Petition — FLM Collision Parts, Inc. v. Ford Motor Co.
Supreme Court brief1977
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= ; Supreme Court, U. S,
« KF] iF D
In The DEC 29 1976
Supreme Court of the United Brates”
~
October Term, 1976
No. 76-9204
FLM COLLISION PARTS, INC.,
Petitioner,
-against-
FORD MOTOR COMPANY and FORD MARKETING
CORPORATION,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
SECOND CIRCUIT
JULIEN & SCHLESINGER, P.C.
A.torneys for Petitioner
and Cross-Appellant
2 Lafayette Street
New York, New York 10007
(212) 962-8020
ALFRED S. JULIEN
STUART A. SCHLESINGER
DAVID JAROSLAWICZ
DAVID L. WASSER
Of Counsel
(9592) LUTZ APPELLATE PRINTERS, INC.
Law and Financial Printing
South River, N.J. New York, N.Y. Philadelphia, Pa. Washington, D.C.
(201) 257-6850 (212) 563-2121 (215) 563-5587 (201) 783-7288
INDEX
Page
Preliminary Statement ........... > os
Opinions Below ..... eotoevccccesces 2
PURSSGLSECAGR coccccecccssccccoeses 2
Questions Presented ........... o° 3
Statutes and Regulations
BRVGLVOE ccccccececesececeesese 6
Statement of the Case .......eeee 9
Reasons for Granting the Writ... 19
l.
The Court of Appeals
Decision Makes Section
2(a) of the Robinson-
Patman Act a Nullity ..... 19
The Second Circuit's Finding
that Ford's Wholesale Incen-
tive Plan Does Not Violate
Section 1 of the Sherman Act
and the Doctrine Set Out
in United States v. Arnold,
Schwinn & Co. is Directly
Contrary to the Holdings
of the Fifth and Eighth
a ae ee 35
Ee a 45
APPENDIX
Court of Appeals Opinion re
Rehearing ........ TTT CCT CT a-l
Court of Appeals Opinion re
Rehearing En Banc ...... oeeces
Court of Appeals Opinion ........
Opinion by Thomas P. Griesa,
D.J. e*eeseeernre#esesseeteeneteeeeneteeetee#es # @#
Supplemental Opinion by Thomas
DP. GRESGRse Dede cocccsceeseoces
ii
Table of Citations
Albrecht v. Herald Company,
390 U.S. 145 (1968) ...cccccccces .
Bird & Son, Inc., 25 F.T.C.
Den Cher) 46006 o48 6006060666660 66
F.T.C. v. Anheuser-Busch, Inc.,
263 B.8. SSO CESS) cocecoescececes
F.T.C. v. Borden Co., 383 U.S.
BRP CRESS) cascoeteoessocececeseeess
F.T.C. v. Cement Institute,
235 G8. Gee CAs ceccoecveseoos
F.T.C. v. Fred Meyer, Inc.,
390 U.S. 341 (1968) ccc cccccees
Hampton v. Graff Vending Company,
478 F.2d 527 (5th Cir. 1973) .....
Janel Sales Corp. v. Lanvin
Parfums, Inc., 396 F.2d 398
(2d. Cir.), cert. den., 393
U.S. 938 (1968) w.cccccccccccecees
Mennen Co. v. F.T.C., 288 F. 744
(2d. Cir.), cert. den., 262 U.S.
Tae GED 606606664660 6660000006064
Mueller Co. v. F.T.C., 323 F.2d
44 (7th Cir. 1963), cert. den.,
STF ©.8. Bad CAROGP cecccesevesses
Otter Tail Power Co. v. United
States, 410 U.S. 366 (1973) ......
iii
Table of Citations
Perkins v. Standard Oil Co. of
California, 395 U.S. 642
(1969) sere eeeeeeeeeeeeeeeeweeneene
Reed Brothers, Inc. v.
Monsanto Company, 525 F.2d
486 (8th Cir. 1975), cert.
Gems De SeGGe For CRETE) ccccces
Response of Carolina, Inc.
v. Leasco Response, Inc.,
537 F.2d 1307 (5th Cir.
Dee BON 66000060040 666600% boo 6e
Simpson v. Union Oil Co. of
Caine, 377 GB. 13 (1964) .cccccs
United States v. General Motors
Corp., 384 U.S. 127 (1966) .....
United States v. Arnold, Schwinn
& Co., 388 U.S. 365 (1967) .....
iv
Table of Citations
Page
Statutes Cited:
15 U.8.C. 12 coccccesescesssseses 4, 6,
17, 18,
35, 38,
39, 40,
41, 42,
43, 44
158 U.8.C. 2 cseccesvessoeeeunnee 17
15 U.S.C. L(A) ceoccccescccseses Se Ve
i7, 49,
20, 22,
23
18 0.8.C. 19 crccoseosessesesuen 16
15 U.8.C. 26 coccceecsseseeeeenn 17
Other Authorities Cited:
74 Cong. Second Sess. 3; S. Rep.
No. 1502 (1966) .cccccccsccceces 21
80 Cong. Rec. 9417 (1936) ...... 22
Kelly, Functional Discounts
Under the Robinson-Patman Act,
40 Cal. Le. Rev. 320 Capea: sence 26
Table of Authorities
Page
Note: 12 N.Y.L.F. 91 (1966) ....... 24
The Report of the Attorney
General's National Committee
to Study the Antitrust Laws
EE EEE ee 27
Rowe: Price Discrimination Under
the Robinson-Patman Act (1962) .... 21, 26
Rowe: "The Evolution of the Robin-
son-Patman Act: A Twenty Year
Prospective", 57 Col. L. Rev.
DP T~TE wOGee6eeececocoecoceceoocs 21
vi
IN THE
SUPREME COURT OF THE UNITED STATES
October Term, 1976
FLM COLLISION PARTS, INC., °
Petitioner,
-against-
FORD MOTOR COMPANY and FORD MARKETING
CORPORATION,
Respondents.
ee x
Petition for Writ of Certiorari
to the United States Court of
Appeals for the Second Circuit
The petitioner, by its attorneys, :
Julien & Schlesinger, P.C., respectfully
pray that a writ of certiorari issue to
review the order of the United States
Court of Appeals for the Second Circuit
entered in this proceeding on September
30, 1976 and the order denying a rehear-
ing and/or a rehearing en banc entered on
November 16, 1976.
Opinions Below
The Court of Appeals opinion is not
yet officially reported. It is found in
1976-2 Trade Cases, 4 61,103 at p. 69,998.
The opinions of the district court are
found at 406 F.Supp. 224 (S.D.N.Y. 1975),
and a supplemental opinion on damages
is found at 41ll F.Supp. 627 (S.D.N.Y.
1976).
Jurisdiction
The Court of Appeals order was
entered on September 30, 1976 and the
order denying a rehearing and/or rehear-
ing en banc was entered on November 16,
1976. This petition for certiorari was
filed within ninety days of that date.
This Court's jurisdiction is being
invoked pursuant to 28 U.S.C. 1254(1).
o2e
Questions Presented
1. Does the Robinson-Patman Act,
15 U.S.C. 13(a), permit a manufacturer to
discriminate in price between different
purchasers of the exact same auto part
which discrimination is based solely
upon whom its purchaser resells those
auto parts to?
2. Can a manufacturer of auto parts
obviate the Robinson-Patman Act by selling
the same goods to different purchasers at
different prices based solely upon whom
its purchasers resell those goods to by
claiming that there is no discrimination
so long as all of its direct purchasers
are charged the same price depending upon
whom the goods are resdéld to?
3. Does a manufacturer imposing
a radical price difference upon his dis-
tributors depending upon whom they
resell its products to in essence limit
the customers to whom its distributors
may freely sell the manufacturer's
products in violation of Section 1 of
the Sherman Act and particularly the
doctrine enunciated in United States v.
Arnold, Schwinn & Co., 388 U.S. 365
(1967)?
4. In order to constitute a
contract in restraint of trade prohibited
by Section 1 of the Sherman Act and by
Schwinn, supra, must a contract clearly
state that the distributor is prohibited
from reselling to certain customers or
does the fact that the distributor is pro-
hibited from reselling to customers except
at a highly inflated price in itself
aga
contain an economic restriction as to
which customers the distributor may deal
with as found by the Eighth and Fifth
Circuits in Reed Brothers, Inc. v.
Monsanto Company, 525 F.2d 486 (8th Cir.
1975), cert. den., 96 S.Ct. 787 (1976);
and Response of Carolina, Inc. v. Leasco
Response, Inc., 537 F.2d 1307 (5th Cir.
1976)?
Statutes and Regulations Involved
15 U.S.C. 1
"Every contract, combination in the
form of trust or otherwise, or conspiracy,
in restraint of trade or commerce among
the several States, or with foreign
nations, is declared to be illegal:
Provided, That nothing contained in sec-
tions 1 to 7 of this title shall render
illegal, contracts or agreements prescrib-
ing minimum prices for the resale of a
commodity which bears, or the label or
container of which bears, the trademark,
brand, or name of the producer or
distributor of such commodity and which
is in free and open competition with
commodities of the same general class
produced or distributed by others, when
contracts or agreements of that descrip-
tion are lawful as applied to intrastate
transactions, under any statute, law,
or public policy now or hereafter in
effect in any State, Territory, or the
District of Columbia in which such
resale is to be made, or to, which the
commodity is to be transported for such
resale, and the making of such contracts
or agreements shall not be an unfair
method of competition under section 45 of
this title: Provided further, That the
preceding proviso shall not make lawful
any contract or agreement, providing
for the establishment or maintenance of
minimum resale prices on any commodity
herein involved, between manufacturers,
or between producers, or between whole-
salers, or between brokers, or between
factors, or between retailers, or
~~ =
between persons, firms or corporations in
competition with each other. Every person
who shall make any contract or engage in
any combination or conspiracy declared
by sections 1 to 7 of this title to be
illegal shall be deemed guilty of a
felony, and, on conviction thereof,
shall be punished by fine not exceeding
one million dollars if a corporation,
or, if any other person, one hundred
thousand dollars or by imprisonment
not exceeding three years, or by both
said punishments, in the discretion of
the court."
15 U.S.C. 13(a)
"It shall be unlawful for any person
engaged in commerce, in the course of such
commerce, either directly or indirectly,
to discriminate in price between different
purchasers of commodities of like grade
and quality, where either or any of the
purchases involved in such discrimination
are in commerce, where such commodities
are sold for use, consumption, or resale
within the United States or any Territory
thereof or the District of Columbia or
any insular possession or other place
under the jurisdiction of the United
States, and where the effect of such
discrimination may be substantially to
lessen competition or tend to create a
monopoly in any line of commerce, or
to injure, destroy, or prevent competi-
tion with any person who either grants
or knowingly receives the benefit of
such discrimination, or with customers
of either of them: Provided, That
nothing herein contained shall prevent
aFe
differentials which make only due allowance
for differences in the cost of manufacture,
sale, or delivery resulting from the differ-
ing methods or quantities in which such
commodities are to such purchasers sold
or delivered: Provided, however, That the
Federal Trade Commission may, after due
investigation and hearing to all interested
parties, fix and establish quantity limits,
and revise the same as it finds necessary,
as to particular commodities or classes of
commodities, where it finds that available
purchasers in greater quantities are so
few as to render differentials on account
thereof unjustly discriminatory or promo-
tive of monopoly in any line of commerce;
and the foregoing shall then not be
construed to permit differentials based
on differences in quantities greater than
those so fixed and established: And
provided further, That nothing herein
contained shall prevent persons engaged
in selling goods, wares, or merchandise
in commerce from selecting their own
customers in bona fide transactions and
not in restraint of trade: And provided
further, That nothing herein contained
shall prevent price changes from time to
time where in response to changing
conditions affecting the market for or
the marketability of the goods concerned,
such as but not limited to actual or
imminent deterioration of perishable
goods, or obsolescence of seasonal
goods, distress sales under court process,
or sales in good faith in discontinuance
of business in the goods concerned."
@8-
Statement of the Case*
FLM Collision Parts, Inc. ("FLM")
is a New York Corporation founded in
1965. FLM has been in the business of
purchasing crash parts for Ford Motor
Company ("Ford") automobiles from
franchised Ford dealers at two to five
percent above the franchised dealer's
cost and reselling those crash parts to
independent service stations and repair
shops. Crash parts are those automobile
parts used to replace damaged parts on
automobiles usually after an automobile
has been involved in a collision.
*A complete statement of facts is
contained in the district court's
initial decision, 406 F.Supp. 224
(S.D.N.Y. 1975) (a-27).
Ford crash parts are manufactured
only by Ford and available only through
Ford. Ford sells crash parts only to
franchised Ford dealers. The franchised
Ford dealers use crash parts both in
their own repair work and for resale to
independent service stations and repair
shops. All persons who wish to obtain
crash parts must necessarily obtain
them through franchised Ford dealers.
Crash parts differ from other Ford
automobile parts such as batteries and
spark plugs in that crash parts are
"captive" parts available only through
Ford and distributed through its fran-
chised dealers while other parts are
distributed by Ford through a different
system involving independent distributors
as well as franchised Ford dealers.
-10-
Once a franchised Ford dealer
purchases crash parts from Ford, all
title and risk of loss with respect to
those crash parts passes to the franchised
dealer.
Some time prior to November 1, 1968,
the Federal Trade Commission advised
Ford that its method of distributing
crash parts was an unfair method of
competition and placed independent
repair shops in an unfavorable competitive
position. Since crash parts were only
available through franchised Ford dealers
who used these parts for both repairs
in their own shops and at the same time
acted as wholesalers of crash parts to
independent repair shops, the independent
repair shops were at a disadvantage in
competing for repair work since they
were compelled to buy crash parts from
franchised Ford dealers at a price
ollie
naturally above that paid by the fran-
chised Ford dealer for the same part
used in its own repair operation.
The Federal Trade Commission
recommended that Ford make arrangements
to sell crash parts directly to independent
repair shops and wholesalers. Ford, to
avoid having to sell crash parts to any
one other than franchised Ford dealers,
and seeking to avoid a proceeding by
the Federal Trade Commission, instituted
a "wholesale incentive allowance" for
crash parts to be effective on or about
November 1, 1968. The wholesale incen-
tive allowance gave the franchised Ford
dealer an additional discount (20 - 25
percent) on all crash parts which the
dealer did not use in its own repair
operation, but for which it acted as a
wholesaler and resold to other persons.
-12<
From the time this wholesale allow-
ance was created by Ford, the franchised
Ford dealers from whom FLM would purchase
crash parts would pass this allowance
along to FLM and FLM continued to
compete with Ford dealers in the sale
of crash parts to independent repair
shops.
Some time prior to July l, 1971
Ford changed its wholesale incentive
plan so that franchised Ford dealers
would no longer receive the wholesale
incentive on parts sold to FLM. The
franchised dealer would only receive
the wholesale incentive on sales made
directly to independent repair shops.
The district court found that at
the time Ford made this change in its
wholesale incentive plan, FLM was the
sole non-franchised Ford dealer which
o13=
was acting as a wholesaler of crash
parts (406 F.Supp. at 234), and that
Ford personnel responsible for the
change in the wholesale incentive policy
had FLM specifically in mind as the type
of successful independent wholesaler
Ford was attempting to discourage (406
F.Supp. at 236).
Ford's change in its wholesale
incentive plan in essence made it
impossible for FLM to successfully
compete with franchised Ford dealers in
the sale of crash parts. To use the
example used by the Court of Appeals
(a-12), a $10 retail part would cost
a franchised Ford dealer $6, however,
once the franchised Ford dealer received
the wholesale incentive allowance --
25% -- its price for that part would now
be $4.50, while FLM would be paying the
full $6 since there would be no whole-
-14-
sale incentive permitted plus the
additional five percent franchised
Ford dealer mark-up, for a total of $6.30.
Ford claims that its wholesale
incentive plan was revised in order to
avoid independent wholesalers from acting
as conduits between franchised Ford
dealers where one franchised Ford dealer
would sell crash parts to an independent
wholesaler, thus receive the 25 percent
wholesale incentive allowance, the
independent wholesaler would then reseil
the crash parts to a second and different
franchised dealer who would again seek
the 25 percent wholesale incentive allow-
ance upon selling the same parts.
Admittedly, FLM did not act as a
conduit in transferring crash parts from
one franchised dealer to another and
Ford who had on two separate occasions
-15-
in 1969 and 1970 audited FLM's books
found that FLM had done nothing im-
proper and had obtained NO unwarranted
wholesale incentive allowances. In
fact, as the district court found, Ford
had not experienced any difficulties
with respect to the wholesale incentive
allowance relating to crash parts. Ford's
difficulties had been with other parts
which it sold through a wholly different
distribution system involving independent
distributors as well as franchised
dealers (406 F.Supp. at 245).
FLM commenced this action in the
United States District Court for the
Southern District of New York pursuant
to 15 U.S.C. 15.
After a seven-day trial before the
Court without a jury, Judge Griesa,
United States District Judge, for the
Sy =
Southern District of New York, found
that Ford had violated Section 2(a)
of the Robinson-Patman Act, 15 U.S.C.
13(a) by charging franchised Ford dealers
different prices, i.e., a 25 percent
difference, depending upon whether or not
crash parts were resold by franchised
dealers to independent repair shops or to
other persons, to wit, FLM. Judge Griesa
dismissed FLM's claims under Sections 1
and 2 of the Sherman Act, 15 U.S.C. 1 and
2.
In a supplemental opinion regarding
damages, 411 F.Supp. 627 (S.D.N.Y. 1976),
Judge Griesa awarded FLM $291,502 in
damages, which amount was trebled and, in
addition, awarded FLM a reasonable
attorneys' fee in the sum of $135,000 and
enjoined Ford from further violations of
the Robinson-Patman Act pursuant to 15
U.S.C. 26.
-l7J<-
The Court of Appeals for the Second
Circuit affirmed Judge Griesa's decision
with respect to the dismissal of FLM's
Sherman Act claims and reversed the
district court's findings that Ford
violated the Robinson-Patman Act.
The Court of Appeals' decision is
directly contrary to the clear mandate
of this Court and this Court's interpre-
tation of the Robinson-Patman Act in
Perkins v. Standard Oil Co. of California,
395 U.S. 642 (1969); and F.T.C. v. Fred
Meyer, Inc., 390 U.S. 341 (1968).
Similarly, the Court of Appeals'
decision affirming the dismissal of
FLM's claims under Section 1 of the
Sherman Act is directly contrary to this
Court's decision in United States v.
Arnold, Schwinn & Co., 388 U.S. 365 (1967).
-18-
REASONS FOR GRANTING THE WRIT Ford's position, which was
accepted by the Court of Appeals ina
1. The Court of Appeals Decision
Makes Section 2(a) of the
Robinson-Patman Act a Nullity
superficial decision and does not with-
stand analysis, and which would make a
Section 2(a) of the Robinson- mockery of the Robinson-Patman Act, is
Patman Act provides in pertinent part: that there was no price discrimination
since all franchised Ford dealers were
"It shall be unlawful for any
person engaged in commerce, in the
course of such commerce, either
directly or indirectly, to
discriminate in price between
different purchasers of commodities
of like grade and quest ty ee he
* «x * where the effect of such
discrimination may be substantially
to lessen competition or tend to
create a monopoly in any line of
commerce, or to injure, destroy,
Or prevent competition with any
person who either grants or know-
ingly receives the benefit of such
discrimination, or with customers '
of either of them... a.” . Robinson-Patman Act.
(emphasis added)
charged the same price for crash parts
depending upon whom they resold to.
If one looks at the history and
purpose of the Robinson-Patman Act, it
becomes clear that the Court of Appeals’
decision is improper and would basically
make a nullity of Section 2(a) of the
The purpose behind the Robinson-
In our case, Ford admittedl
4 Y Patman Act was to prevent chain stores
charges a franchised dealer 25 percent
g P from driving the small merchant out of
more for the exact same crash part if , , ;
business who because of superior purchasing
that crash part is resold to FLM or some-
power were able to demand price conces-
one other than an independent repair shop.
-19-
=20-
sions from suppliers against which small
merchants could not compete. See, Rowe:
Price Discrimination Under the Robinson-
Patman Act, Chapter 1 (1962); and Rowe,
"The Evolution of the Robinson-Patman
Act: A Twenty Year Prospective", 57
Col. L. Rev. 1059, 1062 (1957).
The purpose of the Robinson-Patman
Act was "for preservation of equal §
opportunity to all" (S. Rep. No. 1502,
74 Cong. Second Sess. 3 (1936) ) and to
make certain that everyone received the
same price except to the extent that the
price difference was "cost justified" --
the supplier saved packing, shipping or
other expenses.
Congressman Utterback in reporting
to the House of Representatives on the
Robinson-Patman bill stated what the Act
intended:
=2j-
"A customer granted the benefit
of a discrimination may receive
it only on the basis of the
difference between his methods
Or guantities Of purchase and
delivery and those of other
customers not receiving the
erential.
The differential granted a
particular customer must be
traceable to some difference
between him and other particular
customers, either in the quantities
purchased by them or in the methods
by which they are purchased or
their delivery taken." 80 Cong.
Rec. 9417 (1936) (emphasis added)
If Ford's position which was
accepted by the Court of Appeals is
permitted to stand, Section 2(a) of the
Robinson-Patman Act would for all
practical purposes become non-existent.
A supplier that wishes to give a chain
store or other favored customer a
favorable price which is not cost
justified would simply have to act
through a wholesaler rather than sell
directly to the chain store in order to
@22@
avoid Section 2(a) of the Robinson-
Patman Act. A supplier would simply
charge its wholesalers a different price,
not cost justified, depending upon whom
the wholesaler resold the goods to, e.g.,
charging a wholesaler 50¢ for an item
if the wholesaler resells that item to
a chain store and a dollar for the
very same item if it is resold to any-
one other than the favored customer.
According to the Court of Appeals
decision, there would be no discrimination
in price so long as all of the wholesalers
were charged the same price by the
Supplier, depending upon whom they resold
to.
If the Act is construed in the
manner it has been construed by the Court
of Appeals in our case, it would make a
mockery of the Robinson-Patman Act and
-23-
"would allow price discriminators to avoid
the sanctions of the Act by the simple
expedient of adding an additional link
to the distribution chain." Perkins v.
Standard Oil Company of California, 395
U.S. 642, 647 (1969). See, also,
Note: 12 N.Y.L.F. 91, 99 (1966) where
the author points out that even prior to
Perkins, if a supplier could insulate
itself from liability by simply adding
an additional link in the chain of
distribution, it would make a mockery of
the Robinson-Patman Act.
A supplier is permitted to sell
to all purchasers at the same price
regardless of whether they are whole-
salers or retailers. See Bird & Son,
Inc., 25 F.T.C. 548 (1937). A supplier,
however, is not permitted to charge
different prices to its customers when
prices are not cost justified and the
-24-
price difference is based solely upon the
Supplier's arbitrary determination that
its customers should be charged less if
they sell to certain favored persons and
more if they resell to others. An
arbitrary classification of purchasers
by a supplier does not permit it to
charge different prices for the same
goods. See Mueller Co. v. F.T.C.,
323 F.2d 44, 45 (7th Cir. 1963), cert.
den., 377 U.S. 923 (1964).
The Court of Appeals in its
decision states that the Robinson-
Patman Act does not prohibit a supplier
"from offering different prices
to each of its purchasers, such
as one price when he functions
as a retailer and a lower price
when he functions as a wholesaler."
(a-13)
and compares Ford's discriminatory whole-
sale incentive plan to a standard "func-
=2S-
tional discount" (a-18) which is entirely
without a basis in fact. As the district
court pointed out in its decision, func-
tional discounts are permitted by the
Robinson-Patman Act. That is, Ford may
charge a Ford distributor less for parts
which it sells as a wholesaler than for
parts which it sells as a retailer.
However, what Ford is doing here is an
Alice in Wonderland construction of what
the functional discount is. The standard
functional discount always operates so
that a higher price is charged to
purchasers at a level farther from the
supplier in the chain of distribution,
i.e., a retailer is charged more than a
wholesaler. See Rowe: Price Discrimina-
tion Under the Robinson-Patman Act, 173,
et seq. (1962). See, also, Kelley,
"Functional Discounts Under the Robinson-
Patman Act", 40 Cal. L. Rev. 526 (1952);
-26-
and The Report of the Attorney General's
National Committee to Study the Antitrust
Taws (1955) in considering functional
discounts stated:
"The typical functional or trade
discount system provides for
graduated discounts to customers
classified according to place in
the distribution chain - ee:
the seller's schedule may specify
percentage reductions to whole-
salers, jobbers, and retailers in
diminishing amounts."
The practice of permitting "functional
discounts" or different prices to be
charged to wholesalers than to retailers
has been permitted because the charging
of different prices to whclesalers and
to retailers does not have an adverse
effect on corpetition since wholesalers
and retailers do not compete with each
other. See Mennen Co. v. F.T.C., 288
F. 774, 781 (2d. Cir.), cert. den.,
262 U.S. 759 (1923).
@2Je
In our case, a Ford distributor
selling crash parts to FLM is acting as
a wholesaler and not as a retailer. If
anything, FLM is higher on the distribu-
tive chain than the independent repair
shop. Accordingly, if Ford's wholesale
incentive plan were a valid functional
discount and not an attempt by Ford to
prevent independent dealers from dealing
in crash parts, then at the very least,
a franchised dealer.would be entitled to
the same wholesale incentive allowance
on the sale of crash parts to FLM as it
receives on the sale of crash parts
directly to independent .epair shops.
Pord's wholesale incentive plan
which charges its franchised dealers 25
percent more for sales to FLM than for
sales to independent repair shops has
turned upside down what is commonly known
-28-
as the “functional discount" which the
Court of Appeals was compelled to admit
provides for lower prices to those higher
up on the distributive chain.
Similarly, the Court of Appeals'
references to the fact that Ford under-
took its wholesale incentive allowance
program on crash parts at the behest of
the Federal Trade Commission in an
attempt to somehow give the impression
that the Federal Trade Commission has
approved Ford's wholesale incentive
allowance in its present form is mislead-
ing. The Federal Trade Commission has
made it clear that:
"The Commission will not approve
any standards whereby a wholesaler's
eligibility for added discounts
is contingent upon the imposition
of specified restrictions upon
his customers by him." 16 CFR
15.333.
-29-
Also incomprehensible is the Court
of Appeals’ distinguishing of F.T.C. v.
Anheuser-Busch, Inc., 363 U.S. 536 (1960),
which has always been understood to stand
for the simple proposition that:
"* * * a price discrimination
within the meaning of (§2(a) )
is merely a price difference."
on the ground that Anheuser-Busch was a
primary line territorial price discrimina-
tion case. This is a distinction without
a difference. That a price discrimina-
tion is simply a price difference has
been accepted as the standard definition
of price discrimination by the various
courts of appeals following Anheuser-
Busch and in situations not dealing with
primary line cases. See, e.g., Hampton
v. Graff Vending Company, 478 F.2d 527,
532 (Sth Cir. 1973).
-30-
Prior to Anheuser-Busch, price
discrimination had likewise been
defined as a difference in price or the
selling of the same kind of goods cheaper
to one person than to another. See, e.g.,
F.T.C. v. Cement Institute, 333 U.S. 683,
721 (1948).
The Court of Appeais' decision
below is also the first time that any-
one has attempted to cite F.T.C. v.
Borden Co., 383 U.S. 637 (1966), for the
proposition that a supplier may sell the
same product to different purchasers for
different prices. The sole question in
Borden was whether or not evaporated
milk of the same grade amd quality sold
under the Borden label and at the same
time sold under private brand labels
must be construed as being of “like grade
and quality” for purposes of the Robinson-
Patman Act or whether service and market
-3l<
acceptance of the Borden label
constitutes a difference in product for
purposes of the Robinson-Patman Act.
The Court in Borden found that if
both the private label and the Borden
label milk were made available to all,
then there would be no price discrimina-
tion since any purchaser could buy either
label it desired at the same price as any
other purchaser.
This Court has never before been
construed as having held in Borden that
a supplier may charge its customers two
greatly varying prices, e.g., 25 percent
more for the exact same crash part,
depending solely upon whom Ford's
customers resold those crash parts to.
The Court of Appeals in a super-
ficial fashion and in no way even attempt-
@32-
ing to distinguish the careful analysis
set forth in the district court's decision
(406 F.Supp. 224), found that the Robinson-
Patman Act had not been violated simply
because Ford charged all of its franchised
dealers the same price depending upon
whom they resold crash parts to, thus
totally ignoring the real basis and
purpose of the Robinson-Patman Act which
is that the price for which goods are
sold may not be contingent upon who the
purchaser is, but only upon the fact
that the same price must be charged to all
unless the price difference is cost
justified.
If this Court does not grant
certiorari and reverse the decision of
the Second Circuit, in essence, the law
in the Second Circuit will be directly
contrary to what this Court said it is
in Perkins and the Robinson-Patman Act
-33-
will become a mockery in the Second
Circuit which could be avoided by the
simple expedient of adding a level
to the chain of distribution and then
discriminating in price between purchasers
of the exact same product. If the
Robinson-Patman Act is to be repealed, it
is for Congress to do so, not for the
Second Circuit to construe the Act ina
fashion directly contrary to this Court's
mandate in F.T.C. v. Fred Meyer, Inc.,
390 U.S. 341 (1968), that the Act should
not be construed:
"in a manner which runs counter
to the broad goals which Congress
intended it to effectuate."
390 U.S. at 349.
The Second Circuit's decision if
permitted to stand not only runs counter
to the broad goals which Congress set
forth for the Robinson-Patman Act, but
-34-
turns the Robinson-Patman Act into a dealers. * * * Ford unilaterally
established its prices to its dealers
toothless tiger which can be evaded by oe not oa resale prices
or terms. a-
the simplest subterfuge of having an
intermediate level of distribution. The Second Circuit's position is
directly contrary to this Court's man-
2. The Second Circuit's Finding
that Ford's Wholesale Incen-
tive Plan Does Not Violate
date in Schwinn and directly contradicts
Section 1 of the Sherman Act the position taken by the Eighth Circuit
and the Doctrine Set Out in
United States v. Arnold, in Reed Brothers, Inc. v. Monsanto
Schwinn & Co. is Directly
Contrary to the Holdings Company, 525 F.2d 486 (8th Cir. 1975),
of the Fifth and Eighth
Circuits. cert. den., 96 S.Ct. 787 (1976), and by
the Fifth Circuit in Response of Carolina,
The Second Circuit in affirming Inc. v. Leasco Response, Inc 537 F.2d
. . ’ ef °
the dismissal of FLM's claim under
1307 (Sth Cir. 1976).
Section 1 of the Sherman Act held that
Ford's wholesale incentive plan did not This Court in Schwinn stated:
violate Section 1 of the Sherman Act under
"Once the manufacturer has parted
che doctrine of United States v. Arnold, with title and risk, he has parted
with dominion over the product, and
Schwinn & Co., 388 U.S. 365 (1967), because his effort thereafter to restrict
territory or persons to whom the
product may be transferred--whether
by explicit agreement or by silent
combination or understanding with
his vendee--is a per se violation
of § 1 of the Sherman Act." 388
U.S. at 382 (emphasis supplied)
o 3Se -36-
there was not:
"a contract, combination--or
conspiracy between Ford and its
In our case, Ford after admittedly
parting with title and risk to crash parts
restricted the persons to whom the crash
parts could be transferred by charging
franchised dealers 25 percent more if
they sold crash parts to FLM rather
than directly to independent repair shops.
In Reed Brothers, supra, Monsanto
adopted basically the same plan that
Ford did in order to prevent independent
distributors from dealing in its product.
Monsanto offered its dealers a rebate
on sales which it made directly to
retailers. The plaintiff, an independent
distributor of Monsanto's products was
thus no longer able to compete in the
sale of Monsanto herbicide products.
The Eighth Circuit held that no formal
agreement among Monsanto and its distri-
butors was necessary and that its rebate
program was a cooperative one sufficient
~37a
to constitute a contract, combination
or conspiracy under Section 1 of the
Sherman Act, since in order for the
rebate program to work, it required the
cooperation of both Monsanto and its
distributors.
Similarly, in Response of Carolina,
supra, the defendant franchised the
sale of computer time-sharing services.
The agreement provided that a franchisee
was to pay the defendant 15 percent
of its sales to customers within its
area and 70 percent to customers outside
its area. The Fifth Circuit held that
the radical increase in royalty payments
for sales made outside of the area in fact
resulted in the imposition of a restric-
tion upon the persons and territory in
which a franchisee could sell computer
time, 537 F.2d at 1319. Again, the Court
found after an extensive discussion that
-38r
no formal agreement was necessary for
there to be a violation of Section 1
of the Sherman Act.
The Second Circuit's finding that
there was no agreement in our case
between Ford and its distributors
sufficient to constitute a combination
or conspiracy in violation of Section l
of the Sherman Act is directly contrary
to this Court's decision in Albrecht v.
Herald Company, 390 U.S. 145 (1968) where
this Court clearly held that where a
Supplier compels distributors to adhere
to a policy and enforces that policy, a
combination in violation of Section 1
cf the Sherman Act has occurred.
Even those cases like Janel Sales
Corp. v. Lanvin Parfums, Inc., 396 F.2d
398 (2d. Cir.), cert. den., 393 U.S. 938
-39-
(1968), which placed a gloss upon
Schwinn to the extent of reading
Schwinn to require that the supplier
be firm and resolute in obtaining
compliance with its policy before a
violation of Section 1 of the Sherman
Act would occur, would still not prevent
a violation of Section 1 of the Sherman
Act from having occurred in our case.
There can be no question that Ford was
firm and resolute in enforcing its whole-
sale incentive policy with its radical
price difference depending upon whom its
franchised dealers resold crash parts to.
Ford maintained a right to audit
all of its franchised dealers and did so
on a consistent basis including an audit
of FLM on two separate occasions as well
as of the franchised Ford dealer who was
supplying FLM to insure that its policy
o4@e
was being firmly complied with. It is
clear that Ford's restriction upon its
franchised dealers as to whom they could
freely sell crash parts to through the
means of imposing a radical price differ-
ence of 25 percent so as to prevent
franchised dealers from selling crash
parts to FLM or other independent distri-
butors was a per se violation of Section
1 of the Sherman Act.
Even before Schwinn, this Court made
it clear in United States v. General
Motors Corp., 384 U.S. 127 (1966), that
once a manufacturer has parted with
title to its product it cannot prevent
its distributors from selling directly to
retailers or consumers or choosing to
deal through sub-jobbers or sub-distri-
butors if it chose to do so.
-41-
Here, Ford's admitted purpose in
changing its wholesale incentive policy
was to prevent franchised dealers from
selling to independent distributors
such as FLM if they chose to do so.
This is a per se violation of Section 1
of the Sherman Act.
Ford's excuse that this restriction
on its franchised dealers as to whom they
can deal with makes it easier for Ford
to police its own franchised dealers to
make certain that they are complying with
its policy does not excuse Ford's
conduct. This Court in Otter Tail Power
Co. v. United States, 410 U.S. 366 (1973),
cited Schwinn and stated:
"The promotion of self-interest
alone does not invoke the rule of
reason to immunize otherwise
illegal conduct." 410 U.S. at
380.
-42-
If the Court of Appeals decision
in this case is permitted to stand, then
the entire Schwinn doctrine would become
a nullity. Ford or any other manufacturer
would no longer have to place a customer
or territorial restriction upon its
franchised dealers. It could simply
obviate Schwinn by charging its dealers
a radically higher price as Ford is
doing in our case if the dealer resells
the goods outside of its territory
or to a customer other than that chosen
by the supplier. Schwinn cannot be so
easily avoided. In enforcing the anti-
trust laws, the courts must look at the
arrangement as it operates in practice
rather than the veneer given to an
arrangement by skillful drafting.
Simpson v. Union Oil Co. of Cal., 377
U.S. 13 (1964).
~43-
The Eighth Circuit in Reed Brothers,
supra, and the Fifth Circuit in Response
of Carolina, supra, recognized that simi-
lar arrangements to that utilized by
Ford were merely subterfuges to avoid
Schwinn and found that they were viola-
tive of Section 1 of the Sherman Act.
The Second Circuit's decision in
our case is in direct conflict with
the Eighth and Fifth Circuits and is
likewise contrary to this Court's
decisions in Schwinn and General Motors,
and if the Second Circuit's decision
in this case is not reversed, suppliers
will be able to avoid Section 1 of the
Sherman Act with impunity in the Second
Circuit.
-44-
Conclusion
A Writ of Certiorari should issue
and the order of the Second Circuit
should be reversed.
Respectfully submitted,
Julien & Schlesinger, P.C.
By otitank ( Sch aeons.
Stuart A. Schlesing
Attorneys for Petitioner
Alfred S. Julien
Stuart A. Schlesinger
David Jaroslawicz
David L. Wasser
Of Counsel
-45-
APPENODI X
UNITED STATES COURT OF APPEALS
SECOND CIRCUIT
At a Stated Term of the United
States Court of Appeals, in and for the
Second Circuit, held at the United States
Court House, in the City of New York, on
the sixteenth day of November, one thou-
sand nine hundred and seventy-six
Present: HON. WALTER R. MANSFIELD,
HON. JAMES L. OAKES,
HON. MURRAY I. GURFEIN,
Circuit Judges
FLM Collision Parts, Inc.,
Plaintiff-Appellee-Cross-Appellant
V.
Ford Motor Company & Ford Marketing
Corp.,
De fendants-Appellants-Cross-
Appellees.
ee ee ee ee ee ee _— ——
A petition for a rehearing having been
filed herein by counsel for the
Upon consideration thereof, it is
Ordered that said petition be and
hereby is DENIED
A. Daniel Fusaro,
Clerk
UNITED STATES COURT OF APPEALS
SECOND CIRCUIT
At a stated term of the United
States Court of Appeals, in and for
the Second Circuit, held at the United
States Court House, in the City of New
York, on the sixteenth day of November,
one thousand nine hundred and seventy-
six.
FLM Collision Parts, Inc.,
Plaintiff-Appellee-Cross-Appellant,
Vv.
Ford Motor Company and Fort Marketing
Corp.,
Defendants-Appellants-Cross-
Appellees.
A petition for rehearing containing
a suggestion that the action be reheard
en banc having been filed herein by
counsel for the Plaintiff-Appellee-
a-3
Cross~Appellant, and no active judge or
judge who was a member of the panel having
requested that a vote be taken on said
suggestion,
Upon consideration thereof, it is
Ordered that said petition be and
it hereby is DENIED.
IRVING R. KAUFMAN,
Chief Judge
UNITED STATES COURT OF APPEALS
For Tue Seconp Cikrcvuir
—
wes
Nos. 1192, 1260—September Term, 1975.
(Argued June 16, 1976 Decided September 30, 1976.)
Docket Nos. 76-7161, 76-7202
MLM Coniston Parrs, Ine.,
Plaintiff -A ppellee-
Cross-Appellant,
—against—
Forp Motror Company and
Forp Marketinc Corporation,
Defendants-A ppellants-
Cross-Appellees.
a
>
v
Before:
MANSFIELD, Oakes and GuRFEIN,
Circuit Judges.
-—_ =
oe
Appeal! and cross-appeal from a decision and judgment
entered after a non-jury trial in the United States District
Court for the Southern District of New York, by Thomas
P. Griesa, Judge, finding that Ford’s allowance of certain
discounts on automobile parts constituted price discrimi-
nation in violation of §2(a) of the Robinson-Patman Act,
dismissing Shermen Act claims based on the same dis-
count system, and awarding plaintiff treble damages, at-
torneys’ fees and injunctive relief. See 406 F.Supp. 224.
a-5
Judgment on the Robinson-Patman claim reversed. Dis-
missal of Sherman Act claims affirmed.
a ae
Rosert MacCrate, Esq. (William M. Dallas, Jr.,
Esq., Sullivan & Cromwell, 48 Wall Street,
New York, N.Y.)
—and—
SranLey D. Rostnson, Esq. (Michael Malina,
Esq., Kaye, Scholer, Ficrman, Ilays &
Ilandler, 425 Park Avenue, New York, N.Y.
10022)
—and—
Wittram A, Zotnent, Esq. (Office of General
Counsel, Ford Motor Company, of coun-
sel), for Appellants.
Davin Janostawicz, Esq. (Alfred S. Julien, Esq.,
Stuart A. Schlesinger, Esq., Julien & Schies-
inger, P.C., 2 Lafayette Strect, New York,
N.Y., David L. Wasser, Esq., of counsel),
for Appellee.
— ase
MansritLp, Circuit Judge:
In this civil anti-trust suit for damages in the Southern
Distriet of New York by FILM Collision Parts, Ine. an
independent wholesaler of automobile parts, against Ford
Motor Co. and its wholly owned subsidiary, Ford Market-
ing Corporation (herein collectively referred to as “Ford”),
the subject of attack is a Ford incentive allowance plan
under which Ford grants to each of its franchised dealers
a discount on the dealer’s purchases of “crash parts” for
resale to independent automobile repair shops but not on
the dealer’s purchases for its own use or for resale to
a-6
other classes of customers, including FLM. FI.M claims
that this pricing practice amounts to a price discrimina-
tion in violation of §2(a) of the Clayton Act, as amended
by the Robinson-Patman Act, 15 U.S.C. §13(a), and also
constitutes a conspiracy in restraint of trade violative of
§1 of the Sherman Antitrust Act, 15 U.S.C. §1, and a
monopolization of the market in violation of §2 of the
Sherman Act, 15 U.S.C. §2.
After trial of the action before Thomas P. Griesa, Judae,
sitting without a jury, he handed down an opinion, re-
ported at 406 F.Supp. 224, agreeing with LM that the
incentive payment plan was a form of price discrimination
and thus a violation of §2(a) of the Robinson-Patman Act.
He dismissed I°I.M’s Sherman Act claims, however, finding
that the plaintiff had failed to prove its allegations of
conspiracy and monopolization. A supplemental opinion
awarded FLM treble damages of $874,506, $136,000 in
attorneys’ fees, and injunctive relief. Ford appeals from
this judgment, and FLM cross-appeals from the dismissal
of its Sherman Act claims. We hold that the district judge
erred in finding price discrimination in violation of §2(a),
since Ford's incentive plan treated all of its purchasers
equally, and accordingly we reverse the judgment in favor
of FLM. We affirm the dismissal of the Sherman Act
claims.
Tue Facts
“Crash parts”, as the name indicates, are fenders, grills,
and other sheet metal parts used principally to repair
automobiles damaged in collisions. They are custom-
designed for particular years and models of automobiles,
and Ford is the sole source of such parts for Ford cars.
The distribution system of the parts thus begins with
Ford, which makes some parts itself and licenses the
manufacture of other parts. Ford sells its crash parts
a-7
exclusively to its franchised Ford dealers, of which there
are 3ome O800 in the United States. The dealers use some
of the parts in their own repair shop operations, in effect
selling them directly to the car owner and to this extent
functioning as retuilers. With respect to the balance the
Ford dealers functioli as wholesalers, reselling the parts
to independent auto repair shops for use in those shops’
repair operations and to other users such as owners of
large fleets of automobiles and insurance companies,
FLM entered the crash parts business in 1965 as an inde-
pendent wholesaler. Its request to buy crash parts direetly
from lord was refused, since lord sold parts only to its
franchised Ford dealers. SLM then made arrangements to
buy lord parts from a franchised lord dealer, Central
Lincoln Mereury Corp. (“Central”). The ILM-Central
agreement allowed FLM to buy the parts at 2% above the
price Central paid Ford for them. ILM then in turn
resold the parts to independent repair shops.
Prior to 1968, Ford priced its crash parts to its fran-
chised dealers at approximately 60% of Ford's suggested
list price.' ‘Thus, a part retailing at $10.00 would be sold
by Ford to its dealers, including Central, at $6.00, which
was described as the “dealer net” price (i.c., 40% off the
suggested list price). Central would resell the part to LM
at $6.12. (Dealer net plus 2%). While f' LM was thus
at a slight price disadvantage in competing with Ford
dealers for sales of crash parts to independent repair
shops, its sales grew from $245,738 in the fiscal year end-
ing Sept. 30, 1966 to $389,987 in the fiscal year ending Sept.
30, 1968. However, FLM did not show any net profit over
this period.
| Until 1968 the price was 58% of the suggested list price; in 1968
this was changed to 60%. We use the 60% figure throughoct for ease
in computing the examples given.
a-8
Putting FLM to one side for the moment, Ford’s pre-
1968 distribution system for crash parts clearly put inde-
pendent auto repair shops at a disadvantage in competing
with Ford-franchised dealers for repair jobs on Ford cars.
This arose from the fact that while Ford dealers could buy
the parts needed for such repairs from Ford at the “dealer
net” price (e.g., $6.00 for a part with a $10.00 suggested
retail) the independent repair shops had to buy the same
part from a lord dealer at dealer net plus whatever markup
the Ford dealer imight choose to add. Thus, if a Ford
dealer charged a 10% markup on the parts it resold, an
independent repair shop would have to pay $6.60 for the
part which the ord dealer could buy for $6.00. This situa-
tion attracted the attention of the Federal Trade Commis-
sion, which informed Ford that it considered the prices
charged to independent repair shops to be an unfair trade
practice in violation of §5 of the Federal Trade Commis-
sion Act, 15 U.S.C. §45. The FTC never began formal pro-
eecdings against Ford; the matter was settled when lord
adopted the “wholesale incentive” allowance to dealers
which was designed to equalize the prices at which indepen-
dent repair shops could obtain Ford parts with the prices
paid by Ford dealers for the same parts.*
Under the wholesale incentive plan Ford sold crash parts
to its dealers at lower prices when they were resold to
independent auto repair shops than when they were re-
tained by the Ford dealer for use in his own repair opera-
tions. For a part having a $10.00 suggested retail list price
the Ford dealer would still pay $6.00 when he bought it for
2 The parties dispute the part the FTC played in the development of
the incentive plan, with Ford suggesting that the PTC played a major
role in the adoption of the plan, and FLM arguing that the PTC ae-
cepted the plan only reluctantly. As might he expected, the record seems
to indicate that the truth falls somewhere in between; it appears that
the plan was Ford's idea, but the FTC found it acceptable.
a-9
use in his own repair shop. Ifowever, when he bought it
for resale to an independent repair shop he would receive
back from Ford an incentive allowance of 20% cf the dealer
net price, reducing the ord dealer’s bottom line price to
$4.80 (dealer net of $6.00 less 20%).2 Tins, under the plan
the independent repair shop would be able to buy the part
at $4.80 plus the lord dealer’s markup, which allowed him
to compete effectively for repair business with the Ford
dealer who would have a dealer net cost of 46.00 for the
sale part when retained for use in his repair operations.
The incentive payment plan as originally adopted in
1968 allowed sales of crash parts by Ford dealers to inde-
pendent wholesalers to qualify for the incentive payments
to the dealers. Central, which now charged LM a 3%
markup over dealer net on crash parts, simply paid over
to FLM the incentive payments it received on parts sold
to FLM. Thus FLM’s cost for the part with a $10.00 sug-
gested retail price was now $4.68. [$6.00 dealer net plus
$.18 (Central’s 3% markup) less $1.20 (the 20% ineentive
payinent)}. However, the objective of the incentive plan,
which was to reduce prices to independent repair shops,
was not initially achieved, principally because neither Ford
dealers nor FILM made any appreciable reduction in their
resale prices to such shops. The principal effect of the
flow-through of the ineentive payments to FLM was to
inerease its profitability dramatically; from a net loss of
$769 in fiscal 1968 FF LM leaped to a net prolit of $25,418
in fiseal 1969, and enjoyed similar profits in the next three
years. Thus FLM rather than the independent repair shops
became a principal beneficiary of the plan.
Beginning in 1969, the amounts Ford paid out in whole-
sale incentive allowances on crash parts, and on other types
of parts for which it made similar incentive payments, ran
3 The incentive payment was :acreased to 25¢% in 1970.
a-10
higher than expected. Worried that Ford dealers might
be claiming incentive allowances to which they were not
entitled, Ford audited the accounts of 37 dealers whose
claims for incentive payments ran especially high. Central
was one of the dealers sclected for an audit; Ford examined
its books and those of LM as well. While the audit of
Central and F'LM disclosed some improper claims, they
were insubstantial in amount, and Ford concedes that this
audit and a similar one made in 1970 showed that Central
and FLM were complying with the terms of the incentive
program,
While Central and Fi.M may not have been engaged in
any improper use of the incentive plan, the same could
not be said of all of Ford’s dealers, Ford’s statistical analy-
sis of the overall results of the 37 audits conducted in 1969
indicated that as much as $2.1 million of the $44.5 million
in incentive payments claimed might be improper. Among
other things, some dealers were selling parts to wholesale
intermediaries and then elaiming an incentive allowance
for doing so, even though the wholesaler then resold the
part to another Ford-franchised deaicr. As a result of the
audit, Ford began considering ways to alter the incentive
payment plan to avoid the use of such tactics. In July 1971,
it promulgated a revised version of its incentive plan,
under which Ford dealers would be eligible for the pay-
ment only wnen they resold yarts to an independent repair
shop, not when they resold them to wholesalers such as
FLM or tc other classes of customers, such as fleet owners
and insurance companies. It is this revision of the plan
which is at the heart of the present suit.‘
4 Another aspect of the evidence is the fact that in 1971 Ford withdrew
a special dealer code number which it had issued to Central, and which
FLM used for direct billing on parts it purchased. We mention this only
for the sake of completeness, since it is peripheral to the issues raised
on this appeal.
a-ll
Despite the fact that the revised version of the incentive
plan would not allow incentive payments on parts resold
to wholesalers such as FLM, Atlas Lincoln Mercury,
(“Atlas”), the corporate successor to Central, continued to
claim incentive allowances on parts it resold to FILM under
the same arrangements as the latter had with Central. This
continued through mid-1972 when Ford discovered that the
payments were being claimed for sales to FLM and pro-
posed to recover from Atlas some $24,000 in payments
made to Atlas on account of its sales to FLM. Atlas then
withheld its payments of incentive allowances over to FLM,
which retaliated by withholding monies due to Atlas. In
the end, though Ford refused to allow any further incen-
tive payments to Atlas on account of sales to FILM, it
agreed not to recoup the past payments to Atlas. Atlas
and FLM ceased doing business together.
Since 1972, FLM has purchased crash parts from other
Ford dealers, paying them 5% above dealer net cost. Under
the present system, a Ford dealer selling a part to FILM
will receive no incentive payment on it. Thus, a $10.00
retail part resold to FILM will cost the dealer $6.00 [the
dealer net price], and FILM a total of $6.30, including the
Ford dealer's 5% markup. When, however, the part is
resold to an independent repair shop, it will cost the Ford
dealer only $4.50 [the dealer net price, less the incentive
payment, which was raised to 25% in 1970]. The differ-
ence between the cost to FILM and the cost to the Ford
dealers has put Fi.M under pressure in the competition
for resales to independent repair shops. While FLM’s net
sales for fixcal 1973 rose over its 1972 sales, it experienced
a net loss of $85,707 for the 1973 year, as compared to a
$21,091 profit the year before. Preliminary estimates in-
troduced at trial indicated that during fiscal 1974, FILM’s
sales fell to $694,000, some $100,000 less than in 1973.
a-12
Discussion
The Robinson-Patman Claim
Section 2(a) of the Clayton Act, as amended by the
Robinson-Patman Act, provides in pertinent part that:
“Tt shall be unlawful for any person engaged in com-
merce ... to discriminate in price between different
purchasers of commodities of like grade and quality
..” 15 U.S.C. $13(a).
The district judge concluded that Ford’s incentive pay-
ment plan as it functioned after the 1971 change violated
the Act’s prohibition of price discrimination, stating:
“Tt is not disputed that, since November 1972, Ford
has charged to Ford dealers who sell to FLM a higher
price than Ford charges for the same crash parts when
a Ford dealer sells directly to an independent body
shop. Putting aside for the moment the question of
the purpose of Ford’s price differentials, it would ap-
pear at least that the basic elements of a Section 2(a)
violation are out. Ford charges different prices to
different purchasers—Ford denlers—for the same
crash parts.” 406 I°, Supp. at 236.
We disagree with this conclusion. The district court’s
‘holding runs contrary to the plain language of the Act,
which limits its prohibition to price discrimination “he-
tween different purchasers.” The statute thns proclaims
in substance that a seller must extend equality of treat-
ment to its competing purchasers and may not discriminate
in price between them. However, it does not prohibit the
seller from offering different prices to each of its pur-
chasers, such as one price when he functions as a retailer
and a lower price when he functions as a wholesaler,
a-13
provided all competing purchasers are treated equally. In
this ease Ford, the seller, treated all of its purchasers
(franchised dealers) equally, offering each the same prices
us those offered to every one of its other dealers. Ifence
Ford’s incentive payment plan did not discriminate against
any of its purchasing dealers. All Ford dealers could
receive the incentive payments resulting in lower prices
for parts they resold to independent repair shops, and all
were denied these payments when the parts were not so
resold. For instance, FIL.M’s suppliers, Central or Atlas,
are entitled to the incentive payments from Ford when
they resell its crash parts to independent auto repair shops,
and there is no indication that under its amended plan
Ford allows the incentive payments to any Ford dealers
for resale of parts to customers (such as F-LM) who are
not independent auto repair shops. In short, while the
incentive payment plan did not set a single uniform price
for all types of sales made by Ford to its dealers, it was
administered with an even hand, without any discrimina-
tion among the dealers who purchased from Ford.
Reiying on FTC vy. Anheuser-Busch, Inc., 362 U.S. 536
(1960); F7'C v. Fred Meyer, Inc., 390 U.S. 341 (1968); and
Mueller Co. v. FTC, 323 V.2d 44 (7th Cir. 1963), cert.
denied, 377 U.S. 923 (1964), FLM argues that §2(a)
obligates Ford to charge one uniform price to each of its
custome:s and that dual pricing, even though equally
available to all, is discriminatory. We disagree and fail
to find support for such a rule in these or any other
authorities. The statement quoted from the Court’s
opinion in Anheuser-Busch to the effect that “a price
discrimination within the meaning of [§2(2)] is merely a
pric’ difference” is taken out of an entirely different and
distinguishable context, which renders it wholly inappli-
cable to this case. There the court was dealing with a
claim of primary-line territorial price discrimination under
a-14
which Anheuser granted lower prices to dealers in the
St. Louis area, but not to those located elsewhere, for the
purpose of driving out competition. The court’s quoted
comment was in response to Anheuser’s argument that the
FTC was obligated to prove that the lower prices to the
St. Louis customers were below cost or unreasonably low
and were subsidized by the higher prices charged to others.
See id., at 548-49. No such charge or situation exists here;
Ford makes the same prices available to all its customers.
Were there any doubt about the matter, the Supreme
Court’s later decision in F'7'C v. Bordon Co., 383 U.S. 637
(1966), makes it clear that the language in Auheuser-
Busch does not imply that the Robinson-Patman Act
requires the uniform pricing rigidity ILM here asks but,
on the vontrary, permits a seller to offer dual prices to
its customers on an equal basis. Although the Borden
Company there charged purchasers a higher price for its
brand-name milk than it charged for private label brands
“of like grade and quality” within the meaning of Section
2(a), the court remanded the ease for a determination of
“whether the differential under attack is discriminatory
within the meaning of the Act,” and of whether Borden
had established any of the statutory defenses, Jd. at 646,
Thus it was recognized that the difference in price would
not fall under the Act’s ban on price discrimination if all
purchasers were given an equal opportunity to purchase the
less expensive milk. See id. at 641 n. 4; 643.° In his dissent
on the “like grade and quality” issue, Justice Stewart
furtner underlined the point that the Act requires only
equal treatment of al! purchasers, not a single unvarying
price:
5 On the remand, the Court of Appeals set aside the FTC's cease and
desist order against Borden on various grounds, including that the pri-
vate brand milk had heen sold to any customer who asked for it. Sec
Borden Co. v. FTC, 381 F.2d 175 (5th Cir. 1967).
a-15
[T]he existence of price discrimination is an issue
that remains open in the Court of Appeals. If Borden
is able to demonstrate that the price differential
between its preminm and private label brands is not
a price discrimination, the inquiry by the Commission
is at an end, and no issue of injury to competition or
cost justification under §2(a) is reached. Nothing in
FTC v. Anheuser-Busch, Inc., 363 U.S, 536, a case con-
cerned only with territorial price discrimination,
requires an equation in all circumstances between a
price differential and price discrimination. So long
as Borden makes private label brands available to all
customers of tts premium milk, it ts unlikely that price
discrimination within the meaning of §2(a) can be
made out.” Id, at 659 n. 17 (emphasis added).
Thus, even when a seller has a dual pricing system, if the
lower price is available to all purchasers, not only in theory
but in fact, see FTC v. Morton Salt Co., 334 U.S. 37, 42
(1948), there is no violation of §2(a).°
In short the Act, as its language indicates, requires
equality of treatment among purchasers, but it does not
require a seller to adopt a single uniform price under all
circumstances. Cf. Sun Cosmetic Shoppe, Inc. v. Elizabeth
Arden Sales Corp., 178 F.2d 150, 152 (2d Cir. 1949) (“The
Act does not undertake to forbid a seller to grant favors
to his custoraers ... it only insists that the distribution,
if any, shall be equal.”) This principle has been applied
in cases which found no violation of §2(a) in pricing plans
which, though varying prices according to different terms
6 Perkins v. Standard Oil Co. of California, 395 U.S. 642 (1969), does
not cast any doubt on this conclusion. In that case, it was established
that the seller had discriminated in price against some of its purchasers;
the only question was level of distribution at which the requisite com-
petitive injury could be shown.
a-16
of sale, were administered equally to all purchasers. Sce
Chapman v. Rudd Paint & Varnish Co., 409 F.2d 635, 643
(9th Cir. 1969) (discounts for advance deposits); Boss
Manufacturing Co. v. Payne Glove Co., 71 F.2d 768 (8th
Cir.), cert. denied, 293 U.S. 590 (1934) (dual product
lines); William Inglis &€ Sons Baking Co. v. ITT Con-
tinental Baking Co., 389 F. Supp. 1334, 1341 (N.D. Cal.)
(dictum) (private label breads), rev’d on other grounds,
526 F.2d 86 (9th Cir. 1975); F. Rowe, Price Discrimina-
tion Under the Robinson-Patman Act 97-98 (1962).
Accepting as we do the Supreme Court’s observation in
FTC v. Fred Meyer, Inc., 390 U.S. 341, 349 (1968), that
the Robinson-Patman Act should not be construed “in a
manner which rins counter to the broad goals which Con-
gress intended it to effectuat,”7? we find nothing in that
decision to support FLM’s position here and nothing in
the present case to indicate that Ford’s incentive allow-
ance plan is aimed at defeating or circumventing the Act.
In the first place, Fred Meyer did not involve §2(a)’s ap-
plicability to price adjustments, much less to any of the
type challenged here. The question there was whether pro-
motional allowances paid by a manufacturer directly to
certain retailers, but not to intervening wholesalers who
resold to other competing retailers, violated §2(d) of the
Act, 15 U.S.C. §2(d).* In holding that the manufacturer
7 While we do not adopt a narrow construction of the Robinson-Patman
Act in this ease, it should ne noted that such a mode of constrmnetion
of the Act has frequently been advocated. See, e.g., FTC v. Fred Meyer,
Inc., supra, 390 1.8. at 359-60 (Harlan, J., dissenting); Friendly, The
Gap in Lawmalking—Judqes Who Can't and Legislators Who Won't, 63
Colum. L. Rev. 787, 794 (1963).
8 The incentive payments here under attack were not related to any
advertising or promotional activities by the Ford dealers who resold the
crash parts to independent repair shops; they were merely adjustments
to price, and as such, not within the ambit of the stricter prohibitions
imposed by §2(d). See Rutledge v. Electric Hose ¢ Rubber Co., 511
a-17
was required to give the same promotional allowances to
retailers purchasing from the wholesalers as those given
by it directly to retailers, the Court did not suggest that
it intended, by analogy or otherwise, to interpret §2(a)
as requiring a manufaeti.rer to equalize prices charged to
those performing different functions in the line of dis-
tribution. Indecd, to do so, as Justice Harlan’s dissent in
Fred Meyer noted, 390 U.S. at 361, would be to run afoul
of the Sherman Act. If, in order to avoid violation of the
Robinson-Patman Act, Ford were required to fix the prices
at which FLM purchased parts from Ford dealers so that
the prices to both would he equalized, Ford would be open
to the charge of illegal price fixing.
We do not suggest or imply that, if a manufacturer
grants a price discount or allowance to its wholesalers
(whether or not labelled “incentive”), which has the pur-
pose or effect of defeating the objectives of the Act, §2(a)’s
language may not be construed to defeat it. But that is
quite different from the situation before us. IIere the
incentive allowance is given by Ford to its dealers in ree-
ognition of the fact that in reselling to independent repair
shops the dealer acts as a wholesaler rather than a retailer.
Although denial of the allowance on resale of parts to
others may have the practical effect of placing a floor under
the price at which dealers can resell to interinediate whole-
salers, the same could be said generally of standard fune-
tional discounts, the legality of which is not questioned.
F.2d 668, 678 (9th Cir, 1975); Kirby v. PR. Mallory §& Co., 989 P.2d
904 (9th Cir, 1973), cert. denied, 417 U.S. 911 (1974). It is true that
in some instances the word “customer” in §2(d) and the word “pur-
chaser” in §2(a), sre te be given the samo meaning, see, e.4g., Amerivan
News Co. v. F.T.C., supra, 300 F.2d at 109, bat the Supreme Court
limited its holding in Fred Meyer, Inc. (that a manufacturer was re-
quired to give the same promotional allowances to retailers purchasing
from wholesalers as to retailers buying directly from him) to §2(d)
cases. See 390 U.S. at 348-52.
a-18
| pct COPY. AVAILABLE:
See Rowe, Price Discrimination Under the Robinson-
Patman Act 173-174 (1962); Shniderman, “Zhe Tyranny
of Labels”—A Study of Functional Discounts Under the
Robinson-Patman Act, 60 Harv. L. Rev. 571 (1947);
Doubleday and Co., Ine., 52 F.T.C, 169, 207-208 (1955).
The record furthermore fails to provide the basis for an
inference that Ford’s incentive payment plan has been
simply a device to achieve indirectly a price discrimination
forbidden by the Act. The original plan was adopted in
response to the FTC's coneern that independent auto repair
shops be permitted to obtain erash parts at prices that
would enable them to compete with Pord dealers in the
repair business. The revision of the plan of which FLM
complains came after Ford’s audits disclosed that under
similar incentive plans involving other types of automo-
bile parts’ dealers were, in effect, selling to each other
through the medium of outside wholesalers, thus allowing
Ford dealers to obtain the parts at the same price or less
than independent shops and undercutting the objective
of the plan. While FILM was not involved in such dealings,
its position as an intermediary raised the possibility of this
problem.’® In these circumstances, it was not unreasonable
for Ford to make a general change in its incentive plans,
both those in which such difficulties had arisen, and the
erash parts plan, where they were posed as a potential
problem. Thus the record indicates that the 1971 revision
of the plan was an attempt to further implement Ford’s
original intention of funnelling crash parts at reasonable
9 While a limited amount of evidence was presented dealing with these
other incentive plons, their structure appears to be essentially the same
as that of the erash parts plan.
10 We cannot fathom the trial judge’s contrary conelusion that FILM was
not even “potentially” such an intermediary hetween Ford dealers. We
see no evidence of any aspect of FLM’s operations which would assure
against such dealings.
a-19
prices to independent repair shops so a to improve com-
petition in the auto repair business, and was not a device
to circumvent the Act.
Nor do we find support for FLM’s contention in Mueller
Co, v. FTC, 323 F.2d 44 (7th Cir. 1963), cert, dented, 377
U.S. 923 (1964). There the seller had divided its pur-
chasers into two classes—regular and “stocking” jobbers.
Tt granted an extra 10% discount to stocking jobbers to
compensate them for their expenses in maintaining ware-
house stocks of the seller’s product. Ifowever, not all
jobbers were able to become stocking jobbers and thus
take advantage of the 10% discount. Specifically the ITC
found that the seller “discriminated in the selection of
stocking jobbers.” 7d. at 45. In affirming the PTC's finding
on this point, and rejecting the petitioner’s argument that
there was no price discriminat. since all jobbers could
become stocking jobbers, the Seventh Circuit stated that:
“There were no objective standards to guide regular
jobbers in qualifying as acceptable and there is sub-
stantial evidence to support the Commission’s finding
as well as evidence that petitioner’s decisions on this
point were influenced by whether it had already ade-
quate distribution ‘in that particular area’ and by its
concern to protect fold established jobbers.” Theoret-
ically, these discounts were available to ail, but fune-
tionally they were not.” 323 F.2d at 46. (Citation
omitted)
Thus the gravamen of the discrimination found in Mueller
was not the provision of the 10% discount to jobbers as
compensation for their wholesaling services, but rather
the fact that eligibility to enter this favored class was only
selectively recognized and not made equally available to
all jobbers. Here, in contrast, Ford did not arbitrarily
a-20
select some of its dealers and limit incentive payments to
them. Rather, such payments were available to all Ford
dealers purchasing from Ford. Mueller thus simply re-
affirms the principle that treatment of purchasers must be
even-handed. Having treated its dealers equally here, Ford
fulfilled its duties under the Act.
We need not dwell at length on FILM’s alternative sug-
gestion—understandably brief—that it should be treated as
an “indirect purchaser” from Ford and thus entitled to the
same prices us those charged by Ford to its dealers. The
“indirect purchaser” doctrine originaied in Araft-Pheniz
Cheese Corp., 25 #.V.C, 587 (1937), as a menus of prevent-
ing a manufacturer from insulating itself from: Robinson-
Patman liability by using a “dummy” wholesaler to make
sales at terms actually controlled by the manufacturer.
See American News Co. v. FTC, 300 F.2d 104, 109-10 (2d
Cir.), cert. denied, 371 U.S. 824 (1962); F. Rowe, supra,
at 57-59. The doctrine comes into play when the manufac-
turer “deals directly with the retailer and controls the
terms upon which he buys.” American News Co., supra,
300 F.2d at 109; see K.S. Corp. v. Chemstrand Corp., 198
F.Supp. 310 (S.D.N.Y. 1961); Kraft-Phenix Cheese Corp.,
supra,
Ford’s direct dealings with FLM were at best frag-
mentary," and the company did not attempt through the
medium of a suggested price or otherwise to set the prices
at which its dealers would sell crash parts to FLM. The
most that can be said is that as a practical matter Ford’s
wholesale price to its dealers serves as a floor for their
resale prices. As Judge Gricsa noted, see 406 F. Supp. at
241, to equate this with the “control” required by American
11 The only direct dealings appear to he Ford's delivery of parts di
rectly to FILM when the latter was buying them through Central and
using a dealer number assigned to Centrai, and the audits of FLM, to
which it consented.
a-21
News Cc., supra, would reach the absurd result of extend-
ing the Coctrine to cover every resale of goods. The “in-
direct purchaser” doctrine, therefore, has no application
to this cease. If Congress desired to bar a ‘nanufacturer
from granting functional discounts that mi.sht affeet its
wholesaler’s resale policies, further legislation would be
required. Under the Act as it stands the man vfacturer is
free to grant such discounts on an equally aviilable basis
to all of its customers, even though the cifeet may be to
limit the development of additional layers of intermedi-
aries which might occur if the discount or allowance were
not limited to the performance of a speci'ie type of whole-
saler function in the line of distribution.
In view of our conclusion that Ford did not engage in
price discrimination, it becomes unnecessary to reso've the
other contentions raised by the parties, including whether
FLM would have standing to litigate such a claim, whether
the incentive plan was injuriovs to competi‘ion, and
whether damages were properly prov.
Sherman Act Clains
Turning to the district court’s distr issal of TM's claims
based on §$1 and 2 of the Sherman Act, 15 1.8.0. 691, 2,
froin which FLM appeals, the §1 ciaim appears to mix,
rather unclearly, two somewhat different theeries: first,
that the incentive system was the product of a conspiracy
between Ford and its dealers to drive FLM out of business,
and second, that even if the incentive system was adopted
by Ford on its own initiative it is nonetheless a per se
violation of §1 under the doctrine of United States v.
Arnold, Schwinn & Co., 388 U.S. 365 (1967). FLM’s §2
claim asserts that Ford, having a monopoly over the manu-
facture of Ford crash parts, was attempting to extend
that monopoly to the wholesale market. Judge Griesa
a-22
found that FILM had not proved the existence of any con-
spiracy between Ford and its dealers (or between Ford
Motor Co. and its wholly-owned subsidiary, Ford Market-
ing Corp.), and that sinee MLM had failed to establish
that lord was vertically integrated into the wholesale
market for Ford erash parts no basis existed for charging
that if ded extended its monopoly power at the manu-
facturing level info that market in violation of °2
Sinee the question of whether the imcentive allowance
plan sid its TOTP aiendment to PLM s dissdvantage was
the product of a comspiracy between lord and its dealers
to drive FILM ont of business or to fix the prices of parts
sold to it is essentially one of faet, sce Taxi Weekly, Inc. Vv.
Metropolitan Tasieal ourd of Trade, lne., (Dkt. Nos,
16-7042, 76-7175) (2d Cir, July 18, 1976), slip opin, 4925,
$931; Michelman vo Clark-Schwebel Fiber Glass Corp.,
(Dkt. Nos. 75 7532, 75-7508, 75-7504, 75-7598) (2d Cir.
April 21, 1976), slip opin. 3333, 3344, the scope of our
review of the trial judge’s finding on this issue is limited,
Fed. R. Civ. PL 52(a). Faced with a record containing
conflicting proof, we cannot say that the trial judge clearly
erred in finding that I'l.M had failed to prove a conspiracy
between Ford and its dealers to eliminate LM or to fix
resale prices to it."* There was evidence, to which we have
alluded, that Ford changed the incentive plan on its own
initiative in order to avoid abuses of the system which
would undercut its effectiveness in giving independent auto
repair shops a chance to compete with Ford dealers. More-
over, FILM concedes that, after the change in the incentive
12 The record discloses nothing even vaguely resembling the course of
conduct, ineluding extensive policing efforts and threats of puysical
violence to dealers, which led the Supreme Court to conclude that a
“classic conspiracy in restraint of trade” had been shown in United
States v. General Motora Corp., 384 U.S. 127, 140 (1966), on which
FILM relics.
plan, Ford dealers continued to do business with it, albeit
on less favorable terms, which tends to undercut the pos-
sibility of such a conspiracy.
We also agree with Judge Griesa, for the reasons he
stated, see 406 I’. Supp. at 245, that LM did not prove a
conspiracy between Ford Motor Co., and its subsidiary; we
can only regard as frivolous FILLM’s argument that Ford is
estopped from denying such a conspiracy existed by virtue
of certain comments in the charge in Rea v. Ford Motor
Co., 355 I’. Supp. $42, 864 (W.D. Pa. 1973), rev'd on other
grounds, 497 I'.2d 577 (3d Cir.), cert. denied, 419 US.
868 (1974).
Nor do we read the Supreme Court’s decision in United
States v. Arnold Schwinn & Co., supra, as providing a
basis for holding Ford’s pricing system per se illegal un-
der §1 of the Sherman Act on the ground that it enables
Ford, after parting with title to the crash parts, to fix
the prices at which dealers will resell the parts to FLM
or to stop them from dealing with FLM. Schwinn did
not do away with an essential element of §1 which was
hero found lacking—“a contract, combination—or con-
spiracy,” between Ford and its dealers. There the exis-
tence of such an agreement was undisputed, and the Court
was careful to note that an “explicit agreement or
silent combination or understanding” restricting the per-
sons to whom the goods might be resold was an essential
condition of a per se violation. 388 U.S. at 382; cf. Carter-
Wallace, Inc. v. United States, 449 F.2d 1374, 1380-81
(Ct. Cl. 1971); Modern Home Institute, Inc. v. Hartford
Accident & Indemnity Co., 513 F.2d 102, 108-9 (2d Cir.
1975). Here no such understanding existed. Ford uni-
laterally established its prices to its dealers and did not
fix their resale prices or terms. Although the dealers
would be most unlikely as a practica] matter to resell
below cost, they were free to, and some did, resell to
FLM at prices close to their cost. To hold that Ford’s
establishment of a discount level based on the wholesaler’s
function in reselling a Ford product violates $1 of the
Sherman Act because of its effect on the wholesaler’s
resale practices would not only ignore the language of
$1 but in effect require that all functional discounts be
outlawed. We do not find any support for such a holding
in $1 or clsewhere.
FLM’s §2 claim also suffers from a failure of proof.
Where the defendant is charged with monopolization, its
possession of monopoly power in the relevant market
must be demonstrated, ¢.g., United States v. Grinnell Corp.,
384 U.S. 563, 570-71 (1966); United States vy. Aluminum
Co. of America, 148 F.2d 416, 422-32 (2d Cir. 1945), which
requires proof of the approximate share of that market
controlled by the defendant. See Note, Attempt to Monop-
olize Under the Sherman Act: Defendant’s Market Power
as a@ Requisite to a Prima Facie Case, 73 Colum. Ll. Rev.
1451, 1459 (1973). Where the defendant is charged with
an attempt to monopolize, a “dangerous probability” of
success must be shown. /’.9., Lorain Journal Co. v. United
States, 342 U.S. 143, 153 (1951); Swift & Co. v. United
States, 196 U.S. 375, 396 (1905); Areager v. General Elec-
tric Co., 497 F.2d 468, 471 (2d Cir.), cert. denied, 419
U.S. 861 (1974). But see Lessig v. Tidewater Oil Co., 327
F.2d 459 (9th Cir.), cert. denied, 377 U.S. 993 (1964).
Here the only relevant market which FLM attempted to
define was the wholesale market in Ford crasi parts.
However, FLM failed completely to prove that Ford, as
distingushed from its dealers, had any significant share
of that market, mucli less that it was using its monopoly
at the manufacturing level to extend such a share. Cases
such as Fastman Kodak Co. v. Southern Photo Materials
a-25
Co., 273 U.S. 359 (1972), where the manufacturer sought
illegally to use its: power as a manufacturer to extend its
proven share of the retail market are therefore inapposite
and lend no support to FLM’s claim. FILM’s alternate
theory of its 42 claim—that Ford was conspiring with its
dealers to help them maintain their shared monopoly of
the market--amounts to nothing more than its §1 claim
under another name, and its proof on the point is no more
impressive when viewed under the rubric of §2.
For the foregoing reasons, we reverse the judgment
entered on the Robinson-Patman Act claim, and affirm the
dismissal of the Sherman Act claims.
FILM COLLISION PARTs, INC.,
Plaintiff,
v.
FOKD MOTOR COMPANY and Ford
Marketing Corporation,
Defendants.
No. 73 Civ. 713.
United States District Court,
S. D. New York.
Dec. 19, 1975.
OPINION
GRIESA, District Judge.
This is an antitrust action under Sec-
tion 2(a) of the Clayton Act, as amended
by the Robinson-Patman Antidiscrim-
ination Act, 15 U.S.C. § 13(a) (hereafter
referred to as Section 2(a) of the Robin-
son-Patman Act), and Sections 1 and 2
of the Sherman Act, 15 U.S.C. §§ 1 and
2.
Plaintiff FLM Collision Parts, Inc.,
is a small company located in Yonkers,
New York, and is in the business of deal-
ing in “crash parts” for cars made by
defendant Ford Motor Company—i. e¢.,
Ford, Mercury and Lincoln cars. Crash
parts consist of fenders, grills, panels,
and other parts used to repair a car
a-27
which has been in an accident or needs
replacement of such parts for some oth-
er reason.
These crash parts are manufactured
only by Ford Motor Company or by oth-
er manufacturers who make the parts to
Ford’s specifications. With certain ex-
ceptions not here relevant, these crash
parts are sold by Ford! only to fran-
chised Ford and Lincoln-Mercury deal-
ers. The franchised dealers? either use
the crash parts in their own repair work
for customers, or resell them to inde-
pendent repair shops.
The problem in this case arises from
the circumstances under which Ford
grants a so-called “wholesale incentive”
allowance in the sale of crash parts ¢o
Ford dealers. Ford grants, or does not
grant, the wholesale incentive allowance
to the dealers depending on the use they
make of the particular parts. If a dealer
uses a part in repair work for a customer,
this involves a retail sale of the part,
and the dealer does not obtain a wholesale
incentive allowance on that part. But
if a dealer sells the part to an independent
repair shop, this involves a wholesale
transaction, and the dealer may obtain
the wholesale incentive allowance on that ©
part.
Ford Marketing Corporntion was iieorper
rated in 1970, and commencing in July 10
wax responsible for the marketing of Ford,
Mereury and Lincoln autenebiles amd related
products. Drier te July 170 this marketing
function bad been performed by the jane
fucturer, Ford Motor Company. [Tt appears
that subsequent to the trial of this action
Ford Marketing (Corporation was dissolved,
and the marketing function was returned to
ord Motor Company, For the purpones of
thix come, defendants Ford Motor Compuny
and Ford Marketing Corporacion will usually
be treated as a single entity, and will be
referred to ax “Ford”.
2. For purposes of simplicity, in thin opinion
1 will refer to franchised Ford, Mercury and
Lincoln dealers us “Ford dealers”.
a-28
FLM set itself up to supply Ford crash
parts to independent repair shops. At
first it sought to buy directly from Ford,
but when this request was refused, FLM
commenced purchasing crash parts from
a Ford dealer in Brooklyn to whom FLM
was referred by Ford. FLM then pro-
ceeded to sell crash parts, purchased
from the Brooklyn dealer, to independent
repair shops, mainly in Bronx and West-
chester counties.
The wholesale incentive allowance was
established by Ford in 1968. Thereafter,
until 1972, Ford permitted the Brooklyn
Ford dealer to receive the wholesale al-
lowance on parts sold to FLM, which al-
lowance was almost entirely passed on to
FLM, thus substantially reducing FLM’s
costs. Commencing in 1972, Ford refused
to grant the wholesale incentive allowance
on parts sold to PUM, and restricted the
allowance to those parts which were sold
by franchised Ford dealers directly to
independent body shops.
FILM contends in this action that
Ford's current pricing policies violate
Section 2(a) of the Robinson-Patman
Act in two regards: First, that Ford,
by charging one price to a franchised
dealer when it sells to an independent
repair shop, and a higher price to a
franchised dealer when it sells to FLM,
is engaging in unlawful price discrimina-
tion in its sales to the franchised dealers,
resulting in injury to FLM for which
FLM has standing to recover; second,
that FLM is itself a “purchaser” from
Ford—i. ¢., an “indirect” purchaser—
and as such has standing to sue Ford
under the Robinson-Patman Act. FLM
further contends that Ford has violated
Section 1 of the Sherman Act in com-
bining and conspiring with its franchised
dealers to injure FLM competitively.
a-29
Finally, FLM contends that Ford has
violated Section 2 of the Sherman Act
in that Ford has monopolized or at-
tempted to monopolize the wholesale
market for Ford crash parts. FLM seeks
injunctive relief and treble damages.
The case has been tried to the Court
without a jury. This opinion constitutes
the Court’s findings of fact and con-
clusions of law on the liability phase of
the case. The record on damages has
not been completed. A supplemental
opinion will be issued on the award of
damages, including attorneys’ fees.
Summary of Conclusions
The following is a summary of my
conclusions. J hold that FILM has prov-
ed a violation of Section 2(a) of the
Robinson-Patman Act based upon the
first theory described above—-that Ford
is engaging in unlawful price discrimi-
nation in sales of crash purts to its deal-
ers, resulting in injury to FILM for
which FLM has standing to sue. 1
reject the Robinson-Patman claim of
FILM based on the “indirect purchaser”
theory. 1 also reject FLM's claims un-
der both Sections 1 and 2 of the Sher-
man Act.
Facts
FLM commenced its business in 1965.
The two principals of the company are
Stephen McKee and John Andidero,
both of whom had been employed pre-
viously by Ford dealers in parts opera-
tions. FLM's first idea was to buy
crash parts directly from Ford and sell
them to independent repair shops. ILM
discussed this with a representative of
Ford, but was advised that Ford would
only sell its crash parts to franchised
dealers. In early 1965 an employee of
a-30
Ford in New York City by the name of
Joe Collura introduced McKee and Andid-
ero to Central Lincoln Mercury Corp.., lo-
cated in Brooklyn, New York. This led
to an arrangement for FLM to buy crash
parts from Central at 2% over Central's
cost.
At this time there was no wholesale
incentive allowance available on crash
parts to franchised Ford dealers. The
dealers paid the same _ price-—“dealer
price’—for crash parts whether they
used* them in their own repair shops
(7. «., made retail sales) or sold them to
independent repair shops (made whole-
sale sales). The “dealer price” was the
“suggested list” or retail price, less
42%."
It is useful to examine the effects of
the crash parts price structure as it ex-
istee at the time FLM commenced busi-
ness in 1965 until the advent of the
Wholesale incentive allowance, which was
instituted in 1968. Let us assume the
sale by Ford of a crash part to a deal-
er, carrying a suggested list price of
$10.) The dealer would pay the dealer
price of Sh.x0 f, ., the suggested list
price less 42° or $4.20.) The Ford
dealer could use the part in his own re-
It appears that prior to 19S the Amount of
the allowance used in enleulating the denler
price was 429%, wil that commeneing in TGS
the amount of thix allownues was 1.
There were certain other discounts or allow-
auces granted, under certain circumstances,
to dealers in connection with the purchase of
erash parts, FILM makes cininw for lanages
based on certain allegations of inubility to
Obtain these allowances. These claims will
be discussed in the supplemental Opinion re-
garding damages.
pair operation, and would presumably
charge the customer the suggested list
price of $10, thus making a gross profit
of $4.20. The Ford deaicr could also
sell the part to an independent repair
shop. In such a sale the Ford dealer
would presumably make some markup
over the dealer cost of $5.80, The in-
evitable result would be that the Ford
dealer and the independent repair shop,
both potentially competing for the re-
pair business of Ford owners, would be
incurring different costs for the same
type of crash part—the dealer paying
$5.80, the repair shop $5.80 plus.
To return to the situation of FLM,
FLM was buying parts from Central
Lincoln Mercury for 2° over dealer
price. Using the same $10.00 part as an
example, FILM would purchase this part
for the dealer cost of $5.80 pius the 2%
markup, or a total of $5.92. FLM would
be competing with franchised Ford deal-
ers for the business of the independent
repair shops. Although there is no ex-
plicit testimony about the price which
FLM was charging to repair shops in its
early years, a reasonable inference from
the evidence is that this was suggested
retail price less 25°%. Applying this
percentage to the hypothetical $10.00
part would give the figure of $7.50 as
FLM’s price to the repair shops, for a
part costing it $5.92.
With respect to FLM’s competition
with Ford dealers for the business of
independent repair shops, there is no
explicit evidence regarding what prices
the dealers were charging to the inde-
pendent repair shops during this per-
iod. However, the reasonable inference
is that FILM's prices were at about the
same level as the prices charged by the
Ford dealers. In any event, FLM was
able to compete effectively.
a-32
The business of FLM grew steadily
FLM offered certain services to the in-
dependent repair shops which the fran-
chised Ford dealevs generally did not
provide. FLM would visit repair shops,
inspect damaged vehicles and advise re-
specting exactly what parts would b
needed to make the proper repairs.
FLM carried sufficient inventory so
that it could often fill an order the
sume day it was placed. If FLM did
not have a part in its own inventory,
it would attempt to procure the part and
deliver it no later than the following
day. FLM delivered parts to the repair
shops, something apparently not done
by most of the franchised dealers.
c
The following figures show the re-
sults of FLM’s operations commencing
with the fiscal year ending September
30, 1966 (the first full year of FLM's
operations ) through the fiseal year end-
Ing September 30, 1968. The latter was
the last full year prior to the advent of
the wholesale incentive allowance.
Fiscal 1966
Sales $245,738.00
Cost of Parts $201.376 00
Gross Profit $44 362 00 16.1%)
Other Expense:
Cluding office:
salaries Of $16 680) $44,256 00
Net Operating Profit
After Taxes $80 70
Fiscal 1967
Sales
$337 0
Cost of Ports “276 oe
=e 4 ae 8 | j
Gross Prot 1194.00
7 ort $61,136.00 (18.1%)
Other Experses (9
Ciuding o.ficers
salaries of $22 529)
Net Operating Profit
After Taxes
$60.927.00
$109 00
Fiscal 1968
Sales $389,987 00
Cost of Parts $32 3959 00
Gro's Profit $66 C2800 (16 9%)
Other [xpenses (in
chadeng olliers
shames Of $26,520) $65,658 00
Net Gperating Loss
After Taxes $769 00
Ford maintained a parts depot at
Teterboro, New Jersey. Central Lin-
coln Mercury provided FLM with an
authorization so that FLM could pick
up parts at Teterboro. Kills were ren-
dered by Ford to Central, who would
then segregate the bills relating to the
FLM purchases from the bills relating
to other purchases made by Central.
In its dealings with Ford, Central was
identified by a “dealer code number”—
1128:3.
ln order to simplify the accounting for
the FLM purchases, Central requested
that a separate code number be given by
Ford to Central for the parts which it
purchased for resale to FLM. Ford
agreed to this, and commencing In late
1968, Ford assigned a second code num-
ber to Central —13430. This code num-
ber was in the name of Central, but the
billing address was the address of FLM
in Yonkers
The wholesale incentive allowance for
crash parts was instituted in November
196%. At some time prior thereto, the
Federal Trade Commission advised Ford
that the distribution of crash parts to
independent repair shops at higher
prices than those charged to franchise
dealers for use in the dealers’ repair
shops violated Section 5 of the Federal
Trade Commission Act. No formal pro-
ceedings were instituted. The matter
a-34
was settled when Ford agreed to allow
a discount from dealer's prices for cer-
tain classes of crash parts when the
franchised dealers resold such parts for
use by independent repair shops. The
amount of this wholesale incentive al-
lowance on crash parts was initially set
at 20%. It applied to some, but not all,
crash parts, The record shows that in
1971 there were a total of 10,000 kinds
of crash parts sold by Ford, of which
about 4.800 were eligible for a whole-
sale incentive allowance.
The agreement between Ford and the
Federal Trade Commission did not ex-
pressly provide whether or not a whole-
sale incentive allowance should be al-
lowed in the event of sales by a Ford
dealer to a party such as FILM, acting
us middleman between the Ford dealer
and the independent repair shop. llow-
ever, it has been stipulated that from the
inception of the wholesale incentive al-
lowance for crash parts until a Ford
poly change ono mid-1971, a fran tised
Ford dealer reselling crash parts to
FLM was entitled to claim the wholesale
incentive allowance on such resales.
In 1968 Ford changed the amount of
the discount used to reach the basic
dealer price fromm 42% to 40°. Thus,
after 1968, the basic dealer price on a
part whose suggested retail price Was
S1lu.00 was 56.00 instead of 35.80. In
January 1970 Ford increased the whole-
sule incentive allowance from 20 to
25°% for those crash parts to which the
allowance applied
a-35
The wholesale incentive allowance was
obviously a great benefit to FLM. This
is illustrated by returning to our ex-
ample of the $10.00 crash part. The
price paid by FLM’'s supplier, Central,
was $6.00. However, when Central sold
this part to FLM, Central received a
Wholesale incentive allowance equal to
25°; (using the post-January 1970 per-
centage) of the S600 of S150.) Thus
Central paid only $4.50 for the part.
Following the institution of the whole-
sale incentive allowance, Central chary-
ed FLM a markup of 3% of the basic
dealer price—here $6.00. In the ex-
ample this markup would be 1&¢. Thus
FLM paid Central $4.68. As already
noted, it appears that the wholesalk in-
centive allowance was granted by Ford
on only about half the crash parts sold
by Ford Ob. iously, In the example of
the $10.00 part, if the wholesale incen-
tive allowance were not in effect, FLM
would pay $6.18
With regard to FLM’'s resale prices
to the repair shops, and the resale prices
of FLM's competitors, the Ford dealers
selling directly to the repair shops, there
is no exploit evidence in the record as to
what such prices were during the time
PLM was receiving the benefit of the
Wholesale incentive allowance The
Federal Trade Commission had contem-
pluted that, following the institution of
the wholesale incentive allowance, the
Ford dealers would reduce their prices
on the covered parts to the same level
pani by the lord dealers when these
dealers sold at retail In the example
of the Sloan part this would be S6.00.
The Commission contemplated that, if
the Ford dealer obtained a_ further
wholesale incentive discount when the
part was sold to independent repair
shops, the dealer could afford to resell
the part to the repair shops at the $6.00
price.
a-36
Apparently there was substantial un-
willingness on the part of Ford dealers
to reduce the prices charged to the re-
pair shops to the levels contemplated by
the Federal Trade Commission. Since
the present case does not involve a com-
plaint by an independent repair shop
regarding prices charged by a Ford
dealer, this issue was not pursued in
any depth at the trial.
The only relevance of this matte
lo the present case is to explain that
after the institution of the wholesal
Incentive allowance for crash parts in
108, the prices charged by the Ford
dealers, at least in FLM's area of com-
petition, do not appear to have been
reduced substantially. It appears like-
wise that FLM did not reduce its prices
substantially, and that the principal ef-
fect of the wholesale incentive allowances
on FLM was to increase its profitabilit
The following figures show the profit
prtures of FILM after the win
tive (liscanr Peeve cannes otfect
Thiet
Agen thy basesal ears rele ti ,ecur™s
ending September 30
4 ae
sa $
4 «
r $ +
Diner Expense
meg
rr i
r $19 Se
Net Profit After ¢ $25 4:8
ASt 6
ure . ‘
ther E ape
Liud } oO
saiaries and cor
missions of $62.7 $i- ‘
Net Profit After Tawes $22 847 ¢
4
Fiscal 1971
Sales $654 382 00
Cost of Parts $448 264 00
Gross Profit $206,118.00 (31 5%
Otner t «pens
uding « e
salaries of $83 < $1799
Net Profit After Taxes $18 699 00
st of F t $ .
wr , t sea = .
¢ af
3 } rie
pe of § $ 4232
Net ro , t c *
It should be noted at this point tha
ford markets a wide varicls of spare
parts other than crash parts Thes
other parts include spark plugs, filters
carburetors, etc, and are marketed un
der the Ford brand name and unde
the tberand mares \utolite and “Motor
Wi rid ? nl i ‘
; | ; ? thet ? ‘ ,
phar had lnstituted pros ] ‘des
‘| t ti heave testal i? ‘
1 i | . bs i ul t
hy neoent iow ine were ru
ing f her than had been mated
T‘oe)'? Cris 1 i wi! sa NCweneays«
i Vuitn rn? ! } mrad ior | LVIh's
I ’ to “4 Ss bli
vnhict $12.7 mi or related ‘ cras!
i art
bord ras cuhncerhned about POssSIUle
large-scale Violation bey kde ol
Ford Ss ruces regarding the wh le Salic IT
centive allowance Ford's rules prohib-
Thix ix a restated figure. chet ug trom 1!
cost of parte the amount of $21. 807.00 whol
ile imecentive allowance wetibend am Cosew] 19TS
rnd ajplicnble to 1972
a-38
ited, among other things, payment of
the allowance on parts sold by one Ford
dealer to another Ford dealer cither di-
rectly or through an intermediary. Ford
was concerned about the possibility of
one Ford dealer obtaining the allowance
for purported use in wholesale sales,
and then transferring the parts to an-
other Ford dealer, who would sell them
at retail In this imstance, the first
Ford dealer would simply be a conduit,
and the second Ford dealer would be
geiting the benefit of the allowance ail-
though not making the wholesale sales
which the allowance was intended to
cover
Another “abuse” of the wholesale in
contlive allowance, in Ford’s view, was
the claiming of the allowance by Ford
dealers for parts seld to insurance com-
panies in commection with the repair of
curs Ford regarded these as retail
sules, eligible tor the allowance Still
another abuse was claiming the whol
Slale jamoerrntive gi bao cannes r" puarts which
had not been purchased from Ford
lt 19 Jeary 1 = ected 37 out al its
ove dealer for audits toe determine the
validity of the wholesale tneentive allow-
ances the selected dealers had claimed.
These 27 dealers were ones with unus-
ually high claims for wholesale incentive
aliowances
Central Lincoln Moreury, FLM's sup-
pulcr, Was one the dealers audited
This audit covered not only the recoras
of Central, but alse the records of FLY
FLM consented to wh an examination,
It is conceded by the Ford witnesses that
the amount of incorrect wholerale allow-
anee claims involving FLM was “mini
mal” and that this was a “clean audit.”
The audit covered the perion! from No-
vember 1968 through September 19609
a-39
The finding of the audit report dated
November 21, 1969 was that there were
total “discrepancies” of $2,185.28, of
which $1,458.34 related to sales to Ford
dealers The balance of the diserep-
ancies related to “return sales not de-
ducted.” There were no discrepancies
arising from sales to insurance com-
panies or purchases from outsid
SOUrCES For seme reason, the audit
report does net disclose the total aniount
of wholesale incentive allowances claime
with reward to FILM fer the Novemlay
908 September L969 period, although
‘tutes that for the
period Junuary through May 1:0 the
the wuudit re prort
total clams were $24,446. In any event
the amount of the disci Ppancies Was COon-
sidered minimal as compared with the
total claims
Following the completion of the 37
audits. Ford made a statistical evalua-
tion in order to estimate the overall
proportion of improper wholesale allow-
ance claims for ail dealers. The est:
mate was that for the period of the audit
there were between $1.2 million and $2.1!
million in improper claims out of a total
of $445 million claims
In the fail of 1970 theve- was a second
audit of Central and FLM,. resulting
in an audit report dated November 6
1970. The audit report stated that tl
wholesale incentive claims “were tested
and found to be generally weural
properiy supported, and submitted in a
cordance with the provisions of ti
wholesale parts incentive program.” No
discrepancies were noted
a-40
During 1970 Ford undertook a _ re-
consideration of the second parts code
number which had been issued to Cen-
tral for use in connection with its sales
to FLM lhe second code number was
discontinued as of the end of Januar
1971 (Central continued to sell to
and to obtain the wholesale incentive
allowance on sales to FLM until a sub
sequent time, as will now be described.
In July 1971 Ford amended its rules
regarding the Wholesale incentive ailow-
a ¢
Sith the eff hata kord dealer
, , , ’ ,
, i i? i Nail ivts
‘ ’ ’ ’ ; . T
; prea il Pt | } i ‘] it .
‘
this lr) ‘ ’ TP nis wivet |
+) ,
J
‘
i ! ‘ c ifiis haa Mgrs ree ra
lige tri wi a"Maiit ceniive AiOow alice
i if ‘ it thrives Cons ‘ i
, ' +} +} ’ ;
A tie . i ~ i c cou t)
‘
; ; ~ I \i , rygrhit “
‘
‘ ‘ ~~ i
;
;
i ¥
.
’ ‘
owe
; } ‘
il t
: + FL) hy
‘ ‘ '
i that . = ‘
’ r
' «i i i csd
‘ i . ‘ ix to
| ,
ri vs . >
.
’ ‘ a? rw
al ‘ } ; ter “ 4
oa . ™
tT) . +; ,
. \ i
. > > >
pa avs 4 jis¢ ssji0 T ‘
‘
matte wit t I : Paste
, >
Row is H i th:
: ’ .
cLatii my y’s\ 48 “i Pare | YU ri |
connection with the amendment of
the wholesale incentive allowance rules
in July 1971 He testified that the
discussions were in general terms, in
order to arrive at a consistent overall
policy applicable to all types of spar
jaurts, including but not limited to crash
parts
Certain facts should be noted with re-
spect to the three considerations de-
scribed above. As ic the first. there
was not the slightest indication that
FILM was either actually or potentialls
the kind of intermedury between Ford
dealers which Ford was concerned about
It is undisputed that PLM, aside fron
an occasional sale to a Ford dealer in
an emergency, sold | crasn parts 1
tirely to independent repair shops. Th
“discrepancies” found in the 196% audit
were minimal, and in the 1970 audit
were nonexistent
As lwo thi cond Comsideriation
Ford's alleged desore to grant the whok
Sui’ INcentlive ullowanes Onivy where hr rt
dealers are performing what Ford cor
ders to te the “wholesale function”
this faises a q tron of law, to be di
ssed hereafter. as to whethe Ford 1s
wyally entitled to s¢ the wholesal
contive allowame I . o} a Wa is te
sure that a bFord dealer sell qgdirect
1 retaier rather tNMhan selling j
rectis hrough a party sucn a riLLM
\s to the third considerats bored
i that Ford deak ‘ii 4 iM’
re | rs Ww i «ciain if pit foot ti
Tia rord admits that whates: rn
problem may have been, it relate
ho “wut to ctl ish , rts mr te i J |
Ford's evidence is that it Was conmcerTs
im this regard alout Autolite and Moto;
craft, where one channel of distributior
involved distributors Ford allegedly
believed that if Ford dealers were en-
couraged to compete with the distrit
a-42
tors in marketing Autolite and Motor-
craft parts to wholesalers, then the
Ford dealers would claim a distributor's
allowance. Thus Ford was not willing
to grant any ‘ncentive at all to Ford
dealers in order to encourage them to
sell these parts to wholesalers.
Ford contends that, although this
problem did not relate directly to FLM
or to crash parts, Ford desired to have
a uniform policy for the wholesale in-
centive allowance applicable to all types
of parts, rather than to have one policy
for crash parts and a different policy
for Autolite and Motorcraft parts.
I must note here that, even as to the
Autolite and Motorcraft parts, there is
no showing that any Ford dealers were
in fact demanding distributors’ allow-
ances for sales of spare parts to whole-
sulers
In any event, as already described,
Ford's rules were changed in July 197]
lo provide that a Ford dealer could
obtain the wholesale incentive allowance
on parts which were sold direetly to
independent repair shops, but could not
sbtain the allowance for parts sold to
h as FLM, who would resell
harties sud
them to the independent shops.
Although Ford denies that this chang:
tf policy was specifically directed to
MLM, it should be noted that there was
no other company besides FLM who
had saccesstully established a business
of acting as middleman between Ford
dealers and independent repair shops in
the sale of crash parts
Apparently because of some adminis-
trative crror on the part of Ford, the
July 1971 change of policy was not im-
med ately enforeed with regard to sales
by Central to FLM. Central continued
to sell crash parts to FLM and to re-
ceive wholesale incentive allowances on
such sales.
a-43
In July 1972 the business of Central
Lincoln Mercury was taken over by Atlas
Lincoln-Mercury. It was agreed be-
tween Atlas and FLM that Atlas would
miuke sales to FLM in the same way
that Central had done.
At some point in the summer or fall
of 1972 Ford awoke to the fact that
Atlas was still claiming and receiving
wholesale incentive allowances on sales
of parts to FLM, contrary to Ford's
current policy. Ford approached Atlas
and proposed to charge huck some $24,-
000.00 in wholesale incentive allowances
which had been paid to Atlas. Atlas
argued that FILM was a valuable whole-
sale account and urged that the whole-
siule incentive allowance should be con-
tinued with respect to sales to FLM.
Atlas particularly resisted any charge-
back of allowances already paid. These
discussions between Ford and Atlas oc-
curred in late October 1972.
During this controversy, Atlas held
up certain payments of wholesale in-
centive allowances to FLM. As a result,
FLM held up certain payments which
were due to Atlas. Apparently at some
pomt the Ford depot at Teterboro, New
Jersey refused to deliver parts to FLM
for the account of Atlas.
FLM's attorney approached Ford re-
questing the continuation of the whole-
sale incentive allowance on sales to FLM
and also complaining about the refusal
of the Teterboro depot to deliver parts
to FLM. Ford advised FLM's attorney
that it would not neyotiate directly with
a representative of FLM, but would
negotiate only with its dealer.
a-44
The upshot of these events was as
follows. Ford persisted in its refusal
to allow the wholesale incentive allow-
anee oon paurts seld by Atlas, or any
other dealer, te hLM. ord withdrew
its claim of charge-back against Atlus
The business relationship between Atlas
and FLM was terminated All this
occurred by the end of November 1972
Subsequently FLM_ has pur hased
crash parts from -ertain Ford dealers
without getting the benefit of the
Wholesale incentive allowances Com-
mencing in November 1972 FIM pur:
chased parts from Thomas Motors and
Parkview Lincoln-Mercury, both of
Yonkers, New York, FLM paid Thomas
and Parkview 5° over dealer cost
FILM dealt with Thomas Motors until
June of 19738, when a new owner of
that avency terminated the account. It
appears that FLAM continues to pur bat ne
parts from Parkview Lincoln-Mercury
to the present time
In June 1972 FLM commenced put
chasing parts trom Pleasantville Ford
‘of Pleasantville, New York. Again, EM
pays Pleasantville 5° over dealer cost
FILM continues to deal with Pleasantville
to the present lume
5. PLM eontend not only that Pom wath
drow so the viverloeles Gpeceetine geblenweanmee, deat
that Tord clieeetedd Atlas to completely cemse
doit business with eu M, 1 vegoet EAD Ss
Tevbatierth cote the latter purr "The Mord
witthes~es «cloeteyv Chaat mney teh oclreewtion wae
eaverte, thane PT eroutit this clheiminl
a-45
With respect to parts which FLM has
purchased from Thomas Motors, Park-
view Lincoln-Mercury and Pleasantville
Ford, FLM has resold these parts to
independent repair shops for 25°) off
the suggested list or retail price.
The withdrawal of the wholesale in-
centive allowance had a detrimental ef-
fect on FLM's profitability, The finan-
cil results for the fiscal year ending
September 30, 1973 were as follows:
ristal 1973
6 ri09 $798.94? 00
Cost of Port $684,758 00
7Oss Profit $11° 18900 (14.5%
Other £ apenses (in
vding ofrecers
salaries of
$82.860 00 $199. 896.00
Net Loss ($85,707.00)
As of November t, 1073, the salaries of
the two offtecrs were reduced from
SKHO0.00 por week each to $600.00) per
week each (Contributions to pension
funds were suspended,
At the time of the trial the final
figures of FLM for fiscal 1974 were not
available ilowever, it was estimated
that sales for fiscal 1974 were approxi-
mately $604,000.00, The fiseal 1974 sales
were down approximately $100,000.00
from the fiscal 1973 level. It was esti-
mated that, at the end of fiscal 1974,
FILM would have a deficit in its earned
surplus account amounting to $18,607.00,
ufter a $20,000.00 income tax refund
This contrasts with an earned surplus
of $81,913.00 as of September 30, 1972.
FLM is suffering from a shortage of
working capital which has restricted its
ability to purchase inventory and equip-
ment. With regard to price competition
with Ford dealers for the business of
repair shops, PLM is generally charging
the repair shops the suggested retail
price less 25°. McKee of FLM has
textified, albeit in a general way, that
FLM is experiencing price competition
from some Ford dealers which FLM can-
not afford to meet
1 find that PILAL has suffered tapare
ment of its ability to compete effectively
in the wholesale market of Ford crash
parts,
FLM has sought to prove that Ford's
withdrawal of the wholesale incentive
allowance resulted at least in part from
complaints from Ford dealers competing
with FLM and a desire by Ford to protect
such denier There is no sufficient
proof to support this point, However,
it is clear that Ford understood in general
that its discontinuance of the wholesale
incentive allowance on crash parts sold
ty parties such as FLAL would substan-
tially impair the ability of such parties
to participate in the distribution of Ford
parts in competition with the regula
Ford dealers, Also T cannot believe that
the Ford personnel responsible for the
change of policy respecting the wholesal
incentive allowance did not have FLM
apecifically in mind as a shining exampl
of the type of successful middleman Ford
was attempting to discourage.
Conclusions of Law
Robinson-Patman Act
[1] Section 2(a) of the Robinson-
Putman Act, 15 U.S.C. § 10a), provides
in pertinent part:
“(a) Tt shall be unlawful for any
person engaged in commerce, in the
course of such commerce, cither di-
rectly or indirectly, to discriminate in
price between different purchasers of
commodities of like grade and quality,
where cither or any of the purchasers
involved in such discrimination are in
commerce, where such commoditics
are sold for use, consumption, or resale
within the United States or any Ter-
ritory thereof or the District of
Columbia or any insular possession or
other place under the jurisdiction of
the United States, and where the ef-
fect of such discrimination may be
substantially to lessen competition or
tend to create a monopoly in any line
of commerce, or to injure, destroy, or
prevent competition with any person
Whe cilhber grants or khnowinwely re.
ecrves Che benmetit of such diserimina
tion, or With customers of cither of
them
Ld
It is not disputed that, since November
1972, Ford has charged to Ford dealers
who sell to FLM a higher price than
Ford charges for the same crash parts
when Ford dealer sells directly to aii
independent body shop Putting aside
for the moment the question of the pur
pose of Ford's price differentials, it
would appear at least that the basic
clements of a Section 2.4) violation are
made out. Ford charges different prices
to different purchasers—Ford dealers—
for the same crash parts
Ford asserts two defenses to the
Robinson-Patman Act claim: First, that
FLM has no standing to assert such a
claim, since FLM is not a purchaser from
Ford; second, that Ford's price dif-
ferentials are not prohibited by Section
2(a) since they involve “functional dis-
counts.”
au. The Standing of FLM to Sue
For its argument against FLM's stand-
ing to sue, Ford relies upon dicta in a
line of cases commencing with Klein v.
Lionel Corp, 247 F.2d 13 (hrd Cir, 1956),
The opinion of the Third Circuit contains
the statement (pp. 14-15);
“The decisions of many cases have
crystalized the rule that an individual
cun have no cause of action under
Section 2(a) of the Clayton Act unless
he os an actual purchaser from the
person charged with the discrimina-
tion.” (footnote omitted)
This statement wus cited with approval
in dicta in Barm & Blank, Ine. v. Phileo
Corp, 148 F.Supp. 541, 548 (R.D.NLY
M857): Boliek-Gillman Co. v. Continental
Raking Co, 206 F Supp, 161, 154 OD Nes
obi); United Banana Co. v, United
Fruit Co., 245 F.Supp. 161, 168 (D.Conn.
1965).
For reasons to be deseribed hereafter,
Tam not at all certain that the Third
Cireuit intended to lay down any rule
about standing under Section 2(a) as
sweeping fis the literal language of the
dictum might indicate, loo any event,
] have concluded that any such rule is
contrary to the intention of Congress us
expressed in the Robinson-Patman and
Clayton Acts.
Although Section 2(u) defines the
conduct which is illegal, it does not
explicitly deal with the question of what
parties do ov do not have standing to
sue for violations, The statutory pro-
vision expressly dealing with the question
of standing ix Section 4 of the Clayton
Act, 15 U.S.C. § 15, which provides:
“Any person who shall be injured
in his business or property by reason
of anything forbidden in the anti-
trust laws may sue therefor in any
district court of the United States in
the district in which the defendant
resides or is found or has an ayent,
without respect to the amount in con-
troversy, and shall recover threefold
the damages by him sustained, and
the cost of suit, including a reasonable
attorney's fee.”
On its face, Section 4 of the Clayton
Act would appear to be broad enough
to provide for a civil action by any
party who could make out a factual case
of injury to his “business or property”
by reason of any violation of the anti-
trust law. However, the courts have
taken the view that Congress did not
intend to confer such broad standing.
See Calderone Enterprises Corp. v.
United Artists Theatre Cireuit, Ine., 454
F.2d 1292 (2d Cir. 1971), cert. denied,
406 U.S, 930, 92 S.Ct. 1776, 32 L.Ed.2d
132 (1972) (“target area” doctrine ap-
plied in Sherman Act case),
(2) In dealing with the standing
problem in the present case, the most
compelling consideration is presented
by the implications of Section 2(a) of
the Robinson-Patman Act, indicating the
intention of Congress as to the ambit of
the statute's protection. I refer to the
a-50
languaye of Section 2(a), which pro-
hibits price discrimination between pur-
chasers,
oe where the effect of such
discrimination may be ——
injure, destroy, or prevent competition
with any person who cither grants or
knowingly receives the benefit of such
discrimination, or with customers of
either of them:
Aithough the forbidden conduct under
Section 2(a) is discrimination “between
different purchasers,” the language
quoted above expressly recognizes that
the competitive effects of such injury
resulting from the discrimination may
reach beyond the purchasers themselves.
The statute, as quoted above, applies
where competition is prevented (1) with
au person who grants the discriminatory
price, (2) a customer of the person who
yrants a discriminatory price, (3) a
person Who knowingly receives the bene-
fit of a discriminatory price, or (4) a
customer of «a person who knowingly re-
ceives the benefit of a discriminatory
price
(‘onsidering this language in concrete
terms, let us assume that a manufacturer
M) sells to two wholesalers (WA and
Wh WA resells toa retailer (RA), and
WE resells to a retailer (RB) M dis-
criminates in price in favor of WA, This
lLenefit is passed on to RA. RB is in-
jured in its competition with RA
Applying Section 264) to this situa
tion, there would appear to be a violation
of the statute, because M has diserimi-
nated in price between two purchasers,
WA and WK, and because this discrimi
nation has injured competition by RB
with a customer (RA) of one who has
received the benefit of the discrimination
(WA)
{3} It would seem to be perfectly
clear that Congress intended in Section
2(a) to confer protection upon those
parties who are injured in their compe-
tition with the types of beneficiaries
of the discrimination described in the
statute. There is no doubt that such
protected parties have standing under
Section 2(a) to sue the party guilty of
the discrimination. In our example, this
would mean that RB would have the
right to sue M, as well perhaps as WA
and RA, if the latter parties had know-
ingly received benefit of the discrimina-
tion. This would be true even though
RB is not a purchaser from M.
In Perkins vw. Standard Oil Co. of
California, 295 U.S. 642, 89 S.Ct. 1471,
23 L.ed.2d 590 (1969), plaintiff Perkins
purchased gasoline and oil from Stan-
dard. Perkins was both a wholesaler, and
a retailer through his own Perkins sta-
tions. Standard also sold to Signal, who
resold to Signal’s subsidiary Western
Hyway, who in turn, sold to Western's
subsidiary, Regal. Standard’s prices to
Signal were lower than its prices to Per-
kins, and the benefit of the discrimina-
Lion was passed on to Regal. Regal op-
erated service stations which were able to
undersell Perkins’ service stations. The
Supreme Court held that Perkins had a
valid claim for this competitive injury.
The Court noted (p. 647, 89 S.Ct. p.
1874):
“Here, Perkins’ injuries resulted in
part om impaired competition with a
customer (Regal) of a customer ( West-
ern Hyway’) of the favored purchaser
(Signal).”
The Court went on to state (p. 648, #o
S.Ct. p. 1874):
“Here Standard discriminated in price
between Perkins and Signal, and there
was evidence from: which the jury
could conclude that VDerkins was
harmed competitively when Signal’s
price advantage was passed on to
Perkins’ retail competitor Regal.
These facts are sufficient to yive rise
to recoverable damages under the
Robinson-Patman Act.
“Before an injured party can _ re-
cover damages under the Act, he must,
of course, be able to show a causal
connection between the price discrimi-
nation in violation of the Act and the
injury suffered. This is true regard-
less of the ‘level’ in the cha... of dis-
tribution on which the injury occurs.”
See dso F. T. C. v. Sun Oil Co., 371 US.
505, 514, 83 S.Ct. 358, 9 L.Ed.2d 466
(1963).
[4) The Perkins case does not. of
course, expressly deal with the question
of the standing of a non-purchaser to
sue under Section 2(a) for competitive
injury resulting from discrimination
practiced upon a party farther up the
line of distribution. The plaintiff in the
Perkins case was a purchaser from
Standard. However, the decision makes
it clear that Section 2(a) is to be con-
strued as covering competitive injuries
ut levels of distribution beyond the
level of the purchasers from the defend-
ant The basic test cnunciated by the
Court for recovery of damages by an
injured party was that he must “be able
to show a causal connection betwes n the
price discrimination in violation of the
Act and the injury suffered” (/d. 395
U.S. at 648, 89 S.Ct. at 1874)
In my view, the Perkins decision is
entirely inconsistent with the view that
parties having standing to sue under
Section 2(a) are limited to purchasers
from. the defendant.
a-53
I now return to the line of cases com-
mencing with Klein v. Lionel Corp., 237
F.2d 13 (3rd Cir. 1956), referred to
earlier. The plaintiff in Klein was a
retailer selling Lionel cleetric trains.
Pinintiff purchased trains from whole-
salers at sugyested retail price less 40%.
These wholesalers purchased from Lionel
at suggested retail price less 52%.
Lionel sold its trains directly, not only
to wholesalers, but also to chain stores
and mail order houses. Lionel charged
the same price to the chain stores and
mail order houses as it did to the whole-
salers. Plaintiff sued, claiming that he
was in competition with the chain stores
and the mail order houses and that under
Section 2(a), he should have been able
to obtain his trains at the same prices
as were charged to these chain stores
and mail order houses. District Judge
Rodney dismissed the complaint on a
motion for summary judgment, on the
ground that there had been no price
discrimination by Lionel in its sales to
its purchasers. Judge hodney expressly
left open the question of whether a re-
tailer would have standing to sue for
injury he sustained in the event there
was ciscrimination practiced against
his wholesaler. Alein v. Lionel Corp.,
138 F.Supp. 560, 564 (D.Del.1956).
The Court of Appeals for the Third
Cireuit affirmed. However, the opinion
of the court of appeals did not limit its
discussion to the precise problem at hand,
as Judge Rodney had carefully done
The Court of Appeals stated (237 F.2d
at 14-15):
“The decisions of many cases have
crystallized the rule that an individual
can have no cause of action under
Section 2(a) of the Clayton Act un-
less he is an actual purchaser from
the person charged with the discrimi-
nation. In Shaw’s,-Jnc., v. Wilson-
Jones Co., 3 Cir., 1939, 105 F.2d 331,
333, we stated: ‘The discrimination
in price referred to must be practiced
“between different purchasers”.
Therefore at least two purchases must
have taken place. The term purchasers
mean simply one who purchases, a
buyer, a vendee.’ Klein did purchase
Lionel products, but not from Lionel.
It follows that the necessary requisite
of two purchasers from the same
vendor is not met and Klein therefore
can claim no protection under the
Act as a direct purchaser.” (footnote
omitted )
I should note that the cases cited by
the court of appeals in Alein in support
of its dictum about standing do not in
fact support the proposition. More-
over, in my view the dictum in Alein
is contrary to the clear meaning of Sec-
tion 2(a), and cannot be followed in
view of the implications of the Supreme
Court decision in Perkins v. Standard
Oil Co. of California, 395 U.S. 642, 89
S.Ct. 1871, 23 L.ed.2d 599 (1969).
tis necessary at this pomt to examine
the nature of the competitive injury suf-
fered by FLM and to determine whether
it is within the purview of Section 2(a).
In the hypothetical example given above,
the competitive injury occurred between
RA and RB, who were both retailers.
Both were on the same “functional level
of distribution.” It is fairly easy to
conceive of competitive injuries on the
same functional level of distribution
i. ¢«., Wholesalers vis-a-vis wholesalers,
or retailers vis-a-vis retailers—-as coming
within the purview of Section 2(a).
a-55
There is a distinction between such
a situation and the present case which
must be noted. Let us consider that in
the present case M is Ford, WA is a
Ford dealer selling direetly to an in-
dependent repair shop, and RA is this
independent repair shop. WB is a Ford
dealer selling to FLM, who stands he-
tween that Ford dealer and the inde-
pendent body shop «RB) who is. the
customer of FILM, LM claims to be
harmed because Ford has discriminated
in price between WA and WB, charging
a higher price to WB, who sells to FLM.
But FLM is not complaining about being
at a competitive disadvantage with
another FLM-type middleman. Because
of the relatively low markup it has been
able to negotiate with WB, and because
FLM has been able to offer superior
services to certain independent repair
shops, FLM has been able to compete
with Ford dealers such as WA.
Is FLM on the same functional ievel
of distribution as the party it is com-
peting with—WA? In one sense it is,
in that FILM competes with WA for the
business of the independent repair shops.
jut in another sense FLM is not on the
sume functional level with WA, because
FILM is twice removed in the chain of
sales from Ford. Moreover, FLM is not
secking to have its purchase price equal-
ved with the purchase price of WA,
It is only secking to have the purchase
price of WB equalized with that of WA.
The question is whether Section 2(a)
protects, among other things, the type or
competition engaged in by FILM, which
is with parties not precisely on the same
functional level of distribution. In
F. T. C. v. Fre” Meyer, Inc., 390 U.S.
a-56
$41, 88 S.Ct. 904,19 L.Ed.2d 1222 (1908),
a case under Section 2(d) involving pro-
motional allowances, the Supreme Court
held, on the facts of that case, that the
competitive injury contemplated by See-
tion 2(d) was that occurring on the
same functional level of distribution.
However, the Court noted that no such
limitation is made in Section 2(a). The
Court stated (pp. 356-57, 88 S.Ct. 904,
p. 912):
“We noted in FTC v. Sun Oil Co., 371
U.S. 505, 83 S.Ct. 358, 9 L.Ed.2d 466
(1963), that when Congress wished
to expand the meaning of competition
to include more than resellers operat-
ing on the same functional level, it
knew how to do so in unmistakable
terms. It did so in § 2(a) of the Act
by prohibiting price discrimination
which may ‘injure, destroy, or prevent
competition with any person who either
grants or knowingly receives the bene-
fit of such discrimination, or with
customers of cither of them.’ ”
(9]} 1 hold that the type of compe-
tition engaged in by FLM with Ford
dealers is within the protection of 2(a).*
6. Section 2(a) has been held to apply to
competitive injury occurring where the com-
petitors are on different functional levela of
distribution. Purolator Products, Ine, 65
S (1964), aff'd, 352 Fy S74 (7th
1). cere. denied, BO ToS. 1O5, SSN
TOS, 1 Ped NT (TGS). here
Commission found a competitive injury
covered by Section -(4), where jobbers com-
peted with wholesale dealers from whom the
jobbers purchased ends The faets in Luro-
were substantially different from the
frets presented in the present case, and resort
was had in l’urelater to the “indirect pur-
chaser” doctrine, which, for reasons described
hereafter, I hold inapplicable to the present
I alluded earlier to the “target area”
doctrine enunciated in such cases ag
Calderone Enterprises Corp. v. United
Artists Theatre Circuit, Inc. 454 F.2d
1292 (2d Cir. 1971), cert. denied, 406
U.S. 930, 92 S.Ct. 1776, 32 L.Ed.2d 132
(1972). The target area doctrine has
been applied in a case Which involved,
in part, the Robinson-Patman Act. Billy
Baxter, Inc. v. Coca-Cola Company, 431
F.2d 18 (2d Cir. 1970), cert. deni d, 401
U.S. 923, 9] S.Ct. 877, 27 L.Bu.2d 826
(1971).
16) Applying the “target areca” test
to the present cause, it would seem to be
clear that FLM is Within the target area
of the alleged Wrongful price discrimina-
tion practiced by Ford, The Purpose of
Ford's change of policy regarding the
Wholesale incentive allowance was to
withdraw. this price benefit from Ford
dealers who sold to middlemen such as
LM. It was the Obvious desire of Ford
to cut the middleman out of the channel
of distribution, and have the Ford dealers
sell directly to the independent body
shops. As Ford has candidly admitted
in its Trial Memorandum filed in this
action, FLM “is neithe needed nor de-
sired” in the distribution of Ford crash
parts (p. 287).
llowever, Purclaty, dees iustrate th,
wont that Seetion 2(n) can be applied, in gn
Appropriate Cuse, fo on Competitive mmojury
COmMpetiturs ure pot on the sume
funetionnal dey el,
Slates 3 Chere ral Vi fous Corp,
"°
a8 Me ST TRE MW Leb 40g
Ine describe hore fully luter il
eniiion, the Supreme Court found @
Act Violation where (Gaeneral Motors
combined with eort Hh ot its Chevrolet dealers
fo prevent other Chevrolet dealers from selling
discount houses, thereby preventing the
discount houses from competing with dealers.
a-58
{ conclude therefore that FLM has
suunding to sue Ford claiming (1) that
Ford discriminates in the price of erush
(7) FLM argues that Ford “con
trols” the prices charged by a lord
dealer selling to FLM, so that the i
purty in favor of Ford dealers who si aa )
) ce fade of a rect purehasel duetrine shpopr dda |
i
directly to indep ndent body shor and
true that a Ford dealer is not likely to
charge FLM less than what Ford has
charved to the de ule Hlowever, this
is not the type of “control” which bring
against any Ford dealer who sells to
PLM, and (2) that FLM is harmed by
this discrimination its uallempt to com
pete with Ford dealers for the business into play the indirect purchaser doctrine
of the independent repair shop:
C)the rw ise the doctrine Would app t
LM Naas urged, us ulter alive every fe ie 1 goods Th cructart pr nt
xrounds for its standing under Sectior in the present iso 6is that Ford ha
o,, ;
o\a the appiecation of the ~ called never sought to yprest ) j e }
indirect purchase) doctrine or the any way the markup charged by a Fon
SOMCW hu reidLed Goctrine of I i ( deale) ty) I LM I} ietiyvy a mi ‘
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concluded that neither of thes theories price to FLA. as there is in the ili
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to FLM than Ford charges to a dealer
When it sells dircetly to the independent
repair shop. The pricing differential
here is nof between purchasers at dif-
ferent functional levels of distribution.
Viewed realistically, the Ford dealer
selling to FLM is on the same function-
ul level us the Ford dealer selling to
the independent repair shop. Both of
these Ford dealers are in practical fact
selling at the wholesale level, although
one Wholesales directly to independent
repuur shops and the other wholesales
indirectly through FLM. At least it
is clear beyond question that the Ford
dealer which sells to FLM is not retail-
ing the parts. But the prices which
such a dealer must pay Ford for parts
resold to FLM are the same prices as
u dealer pays to Ford when he retails
the purts.
Basically Ford's policy respecting the
Wholesale incentive allowance amounts
to discrimination in prices charged to
purchasers at the same functional level
of distribution (the wholesale level)
with the purpose and effect of limiting
or inhibiting the type of resale trade
engaged in by these purchasers. This
is not valid functional discounting.
Neither the Robinson-Patman Act nor
the original Seetion 2 of the Clayton
Act, S8& Stat. 730*(1914), mukes any
express reference to functional dis-
counts. llowever, in a case arising un-
der Clayton Act § 2, the Second Circuit
upproved in dictum the practice of
charging different'prices to wholesalers
and retailers because of no adverse ef-
fect on competition. Mennen Co. v.
F. T. C., 288 F. 774, 781 (2d Cir.),
cert. denied, 262 U.S. 759, 43 S.Ct. 705,
67 L.Ed. 1219 (1923).
a-63
When the 1936 amendments to Sec-
tion 2 of the Clayton Act were being
considered, provisions about functional
discounts were proposed in both the
Senate and the House. The proposal in
the Senate was as follows:
“Promded, That nothing herein con-
tained shall prevent differentials in
prices as between purchasers depend-
ing solely upon whether they purchase
as factors, or wholesalers, or retail-
ers, or consumers, or for use in fur-
ther manufacture a "BO
Cong. Rec, 6428 (1936)
The proposal in the House was:
"That nothing herein contained
shall prevent or require differentials
as between purchasers depending sole-
ly upon whether they purchase for
resale to wholesalers, to retailers, or
to consumers, or for use in further
manufacture; for the purpose of such
clissification of customers as whole-
sulers or jobbers, or retailers, the
character of the selling of the pur-
chaser and not the buying shall de-
termine the classification, and any
purchaser who, directly or indirectly,
through a subsidiary or affiliated
concern or broker, does both a whole-
sale and retail business shall, irre-
spective of quantity purchased, be
classified (1) as a wholesaler on pur-
chases for sale to retail dealers only,
not owned or controlled, directly or
indirectly, by the purchaser; and (2)
as a retailer on purchases for sale
to consumers.” H.R.Rep.No.2287, 74th
Cong., 2d Sess. 1-2 (1936).
a-64
However, reference to functional dis-
counts was entirely omitted from the
Robinson-Patman Act as finally passed.
This omission was apparently the result
of farm opposition, based on the fear
of disadvantages to farmers’ coopera-
tives. 80 Cong.Rec. 8113, 8139 (1936),
The Congressional refusal to enact an
express sanction for functional discounts
has not been interpreted as indicating
an intent to absolutely prohibit such
discounts. It is assumed that Congress
intended functional discounts to be judg-
ed under the yveneral provisions of the
statute in the same way as other pricing
differentials, without any special trent
ment. Shniderman, “The Tyranny of
Labels"—A Study of Functional Dis-
counts Undcr the Robinson-Patman Act,
60 Harv.L.Rev. 571 (1947); Kelley,
Functional Discounts Under the Robin
sor-Patman Act, 40 Calif.L.Rev. 526
(1952); Rowe, Price Discrimination Un-
der the Robinson-Patman Act, 173
(1962)
The basic test for the validity of a
functional discount is whether there is
ain injury to competition. The Rowe
text states (/bid.):
“The nature of the competition be-
twee. the customers paying the high-
er and the lower prices is the key
to the legality of ‘functional discounts’
or trade price differentials under the
Robinson-Patman Act.”
In general, it is accepted both from an
economic and a legal standpoint, that
a valid functional discount is one where
the lower price is charged to the fune-
tional level nearer to the supplier, and
the higher price is charged to the fune-
tional level farther from the supplier—
1. «.,, Where distributors pay less than
Wholesalers, and wholesalers pay less
than retailers. The Rowe text describes
it as follows (/d, at 174):
a-65
“In practice, the competitive effects
requirement permits a supplier to
quote different prices between differ-
ent distributor classes—-so long as
those who are higher up (nearer the
supplier) on the distribution ladder
pay less than those who are further
down (nearer the consumer). Put
another way, wholesalers or jobbers
(or their equivalent) may receive
greater discounts or lower prices than
retailers or dealers—so long as the
wholesalers or jobbers sell only to
retailers or dealers but not to con-
sumers in competition with the re-
tailers paying more.”
This is basically the view taken by the
Federal Trade Commission, as express-
ed in Doubleday and Co., Inc., 52 F.T.C.
169, 207 208 (1955), and General Foods
Corp, 52 FLTC. TOR (1956). ln Gene
eral F'oods the Commission stated (/d.
at 824):
“While the Robinson-Patman Act
does not mention functional pricing,
it was written nevertheless against
the background of the distribution
system then in effect. As pointed out
by respondent, a seller is not forbidden
to sell at different prices to buyers in
different functional! classes ind orders
have been issued permitting lower
prices to one functional class as against
another, provided that injury to com-
merce as contemplated in the law does
not result.”
However, I hold that neither the stat-
i.te nor the authorities interpreting it
sanction the price differentials of Ford
complained about by FLM. As described
earlier, Ford is discriminating in price
between Ford dealers who are operating
at the same functional tevel of distribu-
a-66
tion. Ford does this for the specific
purpose of inhibiting sales to middlemen
such as FLM and for the purpose of dis-
couraging such middlemen from com-
peting in the distribution of crash parts.
Ford contends that it should not be
compelled to make provision in its dis-
tribution system for what it regards as
a superfluous intermediary such as FLM.
Ford contends that it should not be re-
quired to give a wholesale incentive al-
lowance to a Ford dealer who fails to
perform a “wholesale function” and mere-
ly delegates this responsibility to PLM.
These contentions do not provide a valid
defense to Ford.
FLM is not seeking to have Ford set
up any special or unique discount—such
as a distributor’s discount—for Ford
dealers who sell to FLM. FLM is not
secking to have any “suggested” price
for sales by Ford dealers to FLM, which
would establish FLM as a part of Ford's
regular, contemplated distribution sys-
tem. What FLM is seeking is simply
to have Ford charge the same wholesale
price to its dealers whether they sell to
FLM or directly to an independent body
shop. FLM is secking the opportunity to
purchase crash parts from Ford dealers,
and t» freely participate in competition
for ti. distribution of these parts, with-
out the positive hindrance presented by
Ford’s price discrimination.
{12} I also reject the contention of
Ford that Ford can charge a higher price
a-67
for crash parts to a Ford dealer because
Ford views that dealer as not performing
the “wholesale function” when it is
selling to FLM. A Ford dealer buying
parts for wholesale should be basically
free to choose its own channels of dis-
tribution—i. e., be free to decide whether
it will sell directly to an independent
repair shop or sell to a middleman such
as FLM who in turn sells to the inde-
pendent repair shop. Moreover, a com-
pany such as FLM should be free to
purchase from the Ford dealer and to
compete, through offering superior
service, for the business of the inde-
pendent repair shops.
The case of United States v. General
Motors Corp. 384 U.S. 127, 86 S.Ct.
1321, 16 L.Ed.2d 415 (1966), is instruc-
tive in this regard. Although this case
was brought under Section 1 of the
Sherman Act, it illustrates the type of
competitive interests which are involved
in the present case. There General
Motors had combined with franchised
Chevrolet dealers in Los Angeles to
prevent discount houses from purchasing
cars from certain franchised dealers.
The discount houses were competing with
the dealers in the retail sales of Chevrolet
cars. The Supreme Court held that this
was an illegal restraint of trade in that
it was calculated “to deprive franchised
dealers of their freedom to deal through
discounters if they so choose” (Jd. at
140, 86 S.Ct. at 1328). The Court
further described the fact that there was
action by the defendants “to eliminate
the discounters from participation in
the market, to inhibit the free choice of
franchised dealers to select their own
methods of trade . . .” (Jd. at 144,
86 S.Ct. at 1830).
a-68
These passages describe the basic vice
of Ford’s actions in the present case.
Ford's revised wholesale incentive policy
was designed to discourage franchised
Ford dealers in their freedom to deal
through middlemen such at FLM if they
so choose. Moreover, Ford's revised
policy necessarily has the ultimate effect
of eliminating, or sharply curtailing,
middlemen such as FLM from participa-
tion in the market.
[13] I referred carlier to Ford's evi-
dence that two of its considerations
giving rise to the amendment in its
wholesale incentive allowance rules were
the concern that a middleman such as
FLM might operate as a conduit between
Ford dealers, and the concern that a Ford
dealer selling to such a middleman would
seek a special distributor's allowance.
The fact is, os | have found, that nothing
in connection with the activities of FF LM,
or the Ford dealers’ sales to FLM, pro-
vided the slightest basis for either of
these concerns. Ford does not reallv
argue to the contrary. Ford’s contention
is that these were concerns respecting
other parties and other areas of Ford's
spare parts business, giving rise to the
need for general rules and regulations,
which perchance apply to FLM.
This situation constitutes no valid
justification, under the statute or the
applicable authorities, for the anti-com-
petitive price discrimination which Ford
has instituted. This is particularly true
in view of the fact that there is no evi-
dence of any real attempt by Ford to
solve its alleged problems by means that
do not involve price discrimination.
For these reasons, I hold that Ford's
discrimination in the price of crash parts
between Ford dealers who wholesale di-
rectly to independent repuir shops and
Ford dealers who sell to middlemen such
as FLM is a violation of Section 2(a) of
the Robinson-Patman Act and does not
constitute valid functional discounting.
Sherman Act
I hold that FLM has not made out a
valid case under either Section 1 or
Section 2 of the Sherman Act.
For its Section 1 claim, FLM relies
on cases such as United Statcs v. Arnold,
Schwinn & Co., 388 U.S. 265, 87 S.Ct.
1856, 18 L.ed.2d 1249 (1967) and United
States v. Parke, Davis & Co., 362 U.S.
29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960),
involving agreements between a supplier
and its dealers or distributors fixing re-
sale prices and allocating territories.
The short answer to this argument is that
no such agreement has been shown by
the evidence in this case
(14! The illegal activity of Ford is
in the setting of discriminatory prices
it charyes to dealers selling to FLM. The
sole activity of the dealers vis-a-vis Ford
is to pay the prices charged by Ford.
FLM has not proved the existence of any
agreement between Ford and any dealers
that the dealers would not sell to bIM,
fndeed certain Ford dealers are still
selling to FLM. There is no evidence
that any Ford dealers have entered into
an agreement with Ford as to what
prices the dealers will charge to FLM.
The dealers pay Ford the prices charged
by Ford, and then sell to FLM at a mark-
up above these prices—the markup being
negotiated with FLM. This is by no
means a resale price agreement within
the meaning of the authorities.
a-70
{15} In support of its Section 1 claim
FLM urges that there was a combination
or conspiracy between defendant Ford
Motor Company and defendant Ford
Marketing Corporation. There is no evi-
dence to support this contention. Ford
Marketing Corporation did not come into
existence until 1970. It assumed the
marketing responsibility for Ford auto-
mobiles and parts commencing in July
1970. Ford Marketing Corporation was,
of course, in existence during 1971 and
1972 when the events complained of in
this action occurred. The essential point
is that the relevant actions with respect
to the wholesale incentive discount were
undertaken, as far as the evidence shows,
solely by personnel in the marketing arm
of Ford, whether this arm was a division
within Ford Motor Company or was a
separate corporation, Ford Marketing
Corporation. There is no evidence of
any combination or conspiracy between
the two corporations.
For its Sherman Act § 2 claim, FLM
relies upon cases such as Eastman Kodak
Co. v. Southern Phote Materials Co., 273
U.S. 359, 47 S.Ct. 400, 71 L.Ed. 684
(1927). and Poster Exchanye, Inc. v.
National Screen Service Corp., 431 F.2d
334 (5th Cir. 1970), holding that Section
2 prohibits the use of monopoly power
on one level of distribution to destroy
competition on another level. See also
Otter Tail Power Co. v. United States,
410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d
359 (1973); United States v. Aluminum
Co. of America, 148 F.2d 416, 437-39
(2d Cir. 1945).
However, these cases involved vertical |
integrations between the two levels. In
Kodak, the defendant manufactured film
products and owned the retail! stores that
sold these products in competition with
plaintiff. In Otter Tail the defendant
a-71l
ae
generated power, and distributed it
through its own retail distribution sys-
tem, which sold power in competition
with municipally owned retail distribu-
tion systems.
[16] In the present case Ford dis-
tributes automobiles and crash parts, but
it does not own the franchised dealers
who wholesale these parts in competition
with FLM. The exception to this is the
so-called dealer development franchise,
where Ford has a temporary ownership
interest in the dealer for financing pur-
poses. However, the evidence in this
case about dealer development franchises
is fragmentary and is hardly sufficient
to permit a finding of vertical integra-
tion between Ford and its dealers.
On the basis of the record in the
present case as a whole, I decline to
extend the rule of the Eastman Kodak Co.
case and the other cases referred to
above to cover ‘he situation of Ford and
its franchised dealers.
Ford's Refusal to Sell Directly to FLM
(17) FLM has advanced the conten-
tion (although not forcefully) that Ford
has violated the antitrust laws in re-
fusing to sell crash parts directly to FLM
rather than selling exclusively to fran-
chised Ford dealers. | reject this con-
tention for reasons whieh I will set forth
briefly.
Section 2(4) of the Robinson-Patman
Act expressly provides:
“. . . That nothing herein con-
tained shall prevent persons engaged
in selling goods, wares, or merchandise
in commerce from selecting their own
customers in bona fide transactions
and not in restraint of trade; o
a-72
Based on well-established law, Ford
had the right to distribute automobiles
and crash parts manufactured by it
solely to franchised dealers. United
States v. Colgate & Co., 260 U.S. 300,
39 S.Ct. 465, 63 L.Ed. 992 (1919);
Atalanta Trading Corp. v. F. T. C., 258
F.2d 365, 372-78 (2d Cir. 1958); Naifer
», Ronson Art Works, 218 F.2d 202 (10th
Cir, 1954); Chicago Svating Co. v. S.
AKaurpen & Bros., 177 F.2d 863 (7th Cir.
1949).
I have already held that it is illegal
for Ford, by means of price discrimina-
tion, to inhibit a dealer from selling to
a middleman such as FLM, and to inhibit
FLM from freely purchasing crash parts
from a Ford dealer in order to compete
in the distribution process. With this
price discrimination removed, Ford is
free to restrict its sales to its dealers.
There is ample evidence of valid economic
and administrative justification for such
restriction.
Conclusion
FLM is entitled to injunctive relief
and damages on its claim of price dis-
crimination under Section 2(a) of the
Robinson-Patman Act. FLM is entitled
to no rehef or recovery under its other
antitrust claims. Following the comple-
tion of the record as to the amount of
damages, there will be a supplemental
opinion on that subject.
FLM COLLISION PARTS.
INC., Plaintiff,
v.
FORD MOTOR COMPANY and Ford
Marketing Corporation, Defendants.
No. 73 Civ. 713,
United States Distriet Court,
S. D. New York.
March 17, 1976.
SUPPLEMENTAL OPINION
GRIESA, District Judge
On December 19, 1975 1 filed an opin-
ion holding that plaintiff FLM Collision
Purts, Inc. is entitled to injunctive relief
and damages under Section 2a) of the
Clayton Act, as amended by the Robin-
son-Patman Anti-Diserimination Act, 15
U.S.C. § Miia) 1 stated that a supple-
mental opinion would be issued on the
amount of damages to be awarded fol-
lowing completion of the record on that
subject
The record is now complete, This sup-
plemental opinion contains my findings
of fact and conclusions of law as to the
amount of damages, and also as to the
amount of the attorneys’ fee to be
awarded pursuant to Seetion 4 of the
Clayton Aet, 1b USO. § 15,
Damages
There are five items of damajes
claimed by FLM which require specific
discussion. Certain other damage claims
have been made by FLM based upon its
theories of Sherman Act violation
Since these Sherman Act theories were
rejected in my earher opinion on habili-
ty, | will not deal further with the relat-
ed issues of damages.
a-74
Wholesale Incentive Allowances
FLM claims that it should recover the
total amount of the wholesale incentive
allowances which were denied by Ford
commencing November 1, 1972.
Ford, in its Post-Trial Brief (pp. 92
96), basically coneeded that, if there
were liability, FLM would be entitled to
recover the amount of these wholesale
incentive allowances, provided that such
umounts were accurately proved. In
further proceedings, Ford has advanced
two contentions. Ford argues that there
is no showing that the entire amount of
these wholesale incentive allowances
would have been “passed on” by the
Ford dealers to FLM. Ford also con-
tends that the amount of the award for
such allowances should be diminished by
the alleged additional bookkeeping: costs
which FLM would have been required to
incur in order to claim the wholesale in-
eentive allowances
PLM has weeurately proved the
amount of the wholesale incentive allo-
wances which should have been granted
on Ford crash parts purchased by it dur-
ing the relevant period, This period
runs from November 1, 1972 to early
1976, when the final evidence was being
introduced on the subject of damages
For the sake of convenience, a reasona-
ble cutoff date for the damage period
was selected —February 6, 1976. 1 find
that FLM has proved wholesale incentive
allowances withheld in the total amount
of $246,766
a-75
{1} | rejeet the contention that FILM
haus failed to show that the entire
amount of these wholesale incentive allo-
wanees would have been passed on to
PLM by the Ford dealers. Prior to the
withdrawal by Ford of the wholesale in-
centive allowances on sales to FLM,
these allowances were — consistently
passed on to FLM.! There is not the
sliyrhtest reason to believe that this prac-
tice would not have continued had it not
been for the auction of Ford in halting
the granting of the wholesale incentive
allowances on crash parts sold to FILM.
12) 1 also find no merit in Ford's eon-
tention that the amount of the award
for wholesale incentive allowances with-
held should be diminished to take inte
account alleged additional bookkeeping
costs. Ford points to the allegation of
PLM that about $46,000 was spent on
accounting services rendered to FLM jn
the present lityration, Ford assumes
quile reasonably that some peer tian of
this $46,000 relates to Une detailed re.
view of invoices and other records neces.
sury to reconstruct the amount of whole-
sile aneentive allowanees which should
have been granted during the period No-
vember 1, 1972 to February 6, 1976, and
urrues that this indicates that there
would have been additional bookkeeping
eNptses be Couleulute the wholesale in-
eontive allowanees even if allowance
claims had been handled in the normal
course of business.
of course, that the bord euler
supplying ELM with parts charged a markup
of 3%, duriny the Game the wholesale moentice
allowance was in etfect lor sales to TLM The
application of this 5% markup is described om
my earher opinion. However, there would be
he pustitication tor deduct the 4% markup
from the damage award 11M has already
puna tharkep touts supplyeny bord dealers as
the parts on which the damage award us calew
luted
Indeed the markup nas been 5%
a-76
Ford's argument is unrealistic. There
is a prreat difference between calculating
Wholesale incentive allowances in the
normal course of business and recon.
structing this calculation for the purpose
of litigation. There is no sufficient indi-
cation that FLM would have ineurred
any appreciable additional expense in or-
idler to Process the wholesale incentive
allowance chums in normal course,
For these reasons | find that FLM is
entitled to damages in the amount of
$246,766 representing wholesale incen-
tive allowances which should have been
granted,
Lost Sales
13] FILM claims that its sales were
consistently yrowing ala rapid rate until
the time that Ford denied the wholesale
incentive allowance, and that its sales
would have continued to grow at the
same rate duringg the years following the
cutoff of the wholesale incentive allows
ance, FLM eontends that this growth
Was preva rite! ty Ford's wrongdoing,
umd that camiagres should be awarded
based upon the alleged loss of growth
1 have coneluded that this cham, a
jer'e wentod by ILM, ws entirely too specu.
lative to justify an award of damages
Hlowever, PLM is entitled to damages
on on related, but some what different
Linoory As deserthed in my eurher opine
won, PLM 's sales porew steely for sever.
al yours from ils commencement of bus
ness in 1965. During the fiseal year end-
ing September 30, 1972—-the last full fis-
cal year prior to the withdrawal of the
wholesale incentive allowance - LM's
sales were $736,967. The wholesale in-
centive allowance was cut off about No-
vember 1, 1972
a-77
The economic effects of this cutoff
were felt by PLM in stages. FILM was
able to continue its growth in sales in
fixeal 197%. The sales for that year were
$79K,947. However, the severe cut in
FLM's profit margin produced a net loss
of $85,707.
Prior to 1974 both FLM and the fran-
chised Ford dealers with whom FILM
competed in the sale of crash parts yen-
erally sold these parts to the indepen-
dent repair sh ps at a 25% discount off
the sugyested retail price. Commencing
in 1974 three of FLM's competitors—
Empire Ford in Mt. Vernon, Ruckle Ford
in Yonkers, and W. H. Jackson Ford
Sales in Ossining -commenced geranting
substantially larger discounts than 25%.
Sinve
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