTE COMPANY ; B&G McFadden, McFADDEN & SHOREMAN, Washington,
-
ENTERPRISES, LTD .; ALL D.C., for Appellants. Jerome I. Chapman, ARNOLD &
- PORTER, Washington, D.C., R. Dale Grimes, BASS,
BRANDS VENDING CO ., INC.; - BERRY & SIMS, Nashville, Tennessee, for Appellee. James
CLASS A VENDING ; C.I.C. - L. O’Connell, LINDHORST & DREIDAME, Cincinnati,
CORPORATION ; MELO -TONE - Ohio, for Amicus Curiae.
-
VENDING , INC.; T.D. ROWE
- ROGERS, J., announced the judgment of the court and
CORPORATION , -
Plaintiffs-Appellants, - delivered an opinion, in which MOORE and KATZ,
concurred except as to Part II.B. MOORE, J. (pp. 32-41),
- delivered a separate opinion, in which KATZ, D. J.,
v. - concurred as to the issues addressed in Parts I and II, which
- constitutes the opinion of the court on these issues.
-
PHILIP MORRIS -
INCORPORATED , _________________
-
Defendant-Appellee. - OPINION
- _________________
N
Appeal from the United States District Court PER CURIAM. Judge Moore would reverse on all the
for the Middle District of Tennessee at Nashville. claims as to which the district court granted summary
No. 99-00099—Thomas A. Higgins, District Judge.
Argued: April 30, 2003 *
The Honorable David A. Katz, United States District Judge for the
Northern District of Ohio, sitting by designation.
1
Nos. 01-6174/6502 Lewis et al. v. 3 4 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
judgment. Judge Rogers would affirm the summary judgment lacked statutory standing, but that the remaining plaintiffs
against plaintiffs who have purchased indirectly from who have standing are in competition with the other retailers.2
defendant, but he would reverse summary judgment entered
against plaintiffs who purchase directly from defendant. I. BACKGROUND
Judge Katz would find that all violations of the Act are
properly analyzed under §§ 2(d) and (e) and not § 2(a), and A. The Robinson-Patman Act
thus would affirm summary judgment as to the § 2(a) claims
on grounds alternative to those relied on by the district court. The Robinson-Patman Act was passed in 1936 as an
Summary judgment is therefore REVERSED on Count I as to amendment to the Clayton Act.3 The Clayton Act is an
all plaintiffs and on Count II as to those plaintiffs who antitrust law that primarily protected against “primary line”
purchase directly from defendant and AFFIRMED on Count price discrimination, or price discrimination tending to injure
II as to those plaintiffs who do not purchase directly from the price discriminator’s competitors. 14 Hovenkamp,
defendant, and the case is REMANDED for further Antitrust Law: An Analysis of Antitrust Principles and Their
proceedings. Application, ¶ 2302 (1999) (Hovenkamp) (“[T]he concern
with original § 2 of the Clayton Act was entirely with what
ROGERS, Circuit Judge. This case involves the grant of we today would call ‘primary-line’ price discrimination.”);
summary judgment in favor of Philip Morris, Inc.1 in a see also George Haug Co., Inc. v. Rolls Royce Motor Cars,
Robinson-Patman Act case. Cigarette vending machine Inc., 148 F.3d 136, 141 n.2 (2d Cir. 1998) (defining primary-
owners and operators (“vendors”) sued Philip Morris under line price discrimination). In response to criticism that the
section 2 of the Clayton Act, as amended by the Robinson- Clayton Act did not protect small retail stores from the
Patman Act, 15 U.S.C. §§ 13(a), (d), and (e) (the “Act”), concentrated buying power of larger chain stores, Congress
alleging that Philip Morris had violated these provisions by passed the Robinson-Patman Act. The reason for its
failing to provide vendors with promotional fees and enactment was to “curb and prohibit all devices by which
programs in the same manner that it provided such fees and large buyers gained discriminatory preferences over smaller
programs to other retailers. The district court granted Philip ones by virtue of their greater purchasing power.” FTC v.
Morris summary judgment, holding that eight out of ten of the Henry Broch & Co., 363 U.S. 166, 168 (1960). The
plaintiff vendors did not have standing because they did not Robinson-Patman Act protects against primary-line
purchase cigarettes directly from Philip Morris, and, violations, see, e.g., FTC v. Anheuser Busch, Inc., 363 U.S.
alternatively, no plaintiffs proved that they were in 536 (1960), and also, significantly for this case, against
competition with the other retailers. I would hold that the “secondary-line” violations, those that occur “when a seller’s
vendors who did not purchase directly from Philip Morris
2
Judges Mo ore and Katz concur in this opinion except as to Part II.B.
3
W e must visit this statutory realm although “[n]o one, it appea rs,
1
dwells longer than necessary in the land of Robinson-Patman.” Hugh C.
Philip Morris, Inc. changed its name effective on January 15, 2003, Hansen, Robinson -Patma n Law: A Review and Analysis, 51 Fordham L.
to Philip M orris U SA, Inc. Rev. 111 3, 11 18 (198 3).
Nos. 01-6174/6502 Lewis et al. v. 5 6 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
discrimination impacts competition among the seller’s Ranch Party ‘99 Programs. Vendors allege that after the
customers; i.e., the favored purchasers and disfavored programs went into effect, vendors were unable to compete
purchasers.” George Haug Co., supra. The present case with the convenience stores’ low prices, thereby incurring
involves an alleged secondary-line violation because it is the substantial losses.
competitors of the favored purchasers that are claiming
discrimination rather than the competitors of Philip Morris. C. Statutory scheme
B. The Cause of the Controversy Claiming that they are “in competition” with convenience
stores, vendors alleged violations of sections 2(a), 2(d) and
This case involves claims that Philip Morris discriminated 2(e) of the Robinson-Patman Act. Section 2(a) prohibits a
against machine vendors of cigarettes in favor of another class supplier from “discriminat[ing] in price between different
of cigarette seller—convenience stores, mini-marts and gas purchasers of like grade and quality” where “the effect is
stations (collectively referred to as “convenience stores”). On substantially to lessen competition.”5 15 U.S.C. § 13(a).
November 1, 1998, Philip Morris terminated a program, Section 2(a) protects against direct and indirect price
called Plan MV, under which it paid fees to vendors if they discrimination. American News Co. v. FTC, 300 F.2d 104,
followed certain guidelines regarding the placement of 109 (2d Cir. 1962). Direct discrimination occurs when a
advertising materials on their vending machines and the
location of Philip Morris cigarettes in certain slots of the
5
machines. Philip Morris thereafter instituted new programs Section 2(a) pro vides in part:
for convenience stores that provided for price promotions,
product promotions, and incentive promotions in exchange (a) Price; selection of customers. It shall be unlawful for any
perso n engaged in commerce, in the course of such commerce,
for the convenience stores’ participation in the programs. either directly or indirectly, to discriminate in price between
Under the new price promotion programs, Philip Morris paid different purchasers of commodities of like gra de an d quality,
an amount of money to convenience stores for every carton or where either or any of the purchases involved in such
pack of Philip Morris cigarettes sold as long as the customer discrimination are in commerce, where such commod ities are
received a discount in an amount equal to the price sold for use, consumption, or resale within the United States
promotion.4 An example of a product promotion was one in . . ., and where the effect of such discrimination may b e
substantially to lessen com petition or tend to crea te a mo nop oly
which, if the consumer bought one pack, the consumer would in any line of commerce, or to injure, d estroy, or prevent
get one pack free. With an incentive promotion, the stores competition with any p erson who e ither grants or knowing ly
were given gifts to give away to cigarette purchasers. These receives the benefit of such discrimination, or with customers of
programs were called the Retail Masters, Retail Leaders and either of them.
15 U.S.C. § 13(a). Although the statute refers to price discrimination, it
4
has been interpreted to prohibit price differences. F.T.C. v.
One example of a price promotion program took place after Philip Anheuser-Busch, Inc., 363 U.S. 536 , 549 (1960 ) (primary line case); but
Morris entered into a settlement with states’ attorneys general that see FLM v. Collision Parts, Inc. v. Fort Motor Co., 543 F.2d 1019 (2d
provided for a mand atory payment of 45 cents per pack sold into a Cir. 1976) (secondary line case holding that equality of treatment among
settlement fu nd . P hilip M orris increased the cost of its cigarettes by 45 purchasers does not require a single uniform price under all
cents, but Philip Morris agreed to rebate the 45 cents to convenience circumstances); Edw ard J. Sweeney & Sons v. Texaco, Inc., 637 F.2d 105,
stores p articipa ting in pro motio nal pro grams. 120 (3d Cir. 1980) (similar).
Nos. 01-6174/6502 Lewis et al. v. 7 8 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
seller charges different prices to different buyers. Robbins furnishes the service itself to the buyer, Section 2(e)
Flooring, Inc. v. Fed. Floors, Inc., 445 F. Supp. 4, 8 (E.D. Pa. applies.”7 Kirby v. P.R. Mallory & Co., 489 F.2d 904, 909
1977). Indirect discrimination occurs “when one buyer (7th Cir. 1973) (quoting F.T.C. Guides for Advertising
receives something of value not offered to other buyers,” such Allowances and Other Merchandising Payments and Services
as free goods. Id. (1960)).
Section 2(a) applies only if “two or more consummated Among those “services and facilities” held to be within
sales of commodities of like grade and quality are made at Sections 2(d) and 2(e) have been any kind of advertising,
discriminatory prices by the same seller to two or more catalogs, demonstrators, display and storage cabinets,
different purchasers contemporaneously or within the same display materials, hand bills, special packaging or
approximate time period.” Hugh C. Hansen, Robinson- package sizes, warehouse facilities, accepting returns for
Patman Law: A Review and Analysis, 51 Fordham L. Rev. credit, prizes or merchandise for conducting promotional
1113, 1127-28 (1983) (footnotes omitted). Therefore, to be contests, and “monetary awards” paid by the seller to
able to sue under section 2(a), the plaintiff must be a
“purchaser.”
or facilities furnished by or through such customer in connection
In a secondary-line section 2(a) case, the plaintiff who is with the processing, handling, sale, or offering for sale of any
the disfavored purchaser, must show that it competes with the products or commodities manufactured, sold, or offered for sale
favored purchaser. O’Byrne v. Cheker Oil Co., 727 F.2d 159, by such person, unless su ch pa yment or consideration is
availab le on proportionally equal terms to all other customers
164 (7th Cir. 1984); National Distillers & Chem. Corp. v. competing in the distrib ution of such pro ducts or co mmo dities.
Brad’s Mach. Prods., 666 F.2d 492, 496 (11th Cir. 1982);
M.C. Mfg. Co. v. Texas Foundries, 517 F.2d 1059, 1066 (5th 15 U.S.C. § 13(d). Section 2(d)’s prohibition includes “paying
Cir. 1975). To show that the disfavored purchaser is injured, allowances for advertising or other sales promotion services or facilities.”
the disfavored purchaser and the favored purchaser must be Schoenkopf v. Brow n & Williamson Tobacco Corp., 637 F.2d 205, 209
(3d Cir. 19 80); see also American News Co., 300 F.2d at 109 (“Section
in the same geographic market. Hovenkamp ¶2333b3. 2(d) was aimed explicitly at promotional allowances which have the effect
of price adjustments.”).
Sections 2(d) and (e) of the Act deal with discrimination in
the field of promotional services made available to purchasers 7
Section 2(e) provid es:
who buy for resale. Where the seller pays the buyer to
perform the service, Section 2(d) applies.6 “Where the seller (e) Furnishing services or facilities for processing, handling, etc.
It shall be unlawful for any person to discriminate in favor of
one purchaser against another purchaser or pu rchasers of a
6
com mod ity bought for resale, with or without processing, by
Section 2(d) provides: contracting to furnish or furnishing, or by contributing to the
furnishing of, any services or facilities connected with the
(d) Payment for services or facilities for processing or sale. It processing, handling, sale, or offering for sale of such
shall be unlawful for any person engaged in commerce to pay or com mod ity so purchased up on term s not accord ed to all
contract for the payment of anything of value to or for the purchasers on proportionally equal terms.
benefit of a customer of such person in the course of such
commerce as compensation or in consideration for any services 15 U.S.C. § 13 (e).
Nos. 01-6174/6502 Lewis et al. v. 9 10 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
clerks, salesmen, and other employees of the customer D. Proceedings below
for special sales or promotional efforts.
Vendors8 filed suit against Philip Morris alleging that it had
Cecil Corley Motor Corp., 380 F. Supp. at 850 (citation violated sections 2(a), 2(d) and 2(e) of the Robinson-Patman
omitted). Sections 2(d) and (e) tend to be considered Act. Vendors alleged (1) that Philip Morris did not offer the
together. See Kirby, 489 F.2d at 909 (“[Section] 2(e) has long promotional allowances and rebates to vendors on
been viewed as coterminous with § 2(d), and courts have proportionally equal terms as the convenience stores; (2) that
consistently resolved the two sections into an harmonious the prices paid by vendors were not proportional to the prices
whole.”). paid by the convenience stores after taking into account the
rebates and promotional allowances; and (3) that Philip
In order to bring a private enforcement action under the Morris provided the convenience stores with advertising
Robinson-Patman Act, the plaintiff must be a “purchaser” or services and materials without offering the same to vendors,
“customer.” See §§ 2(a), (d), and (e); Barnosky Oils, Inc. v. all in violation of sections 2(d) and 2(e). Vendors further
Union Oil Co. of California, 665 F.2d 74, 84 (6th Cir. 1981) alleged that Philip Morris committed price discrimination in
(finding that plaintiff that did not purchase directly from violation of section 2(a) by offering the rebates and
defendant was not a “purchaser” under §2(a) of the Act). promotional allowances to the convenience stores without
Although section 2(d) refers to “customers” and section 2(e) making the offers available to vendors.
deals with “purchasers,” the words in those two subsections
have been interpreted to have the same meaning. Hovenkamp Philip Morris moved for summary judgment on the grounds
¶ 2363b. Also, as with § 2(a), a plaintiff alleging a violation that (1) eight vendors did not purchase directly from Philip
of §§ 2(d) and (e) must show that the it competes with the Morris and the other two only purchased some of their
favored purchaser, and the competition must be in the same cigarettes from Philip Morris and therefore vendors did not
geographic area. George Haug Co., Inc., 148 F.3d at 145
(stating, in relation to section 2(d) and 2(e) claims, “[t]he
plaintiff must demonstrate that the goods or commodity apply 8
only to offers to customers competing in the same geographic This case began with over 200 vendors, but the district court entered
an order severing the claims of eleven vendors and consolidating those for
area”). pretrial proceedings. One vendor’s claims were voluntarily dismissed,
leaving ten vendors in this appeal. Those ten vendors are James A. Lewis
d/b/a B& H V endors, B &G Enterprises, Ltd., P enn T riple S trading as
Pen n Ve nding Compa ny, Eagle Co in M achine , All Brands Vending Co.,
Inc., Belfiore Music & Cigarette Co., Class A Vending, Melo-Tone
Vending, Inc., T .D. Rowe C orp., and C.I.C. Corporation. All parties
entered into a joint written stipulation that if the district court’s order is
not reversed o n app eal, the claims of the remaining plaintiffs will be
dismissed with prejudice. The parties also stipulated that if the claims of
all the plaintiffs are dism issed with prejudice in their entirety, the
counterclaims of Philip M orris will be dism issed with prejudice. The
district court accordingly made an ex press determination pursuan t to
F.R.Civ.P. 54(b) that there was no just reason for delay in permitting an
app eal of its sum mary judgm ent ord er in this case.
Nos. 01-6174/6502 Lewis et al. v. 11 12 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
have standing, (2) vendors did not prove that cigarette sales B. Statutory Standing11
declined in response to the promotional programs, and (3)
vendors did not prove that the vending machines were in 1.
competition with the convenience stores.
The district court in this case found that those vendors who
The district court granted summary judgment against eight purchased cigarettes through a wholesaler did not have
vendors for lack of standing,9 partial summary judgment statutory standing. The district court’s conclusion is correct,
against the remaining two vendors for lack of standing,10 and but some additional steps are necessary to arrive at that
in the alternative concluded that summary judgment would be conclusion. Relying upon our decision in Barnosky Oils, Inc.
proper against all ten plaintiff vendors for failure to show that v. Union Oil Co. of California, 665 F.2d 74 (6th Cir. 1981),
they compete with the convenience stores. the district court reasoned that Philip Morris did not so
completely control the prices by which wholesalers sold to
II. ANALYSIS vendors as to meet the requirements of the so-called “indirect
purchaser” theory. The “indirect purchaser” theory considers
A. Standard of Review a plaintiff who has purchased through a middleman to be a
“purchaser” for Robinson-Patman purposes if the supplier
The standard of review of a district court’s grant of “sets or controls” the resale prices paid by the plaintiff.
summary judgment is de novo. Williams v. General Motors Barnosky Oils, 665 F.2d at 84. On appeal, vendors argue that
Corp., 187 F.3d 553, 560 (6th Cir. 1999). Summary the Supreme Court’s decision in FTC v. Fred Meyer, Inc., 390
judgment will be granted where there exists no genuine issue U.S. 341 (1968), requires the conclusion that a retailer buying
of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. through a wholesaler can state a Robinson-Patman claim
242, 248 (1986). “We must view the evidence, all facts, and without being a direct purchaser as long as the retailer
any inferences that may be drawn from the facts in the light competes with a favored retailer who is a purchaser from the
most favorable to the nonmoving party.” Skousen v. Brighton supplier. Here, however, unlike in Fred Meyer, the allegedly
High Sch., 305 F.3d 520, 526 (6th Cir. 2002). favored retailers (the convenience stores) also buy through
wholesalers. Vendors argue that the indirect purchaser
theory, typically used to show that the disfavored retailer is a
purchaser, may be used to establish that the favored retailer is
a purchaser. If so, vendors argue, Fred Meyer establishes that
the fact that they compete with the convenience stores is
sufficient for the vendors to have standing, even though the
plaintiff vendors buy through wholesalers.
9
Tho se vendors we re B&H Vendors, B& G E nterprises, Ltd., Eagle In order to reconcile the holdings of Fred Meyer and our
Coin Machine, All Brands Vending Co., Inc., Belfiore M usic & Cigarette subsequent holding in Barnosky Oils, it is necessary to
Co., Class A Vending, Me lo-Tone Ve nding, Inc., and T.D. Rowe Corp.
10
The two vendors were Penn Triple S trading as Penn Vend ing 11
Comp any, and C.I.C. Corporation. Judges M oore and K atz do not concur in this subsection.
Nos. 01-6174/6502 Lewis et al. v. 13 14 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
distinguish between claims brought under section 2(a) and supplier that another is not getting. But Congress saw fit to
claims brought under sections 2(d) and (e). Barnosky Oils distinguish between the two, apparently on the basis of how
was a section 2(a) case, while Fred Meyer was a section 2(d) indirect the benefit was. Unlike section 2(a), violations of
case. The parties appear to talk past each other on appeal, in sections 2(d) and 2(e) do not explicitly require an injury to
part because they—like the district court—treat section 2(a) competition.13 In addition, with respect to sections 2(d) and
and sections 2(d) and (e) as if, for the purposes of this case, 2(e) the defendant does not have the same defenses that a
they should be analyzed the same way. It is easier, however, defendant has under section 2(a). Under section 2(a) a
to reconcile the controlling case law by treating section 2(a) defendant has two defenses: cost justification and meeting
separately from sections 2(d) and (e). When separately competition. Under sections 2(d) and (e), the defendant only
considered, it becomes clear that the district court was correct has the meeting competition defense. Hovenkamp ¶ 2322; see
in granting summary judgment against the plaintiff vendors also Note, The Distinction Between the Scope of Section 2(a)
who purchase through wholesalers.12 and Sections 2(d) and 2(e) of the Robinson-Patman Act, 83
MICH. L. REV . 1584, 1585-86 (1985). Given that Congress
2. distinguished between section 2(a) claims on the one hand,
and section 2(d) and (e) claims on the other, roughly on the
Section 2(a) deals with price discrimination in the original basis of the indirectness of the discrimination, it makes sense
sale to the purchaser, whereas sections 2(d) and (e) address that holdings regarding the closeness of the competing
the purchaser’s subsequent resale of the product. Sections purchasers to the suppliers be limited to the particular
2(d) and (e) prohibit discrimination in giving, or reimbursing statutory context in which they arose, at least where that
for, promotional services to purchasers who buy for resale. permits us to reconcile controlling precedents.
Rickles, Inc. v. Frances Denney Corp., 508 F. Supp. 4, 6
(D.C. Mass. 1980) (“‘(A) seller’s payments as well as The Supreme Court’s holding in Fred Meyer dealt with
services in connection with the original sale to the purchaser section 2(d), and therefore does not support plaintiff vendors’
rather than with regard to the purchaser’s subsequent resale arguments regarding their claims under section 2(a). In Fred
were not cognizable under §§ 2(d) or 2(e) but were Meyer, Fred Meyer, a large retail supermarket, annually
challengeable only under § 2(a) as indirect price conducted a sale campaign by selling coupon booklets to
discrimination.’” (quoting Kirby v. P. R. Mallory & Co., Inc., customers for ten cents. The booklet contained coupons for
489 F.2d 904, 909 (7th Cir. 1973)) (alternation in original)). products sold by Fred Meyer, some amounting to a one-third
Economists might observe that the ultimate economic effect reduction in cost. Id. at 344-45. Each coupon related to a
of the different types of discrimination (i.e., price specific product and the suppliers of the products paid Fred
discrimination and discrimination in providing services that
increase resales) is the same, since in either case one
purchaser for resale is getting an economic benefit from the
13
In private suits, however, courts have required injury-in-fact and
causation. Rutman Wine Co. v. E. & J. Gallo W inery, 829 F.2d 729, 734
12
(9th Cir. 1987) (noting that a plaintiff must allege an “actual injury
My analysis does not req uire that plaintiffs’ § 2(a) claims be attributable to something the antitrust laws were designed to prevent” and
analyzed as § 2(d) and (e) claims. Such a recategorization was not argued that its “failing to receive a promotional allowance . . . adversely affected
by the p arties in this case. its ability to co mpe te with favo red comp etitors”); Hovenkamp ¶ 236 3.
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Philip Morris, Inc. Philip Morris, Inc.
Meyer $350 for each page advertising the product in the rather than the two wholesalers, were competing customers
booklet. Also, some suppliers would give Fred Meyer “price under the statute.” Id. at 348.
reductions on its purchases of featured items, by replacing at
no cost a percentage of the goods sold by [Fred] Meyer during The Supreme Court reached its holding by starting with the
the campaign, or by redeeming coupons in cash at an agreed premise that “on the facts of this case, § 2(d) reaches only
rate.” Id. at 345. Fred Meyer’s sale campaign was very discrimination between customers competing for resales at the
successful, and the $350 paid by suppliers more than paid for same functional level and, therefore, does not mandate
the costs of publishing and distributing the booklets. Id. at proportional equality between [Fred] Meyer and the two
345 n.4. The promotional benefits provided by the suppliers wholesalers.” Id. at 348-49. After reviewing the legislative
to Fred Meyer were not bestowed upon other retailers that history of § 2(d), the Court found that the promotional
purchased from wholesalers. The Federal Trade Commission allowances were forms of indirect price discrimination
found that because smaller retailers could not shift their advertising costs
as the larger retailers could by inducing the suppliers to
this promotional scheme . . . violated §§ 2(d) and 2(a) in provide allowances. “Congress chose to deter such indirect
the following respects: First, the $350 paid to Meyer by price discrimination by prohibiting the granting of sales
each of four suppliers participating in the campaigns promotional allowances to one customer unless accorded on
represented promotional allowances paid in violation of proportionally equal terms to all competing customers.” Id.
§ 2(d) because similar allowances were not made at 352.
available on proportionally equal terms to competing
customers. Second, the additional value given Meyer by The Court defined “customers” to include those “retailers
these suppliers in the form of discounts, free who buy through wholesalers and compete with a direct buyer
replacements of goods sold and coupon redemptions in the resale of the supplier’s product.” Id. at 354. The Court
amounted to price discrimination prohibited by § 2(a). analyzed the meaning of “competition” as found in § 2(d) and
concluded that Congress intended the term to cover
Id. at 345. competition “between buyers who competed in resales of the
supplier’s products.” Id. at 356. Therefore, the Court
The Supreme Court, focusing its decision solely on § 2(d), concluded that “the most reasonable construction of § 2(d) is
found that the “discriminatory promotional allowances” given one which places on the supplier the responsibility for making
to Fred Meyer by two suppliers were covered under § 2(d). promotional allowances available to those [retailers] who
Id. at 348. Those allowances were given when two suppliers, compete directly with the favored buyer.” Id. at 357. In light
Tri-Valley Packing Association and Idaho Canning Company, of the Commission’s argument that it would create a huge
(1) replaced without charge every third can of product sold burden on manufacturers to have to bypass wholesalers and
under a three-for-the-price-of-two coupon campaign and provide allowances to all of their retailers, the Court seemed
(2) paid Fred Meyer $350 for a page in the coupon book. Id. to narrow its holding: “We hold only that, when a supplier
at 346. These allowances were not “made available to gives allowances to a direct-buying retailer, he must also
wholesalers who purchase from the supplier and resell to the make them available on comparable terms to those who buy
direct-buying retailer’s [Fred Meyer’s] competitors.” Id. at his products through wholesalers and compete with the direct
347. The Court held that “[Fred] Meyer’s retail competitors, buyer in resales.” Id. at 358.
Nos. 01-6174/6502 Lewis et al. v. 17 18 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
The Supreme Court in Fred Meyer carefully limited its so would arguably require vertical price maintenance in
decision to the section 2(d) context, and the Court has not violation of the Sherman Antitrust Act. FLM Collision Parts,
subsequently extended it to the section 2(a) context.14 It Inc. v. Ford Motor Co., 543 F.2d 1019, 1026 & n.8 (2d Cir.
makes sense not to extend the Fred Meyer analysis to section 1976); see also The Iams Co. v. Falduti, 974 F. Supp. 1263,
2(a), since the focus of 2(a) is the discrimination in the price 1271-72 (E.D. Mo. 1997). But see Diehl & Sons v. Truck
to the purchasers, not a discrimination in helping purchasers Rent-a-Center, 445 F. Supp. 282, 286-87 (E.D. N.Y. 1978)
sell to others.15 Some courts have explicitly refused to extend (distinguishing FLM Collision Parts); Julius Nasso Concrete
the Fred Meyer analysis to section 2(a) cases, because to do Corp. v. DIC Concrete Corp., 467 F. Supp. 1016, 1019-20
(holding Fred Meyer rationale applies equally to sections 2(a)
and 2(d)).
14
It is true that in Perkins v. Standa rd Oil Co. of C aliforn ia, 395 U.S. Moreover, this court’s decision in Barnosky Oils implicitly
642 (1969), the Sup reme Court, in dealing with an issue involving section rejected the applicability of the Fred Meyer approach to
2(a), relied on Fred Mey er for the general proposition that the word
“customer” in § 2(a) as well as § 2(d) should not be read to allow
section 2(a) claims. In Barnosky Oils, a supplier (Union) was
avoidance of the Act’s purposes “by the simple expedient of adding an alleged to have price discriminated in favor of direct
additional link to the distribution chain.” 395 U.S. at 647-48 . However, purchasing dealers over dealers who purchased through
the issue in Perkins was the extent of da mages where the supplier wholesalers (“Union jobbers” such as Barnosky). This court
discriminated among direct purchasers, and the Supreme Court held that rejected the Robinson-Patman § 2(a) claim because a party
damages could include those suffered as a result of the favored purchaser
passing on its savings d own the line to third and fourth level purchasers.
alleging price discrimination under Robinson-Patman “must
The holding, dealing as it did with the scope of relief, did not extend the prove that the same seller charged different prices to different
Fred Mey er analysis to find a violation of section 2(a) in the first place on purchasers.” 665 F.2d at 83. Because the dealers who
the basis of price d iscrimina tions against truly indirect purchasers who purchased through Barnosky did not purchase directly from
merely can b e said to com pete with favored direct purcha sers. Union, and Union did not control the sale between Barnosky
15 and its purchasers, there was no § 2(a) violation by Union. If
It is true that some cases state that “purchaser” in section 2(a) the Fred Meyer analysis had been applied, Barnosky would
should be interpreted the same as “customer” in section 2(d ). American
News Co. v. FTC, 300 F.2d 104, 10 9 (2d Cir. 1962); Brewer v. Uniroyal,
not have had to show that Union controlled the sale between
Inc., 498 F.2d 973, 977 (6th Cir. 1974) (dictum). However, these cases Barnosky and its purchasers, but only that Barnosky’s
did not hold that a Fred Mey er analysis should be extended to section 2(a) purchasers were in competition with the dealers who bought
claims. American New s held in effect that “customer” in section 2(d) directly from Union. The absence of such an analysis in
should be interpreted at least as broadly as “purchaser” in section 2(a). Barnosky Oils strongly suggests that the Fred Meyer analysis
For the reasons sta ted in the text, the reverse is not true, and American is not applicable to § 2(a) claims.
News did not reach that issue. See the Second Circuit’s later o pinion in
FLM Collision Parts, Inc. v. Ford Motor Co., 543 F.2d 101 9, 10 26 n. 8
(2d Cir. 1976) (“It is true that in some instances the word ‘customer’ in The vendors’ § 2(a) claims should therefore be analyzed
§ 2(d) and the word ‘purchaser’ in § 2(a), are to be given the same under Barnosky Oils. Under this court’s holding in that case,
meaning, see, e.g., Am erican N ews . . ., but the Supreme Court limited its vendors can only bring §2(a) claims if vendors can show that
holding in Fred M eyer, In c. . . . to § 2(d) cases” ). This court’s dictum in Philip Morris controlled the sale by wholesalers to the
Brewer also dealt with a very distinct issue from the one resolved in Fred
Meyer: whether a subsidiary could be considered a purchaser or customer
vendors. While vendors argue on appeal that Philip Morris
unde r either p rovisio n of the A ct. controlled the prices charged by wholesalers to convenience
Nos. 01-6174/6502 Lewis et al. v. 19 20 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
stores (an issue dealt with below), they make no such 3.
argument with respect to their own purchases from
wholesalers, and the record does not support such control. In With respect to vendors’ section 2(d) and (e) claims, on the
the present case, there is no evidence cited by either party or other hand, the Barnosky Oils requirement (that plaintiffs
the district court that the convenience stores buy directly from either purchase directly from the supplier or have the terms of
Philip Morris. The indirect purchaser doctrine, recognized by plaintiffs’ purchase from wholesalers be controlled by the
many courts to permit § 2(a) claims to go forward where there supplier) is arguably not applicable because of the Supreme
is such control, accordingly does not apply in this case.16 As Court’s analysis in Fred Meyer.17 Fred Meyer held that a
we said in Barnosky Oils, “[t]he purpose of the indirect supplier could violate § 2(d) by discriminating against
[purchaser] doctrine is to prevent a manufacturer from indirect buyers as long as the indirect buyers were
insulating itself from Robinson-Patman liability by using a competitors of its direct buyers. To apply the Fred Meyer
‘dummy’ wholesaler to make sales at terms actually analysis in this case, however, would require us to extend the
controlled by the manufacturer.” 665 F.2d at 84. Absent any holding of that case to situations where there is alleged
indication in the record that Philip Morris “actually discrimination against indirect buying competitors of the
controlled” the terms of sale by wholesalers to vendors, supplier’s indirect buyers. In Fred Meyer, the favored
Barnosky Oils requires us to affirm the district court’s purchasers (buyers) were direct purchasers. As Philip Morris
summary judgment regarding section 2(a) claims brought by points out on appeal, vendors have cited no cases in which
vendors who purchase through wholesalers. See also Pierce neither the favored nor the disfavored buyers were direct
v. Commercial Warehouse, 876 F.2d 86, 87 (11th Cir. 1989); purchasers from the allegedly discriminating supplier. It can
Hiram Walker, Inc. v. A & S Tropical, Inc., 407 F.2d 4, 7-8 be assumed, as vendors argue, however, that if the favored
(5th Cir. 1969). buyer met the requirements of the indirect purchaser doctrine,
the Fred Meyer analysis would permit a section 2(d) or (e)
claim.18 On this assumption, it is necessary for us to examine
whether there was such control by Philip Morris of the sales
by wholesalers to the convenience stores.
16
The doctrine ha s been explained by the Seventh Circuit:
17
If a seller can control the terms upon which a buyer once Fred Meyer was an FTC enforcement action, as opposed to a
removed may purchase the seller's prod uct from the seller's private party case. Philip Morris argues tha t Fred Mey er thus did not
imme diate buyer, the buyer once removed is for all practical, address statutory standing to bring a private suit. Regardless, the Court
econom ic purp oses d ealing directly with the seller. If the seller did define “custom er” and there is no reason why this definition could not
controls the sale, he is responsible for the discrimination in the also ap ply to a p rivate party action under the A ct.
sale price, if there is such discrimination. If the seller cannot in 18
some manner control the sale between his immediate buyer and In other words, a supplier could not discriminate against the
a buyer once removed, then he has no power by his own action competitor of a favored indirect purchaser in the provision of services if
to prevent an injury to competition. the supplier so controlled the terms of the sale by the wholesaler to the
favored indirect purchaser, that the favored indirect purchaser should be
Purolator Products, Inc. v. FTC, 352 F.2d 87 4, 883 (7th Cir. 1968). considered a favored direct purchaser.
Nos. 01-6174/6502 Lewis et al. v. 21 22 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
Vendors argue that Philip Morris controls the resale of its It appears from this evidence that Philip Morris has some
products by convenience stores. According to vendors, Philip control over the resale of its products by the convenience
Morris does this by: 1) controlling the price of cigarettes by stores. Such control is, however, not sufficient to bring this
requiring stores that participate in the promotional programs case within the Fred Meyer analysis. While Philip Morris
to pass the discounts along to customers, 2) having its field may have required the amount of discounts, it did not set the
representatives solicit stores to participate in the promotional underlying prices for sale by the wholesalers, nor could the
programs, 3) other interactions between Philip Morris’s field wholesalers be considered “dummy” companies. It would
representatives and the convenience stores such as oversight therefore be too great an extension of Fred Meyer to find that
of the programs, 4) reserving the right to cancel the program the competitors (vendors) of indirect purchasers like
if a particular store does not comply with the contract, and convenience stores are competing “customers” or
5) requiring the convenience stores to provide Philip Morris “purchasers” for purposes of sections 2(d) and (e). In Fred
with reports of sales. Meyer the Supreme Court reasoned that “customer” should be
defined “to include retailers who purchase through
Darrell Moody, Territory Sales Manager at Philip Morris, wholesalers and compete with direct buyers in resales”
testified that he provides the stores with a Retailer because
Understanding Form that the stores fill out. The form
contains the store’s name, the brands on sale, and “the amount a narrower reading of §2(d) would lead to the following
for Philip Morris per each price off, the specific pieces of anomalous result. On the one hand, direct-buying
point of sale and the specific placement thereof.” When the retailers like Meyer, who resell large quantities of their
stores return the forms to Moody, he verifies the amount sold supplier’s products and therefore find it feasible to
by the stores with the wholesaler invoices. The wholesaler undertake the traditional wholesaling functions for
invoices are attached to the form before it is sent to Philip themselves, would be protected by the provision from the
Morris’s office. There is a separate form for noncompliance granting of discriminatory promotional allowances to
with the promotional program contract. Moody testified that their direct-buying competitors. On the other hand,
he visits the stores and may prepare a noncompliance form at smaller retailers whose only access to suppliers is
the time he observes noncompliance. If a noncompliance through independent wholesalers would not be entitled to
form is filled out, it results in nonpayment by Philip Morris this protection. Such a result would be diametrically
to the store for that month and could even lead to termination opposed to Congress’ clearly stated intent to improve the
of the contract. competitive position of small retailers by eliminating
what was regarded as an abusive form of discrimination.
Craig Johnson, Senior Vice President of Sales at Philip If we were to read “customer” as excluding retailers who
Morris, testified that Philip Morris pays the convenience buy through wholesalers and compete with direct buyers,
stores for promotional expenses and that the promotions are we would frustrate the purpose of §2(d).
passed to the consumer. Roy Anise, Vice President for Market
Information and Planning at Philip Morris, testified that some 390 U.S. at 352 (emphasis added). This policy does not apply
of the larger convenience stores provide Philip Morris with where the favored purchaser buys indirectly from a
monthly reports, detailing the amount of sales of Philip wholesaler on terms that are not controlled by the allegedly
Morris’s products and the stores’ overall sales. discriminating supplier. Such buyers are inherently not the
Nos. 01-6174/6502 Lewis et al. v. 23 24 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
customers who “undertake the wholesaling function for 4.
themselves.”
The district court’s dismissal of plaintiff vendors who are
A determination that the Fred Meyer analysis should not be not themselves purchasers from Philip Morris should
extended to competitors of truly indirect purchasers is therefore be affirmed because (1) they do not themselves buy
supported, moreover, by a recognition that, unlike in Fred directly from Philip Morris and their own purchases from
Meyer, the circumstances of this case do not reflect the wholesalers are not controlled by Philip Morris, and (2) with
underlying concern that motivated the passage of the respect to section 2(d) and (e) claims, they cannot be
Robinson-Patman Act in the first place.19 Fred Meyer was considered customers under a Fred Meyer analysis because,
the large retailer who was taking advantage of smaller although they compete with allegedly favored purchasers, the
retailers who bought through wholesalers. The instant case, favored purchasers are not direct buying purchasers
in contrast, involves alleged discrimination among different sufficiently analogous to the large retail chains that Congress
classes of indirect purchasers, not discrimination in favor of was concerned about in passing the Robinson-Patman Act.
large direct-buying chain stores against small local stores.
There is thus no reason to expand the Fred Meyer analysis in The district court accepted that the remaining two vendors
this case to permit statutory standing on behalf of competitors that purchase part of their inventory directly from Philip
of indirect purchasers, at least where the supplier, Philip Morris do have standing under the Act, and this is not
Morris in this case, does not control the sales of the challenged on appeal.20 Therefore, it is still necessary to
wholesalers so extensively as to imply a circumvention of the determine whether these vendors were in competition with the
policies of the Act. convenience stores.
C. Competition
The district court granted summary judgment in the
alternative due to vendors’ failure to prove that their vending
machines were in competition with the convenience stores.
19 Under sections 2(a), 2(d) and 2(e), the complaining party
As the Supreme Court explained in FTC v. Morton Salt Co., 334
U.S. 37 (194 8):
must be in competition with the favored party. 21 FTC
The legislative history of the Robinson-Patman Act makes it
abund antly clear that Congress considered it to be an ev il that a 20
large buyer could secure a competitive adva ntage over a small These two vendors are Penn Triple S trading as Penn Vending
buyer solely because of the large buyer's quantity purchasing Comp any, and C.I.C. Corporation.
ability. The Robinson-Patman Act was passed to dep rive a large 21
buyer of such advantages except to the extent that a lower price In addition, vendors and convenience stores must operate at the
could be justified by reason of a seller's diminished costs due to “same functional level.” Abb ott Labs. v. Portla nd Retail D rug gists Ass'n,
quantity manufacture, delivery or sale, or by reason of the 425 U.S. 1, 12 (1976 ) (quoting FTC v. Sun Oil Co., 371 U.S. 505, 520
seller's good faith effort to meet a competitor's equally low price. (1963) (internal quotation marks omitted )). Neither party addresses this
requirement, but we find that ve ndo rs and convenienc e stores do o perate
Id. at 43. at the sam e functional level— resale o f the pro ducts.
Nos. 01-6174/6502 Lewis et al. v. 25 26 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
Guidelines, 16 C.F.R. § 240.2(a), (b);22 Hovenkamp ¶2333a. fact as to whether they were in competition with the
16 C.F.R. § 240.5 defines “competing customers” as “all convenience stores.
businesses that compete in the resale of the seller's products
of like grade and quality at the same functional level of Vendors presented the testimony of Dr. Newbern and
distribution regardless of whether they purchase directly from Professor Fanara. Dr. Newbern conducted a study of adult
the seller or through some intermediary.” Despite Philip smokers (“Newbern study”) and Professor Fanara analyzed
Morris’s argument that vendors failed to present sufficient that study. Dr. Newbern surveyed, in three cities, 315 adult
evidence of competition, we conclude that vendors did smokers who patronize bars that have vending machines. The
produce sufficient evidence to create a genuine issue of fact Newbern study showed that, of the factors that influence the
as to whether competition exists between the convenience purchase of cigarettes from convenience-type stores, easy
stores and the vending machines. access was the most given response at 40.2% overall. The
second most favored reason was that the price is lower than
Vendors argue that the district court erred by requiring vending machines, 26.4%. As for purchases from
them to provide a cross-price elasticity study to show convenience stores, 90.7% said they had recently purchased
competition.23 A Robinson-Patman plaintiff does not have to from a convenience store. The next question asked, “Where
present, however, a cross-elasticity study to show that was the location of the store in relation to this establishment?”
competition exists between it and the favored purchaser. Fifty-seven percent said that the convenience store was more
Although such a study would be helpful, competition can be than three blocks from the bar. Overall, 55.4% of participants
shown in other ways, and in the present case, vendors were aware of price promotions for Philip Morris cigarettes,
presented evidence that created a genuine issue of material and 59.1% had at some point purchased cigarettes because of
a special price or quantity promotion. More than half (50.5%)
of the participants stated that price influenced where they
22 purchased cigarettes. The price difference between vending
The FTC has pu blished guidelines for compliance with sections machines and stores that would most influence the
2(d) and 2 (e). 16 C.F.R . § 24 0.1 et seq. Although, these guidelines do
not have the force of law, see 16 C .F.R. § 240 .1, they are he lpful in participants (44.4%) to buy from a store instead of a vending
applying the Act. The FTC is “charged with the day-to-day administration machine was between fifty cents and one dollar. Thirty-five
of the Act” and its rulings sho uld be given deference. Fred Meyer, 390 percent said that they would be influenced by a difference of
U.S. at 355; see also 15 U .S.C. § 45 (F TC given p ower to prevent unfair more than one dollar. Finally, the survey asked about
com petition). vending machine use. Almost all participants (91.9%) had at
23 some time purchased from a vending machine: 71.2% within
Cro ss-elasticity of demand “measures the sensitivity of purchase the past six months, 10.9% between six months and a year,
of one good to change in the price of another good.” David N. Hyman,
Mic roeconomics 144 (4th ed. 19 97). M r. Hyman writes that “[c]ross- and 17.9% over a year ago.
elasticity of demand may be positive or neg ative. A positive cross-
elasticity of demand implies that the two goods are substitutes. Whenever Professor Fanara analyzed this data and also reviewed the
the price of one good cha nges, o ther things being equa l, the demand for testimony of several expert witnesses. He found:
the other moves in the same direction.” Id. The higher the value of cross-
elasticities, the greater the substitutability of the p roducts. Id. at 145. If Among the individuals surveyed 91.9% stated that they
the value is zero then the products are unrelated to one another, such as
typewriters and ice cream. Id.
had purchased cigarettes from a vending machine, and
Nos. 01-6174/6502 Lewis et al. v. 27 28 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
71.2% stated that they had purchased cigarettes from a in the price of [vending machine] cigarettes will compel
vending machine within less than six months. The results patrons of an establishment to forego the convenience of
of questions five, six, and seven in Table 4 of the survey purchasing cigarettes from a vending machine on site and
taken in light of economic theory, provide substantial cause them to leave this site in order to purchase their
support for competition at the same functional level, or cigarettes elsewhere.”
for the same consumer dollar.24
The Newbern study survey showed that smokers purchase
The district court held that “[t]he data collected by Dr. cigarettes both from convenience stores and vending
Newbern, which Professor Fanara relies on in formulating his machines. Even the district court found that the survey
opinion, does not reflect whether smokers switched from results showed that “some people purchase cigarettes from
using vending machines to purchasing their cigarettes solely both” convenience stores and vending machines. J.A. 121.
at convenience stores in response to the defendant’s Also, since price is a consideration, the inference may be
promotional programs.”25 J.A. 121. But vendors do not need drawn that if the price of vending machines goes beyond a
to show that smokers switched from vending machines to certain point (for example a difference of 50 cents to over
convenience store purchases on the basis of the promotional $1.00 would cause 79.4% to buy at a store rather than a
programs. Such a requirement goes to injury, and the element machine), then vending machines will lose business to
at issue on this appeal is the existence, not the amount of convenience stores selling for less.
damage to, competition. Nor must vendors show, as the
district court appeared to require, “at what point an increase In addition to the expert testimony, several vendors testified
that they were forced to remove their vending machines due
to lost sales after customers kept leaving the premises to buy
24
cigarettes at nearby convenience stores.26 Mike Savar,
Those questions and responses were: principal of Penn Vending Company, a remaining plaintiff,
testified that he received numerous phone calls from location
Question 5: Have you recently purchased cigarettes from a
convenien ce store? O verall affirmative respo nse: 90 .7% .
owners complaining about customers leaving to buy
cigarettes elsewhere. At one location, he lost the account
Question 6: Where was the location of the store in relation to this after receiving such a complaint.
establishment? W ithin one block: 23.9% ; within three blocks:
18.7 %; m ore tha n three blocks: 57.4% .
Question 7: At which store did you make your purchase? Gas 26
Philip Morris asserts that the district co urt may not rely on the
station/M ini-Mart: 41.8% ; 7-11 Convenience Store: 20.6% ; drug hearsay stateme nts related by vendors about customers leaving
store: 3.9% ; tobacco store: 2.5%; grocery store: 11.3%; other: establishments to buy cigarettes elsewhere to prove causation. See e.g.,
19.9 %. Stelwagon Mfg. C o. v. Tarm ac Ro ofing Sy s., 63 F.3d 1267 (district court
25
imprope rly considered anecdotal testimony that customers did not deal
The district court reached this conclusion and then found that there with manufacturers b ecause the evidence was admitted under Rule 803(3)
was no factual basis for vendors’ expert testimony, apparently referring but was used to prove the truth of the facts asserted). On remand, the
to Dr. Fanara . The court did no t appear to make a similar find ing with district court may decide whether vendo rs’ anecdotal testimon y is
respect to Dr. Newbern’s study and, in fact, concluded that the mo tion to adm issible as a ba sis to show that vendo rs com pete w ith convenience
strike D r. Newbern’s testimo ny was m oot. stores.
Nos. 01-6174/6502 Lewis et al. v. 29 30 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
Assuming that vendors’ testimony is admissible, this summary judgment that Philip Morris products sold in
evidence in addition to the Newbern study presents a question convenience stores competed with the same products sold in
of material fact on the issue of whether competition exists. vending machines. We therefore reverse the grant of
As Thurman Industries v. Pay 'N Pak Stores, Inc. noted, summary judgment as to the remaining plaintiffs.27
For antitrust purposes, defining the product market D. Other arguments
involves identification of the field of competition: the
group or groups of sellers or producers who have actual Philip Morris argues that we may affirm on the alternative
or potential ability to deprive each other of significant ground that vendors have not shown causation of competitive
levels of business. This definitional process is a factual injury. This is a different ground from that relied upon by the
inquiry for the jury; the court may not weigh evidence or district court. Competition may exist, of course, even though
judge witness credibility. there has been no injury to that competition. In view of the
fact-intensive nature of the injury issue, we decline to resolve
875 F.2d 1369, 1374 (9th Cir. 1989) (citations omitted). In it for the first time on appeal. The issue is more properly
contrast to the instant case, in Godfrey v. Pulitzer Publishing considered by the district court upon remand.
Co., the Eighth Circuit held that summary judgment was
proper because the disfavored dealers did nothing more than Vendors also challenge on appeal the district court’s denial
cite one instance of losing business to support the required on mootness grounds of a motion by vendors for production
showing of competition. Furthermore, the expert did “not of documents. In view of our present holding, the district
provide[] any tangible evidence, numerical or anecdotal, to
show that the branch dealers in fact compete[d].” 276 F.3d
405, 412 (8th Cir. 2002). The disfavored dealers’ conclusory 27
In addition to Philip Morris’s motion for summary judgment, the
statements that competition existed was insufficient. Id. “In district court also had before it Philip M orris’s motion to strike the expert
order to survive a motion for summary judgment, the testimony of Dr. Newbern and Professor Fanara. Philip Morris argues
non-moving party must be able to show ‘sufficient probative that vendors’ expert testimony did not meet the requirements of Federal
evidence [that] would permit a finding in [his] favor on more Rule of Evidence 702, Daubert v. Merrell Dow Pharma ceuticals, Inc.,
509 U.S. 579 (1993), Kumho Tire Co. v. Carmichael, 526 U.S. 137
than mere speculation, conjecture, or fantasy.’” Id. (quoting (1999), and their progeny. The district court found insufficient evidence
Moody v. St. Charles County, 23 F.3d 1410, 1412 (8th Cir. to show competition without having to reach the question whether
1994)). Here vendors presented more than a mere basis for Professor Fanara and Dr. N ewbern’s testimony sho uld have been stricken.
speculation or conjecture. On appeal, Philip Morris argues that this court may address this issue
because it is an alternative ground fo r summ ary jud gment.
Vendors also submitted, in response to an interrogatory, a Rule 702 provides that an expert may testify to his/her opinion if
(1) it is based upon “su fficient facts or data,” (2) it is “the product of
list of machines by zip code that assertedly compete with reliable principles and method s, and (3) the witness has ap plied the
convenience stores listed by Philip Morris for the same zip principles and methods reliably to the facts of the case.” Fed. R. Evid.
code areas. 702. A trial jud ge mu st determine w hether the exp ert testimon y is
relevant and reliable. Daubert, 509 U.S. at 589 . Given the gatekeeping
In the present case, viewing vendors’ proffers in function of the district court to determine the reliability and relevance of
combination, there was a sufficient showing to avoid expert testimony, Kumho Tire Co., 526 U.S. at 142-43, the district court
should decide on remand whether to grant this motion.
Nos. 01-6174/6502 Lewis et al. v. 31 32 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
court may consider a renewed motion to that effect on _____________
remand. We express no view on whether the motion should
be granted. OPINION
_____________
KAREN NELSON MOORE, Circuit Judge, majority in
part and concurring in part. While I agree with Judge
Rogers’s reasoning in Part II.C. of his opinion, with respect
to the question of whether the convenience stores (“stores”)
are genuinely in competition with the vending-machine
vendors (“vendors”), I do not agree that any of the plaintiff-
vendors lack statutory standing. I therefore disagree with Part
II.B., and write separately to express my conclusion that all
plaintiffs have standing to challenge what are best considered
violations of § 2(d) and (e) of the Act.
Plaintiff-vendors in this case allege violations of the
Robinson-Patman Act, 15 U.S.C. § 13(a), (d), and (e) (“Act”).
The district court granted Philip Morris’s motion for summary
judgment partially on the basis that the majority of the
plaintiffs did not have statutory standing, as they did not
purchase directly from Philip Morris. I believe that this
determination was in error, and I would therefore reverse the
district court’s judgment in its entirety.
I agree with Judge Rogers that it is best to consider
separately standing under § 2(a), prohibiting discriminatory
pricing, and under § 2(d) and (e), prohibiting discriminatory
provision of or reimbursement for promotional services.
Under either statutory provision, however, I believe plaintiffs
have standing. I would therefore allow all of the plaintiffs to
proceed on all of their claims.
Nos. 01-6174/6502 Lewis et al. v. 33 34 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
I. The Vendors’ Claims are Best Analyzed as § 2(d) promotions, which consist of payments from Philip Morris to
Claims the stores, either in the form of a product rebate or a price
rebate, seem potential § 2(a) violations as well as potential
Section 2(a) of the Act makes price discrimination, or the § 2(d) and (e) violations. Because each of these programs
contemporaneous sale of goods of like quality to two different aims at providing benefit to the retail consumer, and results
purchasers for two different prices, illegal. In addition to only in increased sales volume for the stores, rather than
“direct” price discrimination, courts have held that § 2(a) also greater profit on each individual sale through a decreased
extends to “indirect” price discrimination, where identical wholesale price, I believe these programs are each best
price structures are made disparate through, for example, the considered as § 2(d) and (e) violations. Philip Morris
granting of rebates, the payment of shipping costs, or the provides the free goods to the stores with the requirement that
provision of free goods. See Corn Prods. Refining Co. v. they pass those goods on to the ultimate retail customer;
FTC, 324 U.S. 726, 732 (1945); National Dairy Prods. Corp. Philip Morris does not provide the free goods directly to the
v. FTC, 412 F.2d 605, 608, 611-12 (7th Cir. 1969); see also stores to dispose of as they wish. Courts that find a § 2(a)
14 HERBERT HOVENKAMP, ANTITRUST LAW ¶ 2322 (1999). violation in the provision of free goods do so where free
Subsections 2(d) and (e), prohibiting the payment of goods are provided to a purchaser who is then free to sell each
“anything of value” in consideration for services rendered or good at any price she wishes. There the provision of free
facilities furnished in the resale of goods or the provision of goods makes the “actual price” paid by the retailer for each
those services or facilities themselves, also cover the individual good lower. See National Dairy Prods., 412 F.2d
provision of free goods to a reseller. 15 U.S.C. § 13(d), (e); at 608. Here, however, the profit the convenience stores
see HOVENKAMP, supra, ¶ 2322b. There is therefore some receive remains steady for each pack of cigarettes purchased,
overlap between § 2(a) and § 2(d) and (e), where a supplier as the benefit of the product rebate from Philip Morris is
provides free goods or provides rebates or other payment for always offset by the cigarettes given away. Philip Morris’s
particular services. Here, three of Philip Morris’s decision to provide free goods does not result in an overall
promotional programs are under attack as Robinson-Patman increase in the profit received on each individual purchased
violations: its price promotions, where the stores sell good. See id. I believe that the promotional programs are
cigarette packs at a discount and are refunded the amount of therefore best analyzed under § 2(d) and (e). Cf. R.J.
the discount by Philip Morris; its product promotions, where Reynolds Tobacco Co. v. Premium Tobacco Stores, Inc.,
the stores sell a certain number of packs for the price of a 2000-1 Trade Cas. (CCH) ¶ 72,799 (N.D. Ill. 1999)
lesser number of packs, and are provided the extra pack or (discussing interaction of § 2(a) and (d) and (e) vis-à-vis
packs by Philip Morris (through product rebates); and its provision of free goods).
incentive promotions, where gifts are supplied to the stores to
give to the ultimate retail consumer.1 The product and price
1
In addition, plaintiff-vendors complain of additional promotional
fees, racks, fixtures, and signage made availab le by P hilip M orris to their
store competitors. Plaintiffs’ Brief at 31. To the extent these programs
reflect a Ro binson-Patman violation, they are violative of § 2(d) and (e) as the provision o f or paymen t for promo tional and ad vertising program s.
Nos. 01-6174/6502 Lewis et al. v. 35 36 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
II. Under the Rule of Fred Meyer, Plaintiffs are Philip retailers who purchased a supplier’s goods through a
Morris’s “Customers” for the Purposes of § 2(d) and (e) wholesaler where the favored customer (respondent Fred
Meyer) purchased directly from the supplier. In that case,
Judge Rogers argues that FTC v. Fred Meyer, Inc., 390 respondent grocery store’s suppliers paid Fred Meyer in cash
U.S. 341 (1968), can be distinguished from the present case or in kind to feature their products in an annual coupon book
on the basis that the favored customers in this case, the stores, without offering the same promotions to Fred Meyer’s
do not purchase directly from Philip Morris. However, Fred competitors, retailers who purchased through a wholesaler.
Meyer’s holding that the word “customer” in § 2(d) Id. at 344-45. In broadly defining “customers competing,”
encompassed customers who purchased through a wholesaler, the Court emphasized a functional analysis of the Act’s terms,
as well as direct-buying customers, should be applied to every reasoning that “the proscription of § 2(d) reaches the kind of
use of the word “customer” in § 2(d) and not merely the third discriminatory promotional allowances” at issue in the case,
use thereof.2 Section 2(d) states: but concluding that “Meyer’s retail competitors, rather than
the two wholesalers, were competing customers under the
Payment for services or facilities for processing or statute.” Id. at 348. The Court specifically rejected the
sale. It shall be unlawful for any person engaged in “narrow definition of ‘customer’” offered by Fred Meyer,
commerce to pay or contract for the payment of “which becomes wholly untenable when viewed in light of
anything of value to or for the benefit of a customer of the central purpose of § 2(d) and the economic realities with
such person in the course of such commerce as which its framers were concerned.” Id. at 349.
compensation or in consideration for any services or
facilities furnished by or through such customer in The usual presumption that “the same words used twice in
connection with the processing, handling, sale, or the same act have the same meaning,” 2A NORMAN J. SINGER,
offering for sale of any products or commodities STATUTES AND STATUTORY CONSTRUCTION § 46:06, at 193
manufactured, sold, or offered for sale by such person, (6th ed. 2000), operates with even greater force here, where
unless such payment or consideration is available on the same word is used twice within the same sentence within
proportionally equal terms to all other customers the same subsection of the Act. See Gustafson v. Alloyd Co.,
competing in the distribution of such products or 513 U.S. 561, 568 (1995). Given the clear holding in Fred
commodities. Meyer that the third use of the word “customer” in § 2(d)
includes customers who purchase through a wholesaler, it
In Fred Meyer, the Court held that § 2(d)’s reference to would take an extremely strong showing of Congressional
“customers competing” with the favored customer included intent to defeat the conclusion that the first use of the word
“customer” in the same sentence carries the same meaning.
While the functional analysis used in Fred Meyer may not
2 weigh as heavily in favor of plaintiff-vendors’ claims here as
W hile the pro duct prom otions offered by Philip Mo rris and the
provision of free goods by Philip Morris may be violations of § 2(e) rather it did in favor of the FTC’s argument in that case, it provides
than § 2(d), the statutory sections have long been considered as a cohesive nothing near the showing necessary to establish that the
whole, and the meaning of “purchaser” in § 2(e) as coterminous with that meaning of “customer” in § 2(d) is not uniform.
of “custom er” in § 2(d). Kirby v. P.R . Ma llory & Co., 489 F.2d 904, 909
(7th Cir. 19 73), cert. denied, 417 U.S. 911 (1974); see H O V EN K AM P ,
supra, ¶ 2363b, at 241.
Nos. 01-6174/6502 Lewis et al. v. 37 38 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
In Fred Meyer, the Supreme Court based its interpretation services are provided directly to the retailer by the supplier,
of the Robinson-Patman Act on the functional reasons behind I conclude that “customer” includes those favored customers
passage of the Act. Specifically, the Court reasoned that (the convenience stores in this case) who purchase through a
Congress had intended to protect smaller businesses, who wholesaler, and accordingly conclude that all plaintiff-
could not afford to purchase directly from suppliers, against vendors have statutory standing to challenge these promotions
the concessions larger chains would be able to force as a as violations of § 2(d) and (e) of the Act.
result of their greater market power and direct dealings with
the supplier. Fred Meyer, 390 U.S. at 350-53. Here, of III. If Plaintiffs’ Claims are Considered Under § 2(a),
course, the favored purchasers (the convenience stores) are the Proper Application of the Indirect-Purchaser
not large chain stores buying directly from the supplier, but Doctrine Would Confer Statutory Standing on All
stores purchasing instead through a wholesaler. This Plaintiffs
intermediary cannot serve to distinguish the factual situation
from that in Fred Meyer where, as here, the allegedly Although the promotional programs at issue are best
discriminatory supplier (Philip Morris) and the favored considered as alleged violations of § 2(d) and (e) for the
purchasers (the convenience stores) have direct dealings that reasons noted above, even if they are considered as alleged
are the allegedly unlawful behavior. That is, the functional violations of § 2(a) of the Act, all vendors still have standing.
difference between a direct purchaser and one who purchases
through a wholesaler is only important where the passage The meaning of “purchaser” in § 2(a) has been held to be
through an intermediary insulates the supplier from its the same as that of “customer” in § 2(d) and “purchaser” in
retailers, such as in typical price discrimination claims where § 2(e). See American News Co. v. FTC, 300 F.2d 104, 109
the wholesaler, not the supplier, sets the actual price for the (2d Cir.), cert. denied, 371 U.S. 824 (1962). That same court,
retailer. Here, the complained-of behavior consists only of however, was doubtful when faced with the applicability of
promotional services rendered by Philip Morris directly to the Fred Meyer to § 2(a), expressing concern over requiring
favored stores, without any involvement of the wholesaler. vertical price maintenance that might run afoul of the
Each of these promotions involves sustained contact and Sherman Act. See FLM Collision Parts, Inc. v. Ford Motor
exchange of goods, services, and cash between Philip Morris Co., 543 F.2d 1019, 1026 & n.8 (2d Cir. 1976), cert. denied,
and the stores. While the wholesaler sets the price of 429 U.S. 1097 (1977). At least one other court has rejected
cigarettes that the store purchases, discrimination in that the application, choosing instead to apply the “indirect buyer”
wholesaler-set price is not at issue in this case; the price rule of § 2(a) that predated Fred Meyer. See Iams Co. v.
discount provided by the promotions is. Philip Morris sets Falduti, 974 F. Supp. 1263, 1271-72 (E.D. Mo. 1997). Other
the terms of each promotion, monitors compliance with that courts, however, have chosen to apply Fred Meyer to § 2(a).
promotion, and provides the benefit of each promotion See White Indus., Inc. v. Cessna Aircraft Co., 657 F. Supp.
directly to the convenience stores. See Judge Rogers’s op. at 687, 701-03 (W.D. Mo. 1986), aff’d, 845 F.2d 1497 (8th
5; Plaintiffs’ Brief at 5-7; Defendant’s Brief at 7-8. Cir.), cert. denied, 488 U.S. 856 (1988); Julius Nasso
Concrete Corp. v. DIC Concrete Corp., 467 F. Supp. 1016,
Given the strong presumption in favor of unitary meaning
of terms in the same statutory provision, and the Supreme
Court’s decision in Fred Meyer, where the complained-of
Nos. 01-6174/6502 Lewis et al. v. 39 40 Lewis et al. v. Nos. 01-6174/6502
Philip Morris, Inc. Philip Morris, Inc.
1019-20 (S.D.N.Y. 1979);3 see also Checker Motors Corp. v. indirect-purchaser doctrine adopted in Barnosky properly
Chrysler Corp., 283 F. Supp. 876, 887 (S.D.N.Y. 1968), applies in this case.
aff’d, 405 F.3d 319 (2d Cir.), cert. denied, 394 U.S. 999
(1969) (treating Fred Meyer as a particular application of The indirect-purchaser doctrine was adopted primarily to
indirect-purchaser rule). Appellee Philip Morris argues and stop suppliers from setting up dummy wholesalers to evade
Judge Rogers accepts that this court’s case Barnosky Oils, the Act; in its simplest terms, the doctrine applies when the
Inc. v. Union Oil Co. of California, 665 F.2d 74 (6th Cir. supplier of a product so closely controls the terms of that
1981), forecloses the application of Fred Meyer to § 2(a). product’s resale through a wholesaler that the supplier can be
Barnosky dealt with a price-discrimination claim by an said to be the actual seller to the purchaser. HOVENKAMP,
independent jobber (Barnosky), who claimed that the supra, ¶ 2311b; see Purolator Prods., Inc. v. FTC, 352 F.2d
supplier’s (Union Oil) sales to its own branded retail outlets 874, 883 (7th Cir. 1965), cert. denied, 389 U.S. 1045 (1968).
at a lower price than Barnosky could afford to charge to its In the usual § 2(a) claim, the complained-of price
retail customers violated § 2(a). Id. at 83. In rejecting that discrimination consists of prices set by the actual seller,
claim, this court relied exclusively on the indirect-purchaser whether a direct seller or a supplier in control of its
doctrine and did not cite Fred Meyer in doing so. While I wholesaler, that differ between one purchaser and another.
doubt that this serves to preclude our application of Fred The price and the discrimination constitute an integrated
Meyer to the potential § 2(a) violations in this case, and whole, and where retailers attempting to use the indirect-
Barnosky is in any event distinguishable as the more typical purchaser rule cannot establish that suppliers control the price
case where the supplier exercises no control over the price or set by the wholesaler, the suppliers are immune from
the discount offered to the purchaser through the wholesaler, discrimination claims. Plaintiffs attempting to assert
I believe it is unnecessary to decide the question, because the themselves as indirect purchasers are usually the customers of
a wholesaler, competing with direct-purchasing customers,
and are hamstrung by their purchase from an intermediary
that sets the price and therefore perpetrates the complained-of
3 “discrimination.”4 Here, however, the complained-of price
Julius Nasso inexplicably fails to distinguish FLM Collision Parts;
it is worth noting, ho wever, that FLM dealt with price differentiation
discrimination is not the price set by the wholesaler, but the
intra-purchaser — each customer of Ford was charged a different price discount set directly by Philip Morris. Inasmuch as the
based on the identity of the ultimate purchaser, and FLM attempted to use provision of free goods constitutes a violation of § 2(a) as
Fred Meyer to argue that Ford was required to equalize the price
ultimately charged to com peting wholesalers. FLM Collision Parts, Inc.
v. Ford Motor Co., 543 F.2d 1019, 102 6-27 (2d Cir. 19 76), cert. denied, 4
429 U.S. 1097 (1 977). Ford sold its parts to its franchised dealers, See, e.g., Barnosky Oils, Inc. v. Union Oil Co. of Ca l., 665 F.2d 74
charging them less when they resold the part to an indep endent auto repair (6th Cir. 19 81). In that case, Union was actually selling to Barnosky at
shop than when they sold the part to an independent wholesaler such as a lower price than to Union’s retail outlets; Barnosky’s claim on behalf of
F LM, effectively p ricing FLM out of the wholesaling business. Id. at its retail customers was that the price wasn’t “lower enoug h” to allow its
1023-24. The key point for the FLM court was that Ford did not customers to compete. Courts have consistently rejected attemp ts to use
discriminate betwe en different purchasers, but instead betwe en its Robinson-Patman to preserve a particular level in a distribution system
purchasers in o ne guise — that of retailer — and another — that of into perp etuity, see Conoco Inc. v. Inman Oil Co., 774 F.2d 895 , 904 (8th
wholesaler. Ultima tely, FLM’s rejection of Fred Meyer’s applicability to Cir. 1985); see also Barnosky, 665 F.2d at 83-84; FLM Collision P arts,
§2(a) seems very much confined to the facts o f that case. Id. at 1026. 543 F.2d at 1025-26.
Nos. 01-6174/6502 Lewis et al. v. 41
Philip Morris, Inc.
indirect price discrimination, the provision of free goods to
certain retailers by Philip Morris is the § 2(a) violation — not
the price set by the wholesaler. Therefore, the extension of
that discount to certain retailers (the stores) and not to others
(the vendors), where Philip Morris controls entirely the terms
of that discount, constitutes price discrimination under the
Act.
IV. Conclusion
Because I believe the district court erred in granting
summary judgment to defendant with respect to the vendors
who do not purchase directly from Philip Morris, I would
reverse the judgment in its entirety and allow all plaintiffs to
proceed on both Counts I and II.