Opposition Brief — Andalusia Distributing Co., Inc. v. R.J. Reynolds Tobacco Co. (No. 06-1578)

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No. 06-1578 |

IN THE

Supreme Court of the United States

ANDALUSIA DISTRIBUTING COMPANY, INC., ET AL.,

Petitioners,

Vv.

R.J. REYNOLDS TOBACCO COMPANY,

Respondent.

ANDALUSIA DISTRIBUTING COMPANY, INC., ET AL.,

Petitioners,

V.

PHILIP MorrRISs USA INC.,

Respondent.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Sixth Circuit

BRIEF IN OPPOSITION OF RESPONDENT

R.J. REYNOLDS TOBACCO COMPANY

THOMAS DEMITRACK MICHAEL A. CARVIN

ROBERT S. WALKER (Counsel of Record)

MICHELLE K. FISCHER LUKE A. SOBOTA

JONES Day JONES Day

North Point. 5] Louisiana Avenue, N.W.

901 Lakeside Avenue Washington, D.C. 20001

Cleveland, OH 44114 (202) 879-3939

(216) 586-3939

Counsel for Respondent R.J.

Reynolds Tobacco Company

{Additional counsel listed on signature page]

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QUESTION PRESENTED

Whether petitioners failed to substantiate factually their

claim that the market share discount program offered by

respondent R.J. Reynolds Tobacco Company was not

“functionally available” to them?

il

CORPORATE DISCLOSURE STATEMENT

Reynolds American Inc. and R.J. Reynolds Tobacco

Holdings, Inc. are the parent companies of respondent R.J.

Reynolds Tobacco Company, and Reynolds American Inc. is

a publicly traded company.

ill

TABLE OF CONTENTS

Page

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CORPORATE DISCLOSURE STATEMENT .................4.. il

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REASONS FOR DENYING THE PETITION............. es

I. THE SIXTH CIRCUIT DID NOT

“EFFECTIVELY REPEAL” THE

ROBINSON-PATMAN ACT; IT APPLIED

SETTLED LEGAL PRINCIPLES TO THE

PARE SE BRUNE Ma iilipek sieesachsndeannsdcusiesnonansnssussios 8

II. PETITIONERS ALLEGE NO SPLIT OF

AUTHORITY AND THE SIXTH CIRCUIT’S

DECISION FULLY ACCORDS WITH

ROBINSON-PATMAN ACT PRECEDENT............ 12

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iv

TABLE OF AUTHORITIES

Cases Page

Am. Tara Corp. v. Int’l Paper Co., No. 79C1470,

1981 WL 375752 (N.D. Ill. July 30, 1981)................0000 16

Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328

SNE shitsoke ick csscteecaingnsnehsdistentlynasicakcusagniasdad bnkecinntasinccunceisasa 17

Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319

RE I casas dacs nstestcisnacapndenhabtinhenstonues 16, 18

Calumet Breweries, Inc. v. G. Heileman Brewing Co.,

951 F. Supp. 749 (N.D. Ind. 1994)................cccssreeees 14,15

Capital Ford Truck Sales, Inc. v. Ford Motor Co.,

BED FS TSS GO. GR. TIL) vo scv cass cessescneesssecevsessees 16

Eastman Kodak Co. v. Image Technical Servs., Inc.,

i RE CO OIE iastlaviniccactuisisticcnguhbichscsinevocianccndenvasinié 4,9

Edward J. Sweeney & Sons, Inc. v. Texaco, 637 F.2d 105

Ce I isiccdsv ens ais i pieasip A nipreseas a ncanaonaceuerieiadouuae 16

FAG KD 5 FE IS, FOS CAF sss ccinssicvnsesneesivumeins 4

FTC v. Morton Salt Co., 334 U.S. 37 (1948)................ passim

Leegin Creative Leather Prods., Inc. v. PSKS, Inc.,

RF a a eT Piss ckeainiisennspsanpinnasscieciiaiinbonn tovabisaisiay 18

Nat'l Dairy Prods. Corp. v. FTC, 395 F.2d 517

CPS WII fai siecstiicenisaictnhcienlica cesses acecaiadaoeeennsnconsahecss 14

Shreve Equip., Inc. v. Clay Equip. Corp., 650 F.2d 101

EE A eS Betas ciecevsivasscepsastisasbeisss detain jntachsuibGestorkisccnates 4

Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc.,

546 U.S. 164, 126 S. Ct. 860 (2006).............ccccessccessscseeees 17

Statutes & Rules

Robinson-Patman Act, 15 U.S.C. § 13(a).....0 ee passim

ovo sihecscnaccs eecesnsceics Stores

JURISDICTION

This Court has jurisdiction under 28 U.S.C. § 1254(1).

STATEMENT

Petitioners filed a Robinson-Patman Act claim against

respondent R.J. Reynolds Tobacco Company (“RJR”) for

alleged price discrimination arising from RJR’s market share

discount program. After extensive discovery, a magistrate

judge recommended, and the district court entered, an order

granting summary judgment to RJR. The Sixth Circuit Court

of Appeals affirmed in a unanimous opinion. Accepting that

a share-based discount program might not be “functionally

available” in certain circumstances. the Court of Appeals

determined that petitioners had failed, as a factual matter. to

show that this was such a circumstance.

A. Factual Background

Four categories of cigarettes, differentiated by quality and

price, are sold in the United States. R.174, JA873; R.74.

JA315.' RJR sells first-tier (Camel and Winston), second-

tier (Doral), and third-tier (Monarch, Best Choice, Citation)

cigarettes, but not fourth-tier cigarettes. Pet. App. 2a-3a.

RJR competes against producers of all types of cigarettes.

R.174. JA1156. Since 1998. sales of fourth-tier cigarettes

have increased markedly. Pet. App. 3a. In 1998, the fourth-

tier segment comprised less than one percent of the cigarette

market; by 2003, just five years later, it had grown to 15

percent. Pet. App. 3a. During this time period, RJR saw its

market share decrease. Pet. App. 3a.

In response to the competition in the cigarette

marketplace, RJR in 2000 began to offer wholesalers a range

of discounts and rebates in return for their efforts to increase

“Pet.” refers to the petition for certiorari; “Pet. App.” refers to the

appendix thereto: “R.” refers to the record; and “JA” refers to the joint

appendix in the Court of Appeals.

ee.

2

the sale of the RJR “savings” brands. R.174, JA1157; R.65,

JA207-08; R.165, JA454-55. The purpose of the program

was to induce wholesalers—which make large profit margins

on the sale of fourth-tier cigarettes, R.174, JA3066; R.65,

JA250-51, 281—to push retailers toward RJR brands, in-

store displays, and promotions. R.174, JA1158-59, 1161-62,

1146, 1166-67. RJR sought to use these incentives to

encourage wholesalers to leverage their close relationship

with retailers in favor of RJR products. Specifically, RJR

lacks the sales personnel to cover the nearly 400,000

cigarette retailers nationwide, but its wholesalers frequently

visit those retailers and often are the last point of contact

before a sale is made. R.174, JA1145, 1158; R.65, JA257.

Pursuant to its Wholesale Partners Program (“WPP”),

RJR offered to wholesalers a market share discount, with the

amount of the discount increasing along with the percentage

of RJR’s savings brands each wholesaler sold in relation to

its total savings brand cigarette sales. R.165, JA478-80, 485.

The WPP set the base target on a state-by-state basis,

ensuring that a wholesaler’s performance was measured

against RJR’s market share in the state or states where the

wholesaler did business. R.165, JA460-62. In each state, the

target was set at 25-40 percent below RJR’s existing market

share in that state to ensure that the incentives were

attainable by all wholesalers. R.165, JA457-59, 721-51;

R.174, JA1157-58. | Graduated levels of standardized

discounts and rebates were then available, with higher

discounts corresponding with higher percentages of RJR

products sold. R.165; JA478-80, 485. The volume of sales

was irrelevant under the WPP; small wholesalers were

treated identically to large wholesalers because a

wholesaler’s participation was based on the relationship

between its sales of RJR’s savings brands to its overall

savings brand sales. R.174, JA1157-58. All wholesalers

were aware of, and eligible for, each level of discount under

the WPP. Pet. App. 42a-43a.

3

B. Procedural Background

Petitioners (and other plaintiffs that have now abandoned

the case, Pet. ii) challenged RJR’s market share discount

program in 2003 under the Robinson-Patman Act, 15 U.S.C.

§ 13(a). R.1, JA67-77. Petitioners are 12 of the

approximately 700 wholesalers that distribute RJR products.

Pet. App. 40a. Although all petitioners received discounts

under the WPP, they complain that they were “unable to

qualify for the lowest prices without losing customers who

demanded ... relatively high-levels of non-RJR products.”

Pet. 7. Petitioners specifically argue that “it was impossible

to meet RJR’s ... targets because they sell to retailers in

rural, lower income areas that had a uniquely high demand

for the cheapest, fourth-tier cigarettes.” Pet. App. 7a.

After extensive discovery, RJR moved for summary

judgment. R.164. A _ magistrate judge recommended

summary judgment for RJR. Pet. App. 115a-135a. The

district court agreed, concluding in a separate opinion that

“because the plaintiffs did not take advantage of a lower

price or discount which was functionally available on an

equal basis, no price discrimination has occurred.” Pet.

App. | 13a.

The Sixth Circuit affirmed in a unanimous opinion. Pet.

App. la-50a. It began by noting that RJR’s “market-share

discount pricing structure[] present[s] different concerns than

the volume-based discounts” that courts—including this

Court in FTC v. Morton Salt Co., 334 U.S. 37 (1948)}—have

typically addressed. Pet. App. 18a. *““Market-share

discounts,” the Sixth Circuit explained, “theoretically level

the playing field by allowing competing purchasers of like

commodities to participate on equal terms, regardless of size,

because such discounts depend not on volume purchases, but

on the percentage of purchases of a particular category of

products.” Pet. App. 18a. The panel nonetheless disavowed

any suggestion “that market-share discounts are immune

from Robinson-Patman - scrutiny”: “It is certainly

4

conceivable that under certain circumstances, as alleged here

by plaintiffs, market-share discounts could be administered

in such a manner that such incentives cross the fine line from

pro-competitive incentives to exclusionary, anti-competitive

price discrimination.” Pet. App. 18a (citing FTC v. Sun Oil

Co., 371 U.S. 505, 520 (1963)).

The Sixth Circuit therefore followed this Court’s

prescription of “case-by-case evaluation of antitrust claims”

and held that “if there is evidence of discrimination in price

between different purchasers of the same commodities,”

there may be a violation of the Robinson-Patman Act,

“regardless of the mechanics of [the] pricing structure.” Pet.

App. 19a (citing Eastman Kodak Co. v. Image Technical

Servs., Inc., 504 U.S. 451, 466-67 (1992)).

After surveying the case law on “functional availability

and rehearsing the parties’ arguments, the Sixth Circuit, in

Part I1V.B of its opinion, held that “the undisputed material

facts demonstrate that RJR’s best discount under the WPP

was functionally available to plaintiffs on an equal basis.”

Pet. App. 42a. It determined that the “evidence shows that

RJR has evenhandedly applied the WPP, treating all of its

wholesalers equally and offering all of them the same

qualification terms” and that “there is no evidence that RJR

manipulated the WPP to favor certain wholesalers.” Pet.

App. 43a. It added that “[bJecause participation in the

program did not depend on the volume of a wholesaler’s

RJR sales, small wholesalers were treated the same as large

wholesalers.” Pet. App. 43a.

992

> The Court of Appeals explained that “‘[wJhere a purchaser does not

take advantage of a lower price or a discount which is functionally

available on an equa! basis, it has been held that either no price

discrimination has occurred, or that the discrimination is not the

proximate cause of the injury."” Pet. App. 21a (quoting Shreve Equip.,

Inc. v. Clay Equip. Corp., 650 F.2d 101, 105 (6th Cir. 1981)).

5

The Court of Appeals then turned to petitioners’ “core

argument” that the WPP was nonetheless functionally

unavailable to them because they serviced retailers who sold

to (1) “poorer customers” with (ii) “a uniquely high demand

for fourth-tier cigarettes.” Pet. App. 43a. It found that

petitioners have “proffered neither statistical evidence nor

expert testimony to support these allegations.” Pet.

App. 44a.

First, with respect to the relative wealth of customers of

different wholesalers, the Sixth Circuit noted that RJR had

submitted evidence from the U.S. Department of Commerce

“show[ing] that the average per capita income in the served

counties exceeded that of the counties not served for most

plaintiffs.” Pet. App. 44a; see also R.165, JA675-76. In

contrast, the Court noted, “[p|laintiffs’ expert conducted no

analysis of this issue and admitted that he did not plan to

offer an opinion on whether plaintiffs sold in lower-income

areas.” Pet. App. 44a; see also R.165, JA657, 665-66. The

Court further found that the individual plaintiffs either sold

“in virtually the same areas as another allegedly favored

wholesaler”; conceded “that their sales areas include entire

states, not merely low-income pockets in those states” or

“that they serviced higher-income portions of their sales

areas or that higher-income areas existed in their sales

areas”; or “had no evidence that they served lower-income

areas or that their perception that they served lower-income

areas was simply conjecture.” Pet. App. 44a-45a; see also

R.165, JA492-93, 506-07, 516-17, 522-27, 533-34, 540, 548-

49, 554-55, 561-62, 574-75, 582-83, 591, 596, 610, 616-20,

635-38, 645-46, 675.

Second, with respect to the relative demand for fourth-

tier cigarettes of customers of different wholesalers, the

Sixth Circuit noted that, “{a]gain, plaintiffs’ expert did not

address this issue.” Pet. App. 45a. The Court further found

that plaintiffs “failed to substantiate, with comparative data,

differences in fourth-tier demand between the areas of states

where they sell and those states as a whole” and “presented

6

no evidence that RJR’s share in areas where plaintiffs sold

was any different than RJR’s statewide shares where the

allegedly less-affluent areas were located.” Pet. App. 45a.

The Court of Appeals concluded that “plaintiffs have thus

failed to show that actual demand for fourth-tier cigarettes

was, in fact, higher in their sales areas.” Pet. App. 45a.

The Sixth Circuit thus found no evidentiary support for

petitioners’ “core argument”: “In sum, plaintiffs are unable

to verify the grounds for their price discrimination claim—

that they predominately service retailers who sell to poorer

customers, resulting in uniquely high demand for fourth-tier

cigarettes—in turn foreclosing proofs that the WPP actually

disfavored plaintiffs on the basis of these characteristics.”

Pet. App. 45a.

“In any event,” the Sixth Circuit continued, “there is no

evidence that anything other than plaintiffs’ marketing

decisions impacted their ability to obtain the WPP’s best

prices.” Pet. App. 45a. It rejected the significance of the

fact that “only a small percentage of wholesalers” actually

reached the maximum discount because “[t]he very nature of

an incentive program necessarily leads to different outcomes

based on performances.” Pet. App. 46a. And, in response to

plaintiffs’ suggestion that RJR could have “‘set share targets

that are reasonably related to each distributor’s past sales and

market share,’” the Sixth Circuit said that it would not “re-

engineer the uniformly applied WPP incentive program to

make it more reasonable for some participants.” Pet.

App. 46a. It concluded that the “undisputed evidence

demonstrates that plaintiffs faced a choice that was not an

inequity imposed by the pricing structure” and _ that

“[p]laintiffs could alter their sales mix at any time so as to

qualify for the varying discount levels.” Pet. App. 45a-46a

(internal quotation marks and citation omitted).

REASONS FOR DENYING THE PETITION

Petitioners do not allege any split of authority, and the

Sixth Circuit’s application of settled and inherently fact-

7

specific “functional availability” law cannot possibly warrant

this Court’s review.

First, petitioners wholly mischaracterize the Court of

Appeals’ decision. The Sixth Circuit agreed with petitioners

that, under certain circumstances, a market share discount

program could be administered in a discriminatory manner.

It found, however, that petitioners had failed to substantiate

factually that this was such a circumstance. The premise of

petitioners’ Robinson-Patman Act claim is that the smokers

who visited their retail customers had atypical attributes (low

income and preference for fourth-tier cigarettes) which

prevented petitioners from selling more RJR products to

those retail customers, and that petitioners—unlike allegedly

“favored” wholesalers—were therefore unable to obtain

higher discounts under the WPP. The Sixth Circuit,

however, found no evidence to support the premise of that

claim, i.¢., that petitioners’ customers were different than the

customers of wholesalers that earned higher discounts.

Finding nothing unique about petitioners’ businesses that

would preclude them from selling more RJR cigarettes, the

Sixth Circuit concluded that the WPP was functionally

available to them. This factbound application of blackletter

law did not resolve any significant legal issue and does not

warrant certiorari review, particularly considering that

petitioners allege no split.

Second, petitioners’ merits-based arguments simply build

upon their erroneous characterization of the Sixth Circuit’s

opinion. Far from immunizing market share discount

programs from Robinson-Patman Act scrutiny, the Sixth

Circuit’s opinion explicitly affirms that both share-based and

volume-based discount programs must be functionally

available to all buyers. In any event, even if the Court of

Appeals did something more than apply settled law (and it

did not), petitioners allege no split of authority. Their

arguments are also baseless. The Sixth Circuit expressly

applied, and its opinion is fully consistent with, Morton Salt,

as well as functional availability precedent in the lower

8

courts. Petitioners’ proposed per se rule against market

share discounts, in contrast, is bereft of any support in the

case law and would turn the Robinson-Patman Act on its

head.

I. THE SIXTH CIRCUIT DID NOT “EFFECTIVELY

REPEAL” THE ROBINSON-PATMAN ACT; IT

APPLIED SETTLED LEGAL PRINCIPLES TO

THE FACTS OF THIS CASE

Petitioners argue that the Sixth Circuit's decision

“immunize[s] price discrimination from scrutiny under the

Robinson-Patman Act” and “effectively overrules Morton

Salt.” Pet. 3, 16. The Court of Appeals, they claim,

established a “rule that a discount is ‘available’ even if the

qualifications are tailored in such a way that only favored

buyers have any realistic opportunity to take advantage of

it.” Pet. 19-20. These statements find no mooring in the

unanimous decision of the Sixth Circuit. Although it is

never mentioned in the petition for certiorari, the Sixth

Circuit unequivocally held that petitioners failed to

substantiate—as a factual matter—the central premise of

their Robinson-Patman Act claim, viz., that the WPP was a

“worthless choice” for them because of “their customers’

demands for... non-RJR products.” Pet. 3, 17.

In accordance with settled law, the Sixth Circuit held that

the functional availability doctrine precludes recovery if “the

same prices were available to the plaintiff from a practical

standpoint and on equal terms with its competitors.” Pet.

App. 2la (internal quotation marks and citation omitted;

emphases added). Although most secondary-line Robinson-

Patman Act cases have, like Morton Salt, involved “volume

discount programs,” the Court of Appeals concluded that the

functional availability doctrine applies equally to market

share discount programs like the WPP: “[T]he functional

availability doctrine has been applied historically in the

context of quantity discounts, but its underlying rationale—

that a discount equally and realistically available to all

9

purchasers of a like commodity does not constitute

discrimination in price within the meaning of § 13(a)—is no

less relevant in judging the legality of market-share discount

formulas such as the WPP.” Pet. App. 32a.

Citing this Court’s decision in Eastman Kodak, the Sixth

Circuit emphasized “a case-by-case evaluation of antitrust

claims” and held that a market share discount program could

violate the Robinson-Patman Act “if there is evidence of

discrimination in price between purchasers of the same

commodities.” Pet. App. 19a. It then concluded that there

was no such evidence here.

As discussed in the Statement, supra. the Court of

Appeals found that plaintiffs had failed to present triable

evidence (as they were required to do on summary judgment)

that (1) the areas they serviced were poorer than the areas

serviced by allegedly favored wholesalers and (ii) the retail

customers in their areas had greater demand for fourth-tier

cigarettes than the retail customers in the areas of allegedly

favored wholesalers. Pet. App. 43a-45a. It was, according

to the Sixth Circuit, petitioners’ inability to “verify the

grounds for their price discrimination claim” that “in turn

foreclos[ed] proofs that the WPP actually disfavored

plaintiffs.” Pet. App. 45a (emphases added). The Sixth

Circuit thus found that petitioners and other wholesalers

were similarly situated and that petitioners “could alter their

sales mix at any time so as to qualify for the varying

discount levels.” Pet. App. 46a. “The undisputed evidence,”

the Court found, “demonstrates that plaintiffs faced a choice

that was not an inequity imposed by the pricing structure but

a fundamental economic conundrum faced by ail sellers.”

Pet. App. 45a (internal quotation marks and citation omitted;

emphases added).

It was thus petitioners’ evidentiary failing that dictated the

Court of Appeals’ result, not any sweeping legal holding

regarding the applicability of the functional availability

doctrine to market share discount programs. The Sixth

10

Circuit expressly agreed with petitioners that “under certain

circumstances, as alleged here by plaintiffs, market-share

discounts could be administered in such a manner that such

incentives cross the fine line from pro-competitive incentives

to exclusionary, anti-competitive price discrimination.” Pet.

App. 18a. It held, however, that petitioners had not factually

established such a circumstance here. E.g., Pet. App. 49a

(“Under the circumstances, we affirm the district court’s

order granting summary judgment in favor of defendant.”).

This puts to lie petitioners’ claim that “in the Sixth

Circuit, a seller need only say that it ‘offered’ the discounts

to everyone, including those for whom the offer was

useless.” Pet. 21. The Court of Appeals did not stop its

analysis after concluding that “the evidence shows that RJR

has evenhandedly applied the WPP, treating all of its

wholesalers equally and offering all of them the same

qualification terms.” Pet. App. 43a. It went on to analyze, in

considerable detail, the (lack of) evidence regarding

petitioners’ “core argument that RJR’s [discounts] were

unattainable.” Pet. App. 43a. Nor did the Sixth Circuit

“take[] as established that making th[e] choice [to obtain

higher discounts under the WPP] would cause a massive loss

of customers,” as petitioners also assert. Pet. 17. It instead

found no evidence that “the WPP actually disfavored

plaintiffs” and therefore concluded that petitioners, like

similarly-situated wholesalers that received higher discounts,

could have achieved the WPP’s discounts with different

“marketing decisions.” Pet. App. 45a.’

5 Not only that, but each petitioner admitted that it had no evidence

showing a higher demand for fourth-tier cigarettes in its area. R.165,

JA494-95, 500, 505-09, 517-18, 525, 531-32, 539, 550, 554-55, 569,

576-77, 583-85, 590, 597-600, 605-06, 611-12, 620-21, 629-30, 639-40,

647-49. indeed. in virtually all of the counties served by petitioners, the

actual RJR sales rate exceeded the target rate under the WPP, so that if

11

Petitioners make no allegation that the Sixth Circuit

misconstrued the evidence or misapplied the summary

judgment standard. Nor do they identify any language in the

Sixth Circuit’s opinion holding that a seller may “set[]

conditions for qualifying for the lower price that only some

favored buyers can comply with.” Pet. 3. They intimate that

the Sixth Circuit “held” that a discount offer would survive

Robinson-Patman Act scrutiny “even if the circumstances of

[p]etitioners’ businesses functionally prevented them from

accepting.” Pet. 9. But the language that petitioners cite

instead confirms that the decision rested on the specific facts

of this case: “‘[T]here is no evidence that anything other

than plaintiffs’ marketing decisions impacted their ability to

obtain the WPP’s best prices. The undisputed evidence

demonstrates that plaintiffs faced a choice that was not an

inequity imposed by the pricing structure but a fundamental

economic conundrum faced by all sellers.” Pet. 9-10

(quoting Pet. App. 45a (internal quotation marks and citation

omitted); emphases added). And their selective quotation of

the opinion’s summary conclusion (Pet. App. 49a) does not

show, as petitioners suggest, that the Sixth Circuit “took no

note” of the alleged differences between them and “favored

distributors [that] already qualified for the best prices when

the new pricing program began.” Pet. 10. Petitioners simply

close their eyes to the Court of Appeals’ extended

discussion—and_ factual _—rejection—of the supposed

differences between petitioners and other wholesalers. Pet.

App. 43a-47a.

In sum, the Sixth Circuit accepted that the functional

availability doctrine applies to RJR’s market share discount

program. It found, however, that petitioners had failed to

establish that the discount was actually functionally

petitioners had sold at the average level for their counties, they would

have received higher discounts. R.165, JA676.

12

unavailable because petitioners did not substantiate their

assertion that their customers had atypical preferences that

prevented petitioners, as a practical matter, from accepting

the same offer to which other wholesalers agreed. That

being so, the question petitioners seek to resolve—whether a

buyer's deference to atypical customer preferences, like

characteristics such as a buyer’s small size, can render a

facially neutral discount program functionally unavailable to

that buyer—is not presented here. And, even if that question

were presented, petitioners allege no split of authority that

would warrant this Court’s addressing the issue now.

Because the Sixth Circuit’s application of the intrinsically

factbound functional availability test did not resolve any

significant legal issue, it cannot possibly warrant this Court's

attention.

Il. PETITIONERS ALLEGE NO_- SPLIT OF

AUTHORITY AND THE SIXTH CIRCUIT’S

DECISION FULLY ACCORDS WITH ROBINSON-

PATMAN ACT PRECEDENT

Petitioners’ merits-based arguments—that the Sixth

Circuit’s decision conflicts with Morton Salt, lacks support

in lower-court case law, and improperly interprets the

Robinson-Patman Act (Pet. 14)—simply build upon their

erroneous characterization of the Sixth Circuit’s decision.

Further, even if the Court of Appeals’ opinion does

something more than apply settled law to the facts of this

case (and it does not), petitioners allege no split of authority

and for that reason their petition should be denied. In all

events, the Sixth Circuit expressly followed and applied

Morton Salt; the decision conforms with lower-court

precedent applying the functional availability test; and

petitioners’ proposed per se rule against share-based

discounts would turn the Robinson-Patman Act on its head.

As discussed in the Statement and Part I, supra, nowhere

in its opinion did the Sixth Circuit rule, as petitioners claim,

that “there is no price discrimination as a matter of law when

13

discounts are offered to all buyers but on terms that

disfavored buyers cannot comply with and still stay in

business.” Pet. 16. It is thus transparently clear that the

Sixth Circuit did not “effectively overrule[]” (Pet. 16) this

Court’s decision in Morton Salt, which had to do with

volume (not share-based) discounts, but rather applied the

principles of functional availability developed in that case to

the market share program at issue in this case. As the Court

of Appeals explained at the outset of its discussion of the

functional availability doctrine, Morton Salt “deemed a

volume discount program to be illegal under the

circumstances because the manufacturer set the minimum

purchase requirement so high that it was impossible for small

buyers to obtain the discounts received by large buyers.”

Pet. App. 23a. The quantity discount at issue in Morton Salt

was “theoretically,” but not “functionally,” available to all

buyers because many small buyers existed that could not

achieve the highest discount and some small buyers did not

qualify for any discount at all. 334 U.S. at 42-43. In striking

down the “quantity discounts” at issue in Morton Sait, this

Court emphasized that the legislative history of the

Robinson-Patman Act “makes it abundantly clear that

Congress considered it to be an evil that a large buyer could

secure a competitive advantage over a small buyer solely

because of the large buyer’s quantity purchasing ability.” /d.

at 43; accord id. at 49.

It is undisputed here that the WPP contained a

nondiscriminatory formula that was, unlike the volume-

based discount at issue in Morton Salt, equally available to

both large and small wholesalers. Nothing in the Court of

Appeals’ decision, furthermore, marks a deviation from the

context-specific functional availability test that Morton Salt

established. Although recognizing that market share

programs such as the WPP “theoretically level the playing

field by allowing competing purchasers of like commodities

to participate on equal terms,” the Sixth Circuit expressly

rejected any suggestion “that market-share discounts are

14

immune from Robinson-Patman Act scrutiny.” Pet.

App. 18a. It thus applied Morton Salt straightup—

“regardless of the mechanics of [the] pricing structure,” Pet.

App. 19a—and concluded that petitioners had failed to

adduce any evidence showing that RJR’s share-based

discounts were functionally unavailable to them.

Even if the Sixth Circuit’s opinion were something more

than a straightforward application of Morton Salt, petitioners

(to their credit) do not allege that the Sixth Circuit’s decision

conflicts with any other lower-court decision. That is fatal to

their petition. In any event, as the Sixth Circuit explained,

the two volume discount cases petitioners cite as “highly

significant” (Pet.20) are “inapposite to the present

circumstances.” Pet. App. 34a n.12.

First, petitioners cite a 1968 opinion in which the Seventh

Circuit concluded that the Federal Trade Commission had

not abused its discretion in issuing a cease-and-desist order

relating to a dairy company’s volume discounts. See Nat'l

Dairy Prods. Corp. v. FTC, 395 F.2d 517 (7th Cir. 1968). In

so doing, the court rejected National Dairy’s argument that

the “disfavored independents should have joined voluntary

Or cooperative groups and thus obtained higher discounts,”

explaining that the Robinson-Patman Act was specifically

intended “to protect the independents from the chains and

other large buying groups.” /d. at 523. As the Sixth Circuit

noted, “{t]he present case, unlike National Dairy, neither

involves a volume discount nor avers that plaintiffs must join

forces and sacrifice their independence in order to protect

themselves from large distributors.” Pet. App. 35a n.12.

Second, petitioners cite a district court decision, decided at

the preliminary-injunction stage, concluding that there was a

“better than negligible” chance that a brewing company’s

volume discount program violated the Robinson-Patman Act.

Calumet Breweries, Inc. v. G. Heileman Brewing Co., 951

F. Supp. 749, 752 (N.D. Ind. 1994). The district court there

found “ample evidence” that Heileman administered the

15

program in a discriminatory manner so as to favor one

particular buyer, making “retroactive quantity adjustments

{that} in effect resulted in a secret discount that only the

{favored buyer] could obtain.” /d. at 754. In response to

Heileman’s argument that the plaintiff could have purchased

enough beer to get the higher discounts and placed them in

storage, the Calumet Breweries court noted that Heileman

“handicap[ped]” that possibility by “refus{ing] to sell certain

products to [plaintiff]” and by “recommend{ing]} that its

wholesalers maintain only a twenty-day supply of product in

inventory.” Jd. at 755-56. The district court thus concluded

that “it appears that the program is structured so that only

one buyer ... would ever by able to obtain the maximum

discount at a given time.” /d. at 756. Here, in contrast, there

is “no evidence that RJR manipulated the WPP to favor

certain wholesalers,” Pet. App. 43a, and “no evidence that

anything other than plaintiffs’ marketing decisions impacted

their ability to obtain the WPP’s best prices,” Pet. App. 45a.

Unable to identify a single case in conflict, or even in

tension, with the Sixth Circuit’s decision, petitioners are left

with their argument that the decision is not “supported” by

the lower-court cases it cites. Pet.17. This argument is

meritless.

Petitioners maintain that the tunctional availability

doctrine applies only where “the plaintiff's own conduct and

free choices” prevent it from receiving the highest discount,

whereas here “there was no real choice for [p]etitioners.”

Pet. 17, 19. But petitioners nowhere address the Sixth

Circuit’s unequivocal finding that, like all other wholesalers,

they did have a choice to achieve higher discounts by either

* Petitioners themselves maintain that RJR established the WPP in

response to “fourth-tier[] manufacturers” whose collective share grew

from virtually nothing to 15 percent in about five years, referring to

themselves and other wholesalers as “pawns” in the competitive struggle

among cigarette manufacturers. Pet. |3a.

16

altering their “marketing decisions” or “sales mix.” Pet.

App. 45a-46a. This was, as the myriad cases cited by the

Sixth Circuit make clear, a “real choice’—tegardless of

petitioners’ subjective understanding of that term. See Pet.

App. 23a-35a. A discount is functionally available where

“{ijt [i]s a matter of discretion with each [buyer], in the

exercise of its business judgment, whether to take advantage

of the promotion.” Bouldis v. U.S. Suzuki Motor Corp., 711

F.2d 1319, 1326 (6th Cir. 1983); see also Capital Ford Truck

Sales, Inc. v. Ford Motor Co., 819 F.Supp. 1555, 1579

(N.D. Ga. 1992) (upholding discount program where

plaintiff failed to obtain highest discounts because it made “a

marketing decision ... to concentrate on sales to smaller

volume customers as opposed to large fleet purchasers”).

Even difficult or unpalatable business choices do not render

a nondiscriminatory discount program, such as the WPP,

functionally unavailable. See, e.g., Edward J. Sweeney &

Sons, Inc. v. Texaco, 637 F.2d 105, 121 (3d Cir. 1980)

(upholding discount program available on equal terms to all

buyers even though plaintiff would have had to move its

plant in order to receive a higher discount); Am. Tara Corp.

v. Int'l Paper Co., No. 79C1470, 1981 WL 375752, at *2-3

(N.D. Ill. July 30, 1981) (upholding discount program where

all buyers were given the same choice, even if accepting

would place plaintiff “in extreme jeopardy” and “threaten|]

[its} very existence”).” As the Sixth Circuit concluded, this

functional availability precedent reflects that “purchasers in

competitive markets, particularly multi-brand distributors or

> Thus, even if petitioners had come forward with evidence establishing

that their customers had immutable preferences for fourth-tier

cigarettes—contrary to the working premise of all marketing and

advertising—petitioners always had the option of receiving higher

discounts by reducing the quantity of non-RJR savings brand cigarettes

they sold. That may have presented a tough business choice, but it did

not render the nondiscriminatory WPP functionally unavailable to

petitioners.

17

wholesalers, must make difficult economic choices,

prioritize brand sales, and often decline conditional discounts

for reasons unrelated to their actual ability to obtain them.”

Pet. App. 33a. And the undisputed evidence here provides at

least one reason why petitioners would choose not to

participate in the WPP: the offsetting benefit of the large

profit margins on their sale of fourth-tier cigarettes. R.174,

J3066; R.65, JA250-51, 281.

Petitioners’ assertion that the Court of Appeals’ ruling

“will make the [Robinson-Patman] Act almost a dead letter”

is just more unsubstantiated hyperbole. Pet. 22. The Sixth

Circuit’s decision in no way undermines Morton Salt’s

distinction between large and small buyers, contrary to

petitioners’ claim. Pet. 14, 16-17. The decision, moreover,

furthers the actual goal of the Robinson-Patman Act, which,

as this Court recently reiterated, is to “stimulat[e]

competition,” not to “protect[] ... existing competitors.”

Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546

U.S. 164, 126 S. Ct. 860, 872 (2006) (emphases in original).

“Interbrand competition . . . is the primary concern of

antitrust law,” and “[t]he Robinson-Patman Act signals no

large departure from that main concern.” /d. at 872. The

WPP undeniably furthers interbrand competition between

RJR and all other cigarette manufacturers, thereby creating

“[{l]ow prices [that] benefit consumers.” Atl. Richfield Co. v.

USA Petroleum Co., 495 U.S. 328, 340 (1990).

In contrast, as every judge to have considered their theory

has concluded, petitioners ultimately seek “‘tailor-made’

discounts which themselves presumptively violate the

Robinson-Patman Act.” Pet. App. 48a (internal quotation

marks and citation omitted). The pro-competitive goal of the

WPP was to induce customers to switch to RJR savings

brand cigarettes. R.174, JAI157; R.65, JA207-08. As the

Sixth Circuit explained, “[c]ommitment to a_ particular

product is the sine qua non of an incentive program” and,

thus, “by definition, an incentive-based program will lead to

different outcomes for different purchasers.” Pet. App. 20a;

18

see also Bouldis, 711 F.2d at 1327 (explaining that

promotional packages “provid[e] economic incentives” to

“enhance the sale of products”). Petitioners, by contrast,

demand the same discounts received by those selling a

greater percentage of RJR savings brands. That is not an

incentive; that is a subsidy. See Pet. App. 47a (“Plaintiffs

essentially argue that [RJR] should have set the targets on a

per-distributor basis which, of course, would be tantamount

to having no market-share-based incentive program at all.”)

(internal quotation marks and citation omitted); Pet.

App. 1 13a (“In effect, the plaintiffs seek to reap the rewards

of the WPP without furthering the purpose of that program,

i.e., increasing the demand for RJR products.”). And

incentive programs—which enhance interbrand competition

and yield lower prices for consumers—would cease to exist

if their legality “only could be ascertained with respect to

each and every buyer after a jury decides whether the

business decisions forced upon that buyer were reasonable or

not.” Pet. App. 48a (internal quotation marks and citation

omitted).

The Sixth Circuit therefore correctly concluded that

“{ajlthough plaintiffs argue that they are not challenging

market-share-based discount programs per se, in reality they

are.” Pet. App. 48a (internal quotation marks and citation

omitted). Petitioners would have this Court condemn a pro-

competitive discount program for their own financial

benefit—an interpretation of the Robinson-Patman Act

“[djivorced from competition and consumer welfare” and

foreign to “the purpose of the antitrust laws.” Leegin

Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705,

2724 (2007). Because they offer neither evidence nor

authority in support of their claim, and because they concede

that there is no split of authority, this Court should decline

the invitation.

CONCLUSION

The petition for a writ of certiorari should be denied.

19

Respectfully submitted,

THOMAS DEMITRACK MICHAEL A. CARVIN

ROBERT S. WALKER (Counsel of Record)

MICHELLE K. FISCHER LUKE A. SOBOTA

JONES DAY JONES DAY

North Point. 51 Louisiana Avenue, N.W.

901 Lakeside Avenue Washington, D.C. 20001

Cleveland, OH 44114 (202) 879-3939

(216) 586-3939

Eric P. BERLIN

WILLIAM C. BOVENDER JONES DAY

HUNTER SMITH & DAVIS 77 West Wacker

1212 North Eastman Chicago, IL 60601

Road (312) 782-3939

P.O. Box 3740

Kingsport, TN 37664 Counsel for Respondent R.J.

(423) 378-8858 Reynolds Tobacco Company

July 30, 2007