Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

Northern District of California Addresses Functional Discounts, Price Discrimination Claims

Chrysler 1959

Chrysler 1959 (Photo credit: Wikipedia)

In Mathew Enterprise, Inc. v. Chrysler Group, LLC, 2014 U.S. Dist. LEXIS 95522 (N.D. Cal. July 11, 2014) (Freeman, J.), the court dismissed certain Robinson-Patman Act price discrimination claims and allowed others to proceed, and in so doing addressed the contours of the functional availability defense.

The plaintiff is a car dealership. It alleged that Chrysler grants “volume growth” incentives which function as a subsidy and amount to roughly $700 per vehicle sold by a qualifying dealer. The plaintiff alleged that Chrysler allowed competing dealerships to be established in plaintiff’s area but did not adjust the formula by which plaintiff could qualify for volume growth incentives. That is, plaintiff’s sales objectives continued to be based on its past year’s sales without consideration of the reduction of sales expected due to the addition of new dealerships in the market.

In addition to its allegations about volume growth incentives, the plaintiff further alleged that Chrysler provided disguised reductions in the net prices of vehicles to a competing dealership in the form of below-market rent subsidies which were not also provided to plaintiff.

On Chrysler’s motion to dismiss, the court held that plaintiff had adequately alleged that the volume growth incentives were not functionally available to it. “Defendant’s incentive program could not be applied in an even-handed manner, Plaintiff alleges, because its formula as applied to Plaintiff took into account Plaintiff’s prior year sales, while the formulas put in place for the [competing] dealerships did not, because neither new dealer had prior-year sales.” The court also held that plaintiff had plausibly alleged an effect on competition in the form of sales diversions. “Although Plaintiff acknowledges that other factors contributed to its declining sales, such as increased competition and geographic convenience to customers, those others factors are not more plausible than Plaintiff’s allegations of diverted sales.”

As to the rental subsidies, however, the court held that a rental agreement itself is not a commodity within the reach of the Robinson-Patman Act, and that the plaintiff had not plead facts that would permit the court to infer that the rental agreement in some way was tied to the volume of cars sold. Therefore, the court rejected plaintiff’s argument that the rental agreement was a “disguised discount.”

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