Simon A. Rodell, Antitrust Law: The Fall of The Morton Salt Rule in Secondary-Line Price Discrimination Cases

58 Fla. L. Rev. 967 (2006) | | | |

TEXT :: Petitioner manufactures and sells custom-made heavy-duty trucks. Respondent and other Volvo dealers bid on sales to specific retail customers. In preparing bids, Respondent and other dealers routinely ask Petitioner for wholesale price concessions, which Petitioner grants selectively. Respondent sued in district court under § 2 of the Clayton Act, as amended by the Robinson-Patman Price Discrimination Act (RPA), claiming Petitioner gave competing dealers better wholesale price concessions than it gave Respondent. The jury awarded Respondent damages of more than $ 1.3 million, trebled under the RPA, and Petitioner appealed unsuccessfully. The United States Supreme Court reversed and HELD that a dealer may recover under the RPA only after proof of lost sales to a “favored” dealer competing to resell products to the same retail customer.

In a capitalist society, competitive markets foster efficiency. In the early twentieth century, however, unregulated industries became extremely inefficient as large corporations exploited their market power to undercut their competitors and create monopolies and trusts. Congress passed the Clayton Act in 1914 to curb predatory pricing by these market-dominant corporations. The primary goals of the Clayton Act and other antitrust laws were to limit inefficiencies caused by monopolistic businesses, promote inter-brand competition, and protect consumers from unreasonably high prices. To further these goals, Congress passed the RPA in 1936 to curtail monopolistic practices by powerful buyers, particularly large chain retailers.


RPA claims are divided into three classes: primary-, secondary-, and tertiary- line competitive injury. A secondary-line claim requires that: “(1) the relevant . . . sales were made in interstate commerce;” (2) the goods sold were of “like grade and quality;” (3) the defendant “‘discriminate[d] in price’” between two purchasers of the same goods; and (4) the price discrimination injured, destroyed, or prevented competition to the discriminator’s advantage.

The circuit courts have split over how a claimant can prove the injury-to- competition element and have adopted two distinct approaches. Under the first approach, a court infers injury to competition from proof that a seller charged competing customers a substantially different price over a prolonged period. Alternatively, a court may require a detailed market analysis proving injury to competition.

Under the first approach, a court infers injury to competition directly from proof of prolonged price discrimination, essentially merging the last two elements of an RPA claim. In FTC v. Morton Salt Co., a manufacturer granted volume-specific discounts. The Federal Trade Commission (FTC) found that the manufacturer’s volume discounts violated the RPA and issued a cease-and-desist order. On appeal, the circuit court vacated the order, holding that the FTC failed to prove the volume discounts harmed competition.

The Supreme Court reversed and formulated the “Morton Salt inference”: The requisite injury to competition could be inferred from evidence of price discrimination over time. The Court’s ruling relied heavily on both the text and the legislative history of the RPA. The Court noted that the purpose of the RPA was to prevent injury to competition before it occurred and to protect smaller businesses. The Court stressed the purportedly “obvious” inference that competitors would always be injured if they were forced to pay their suppliers higher prices than their competition over a prolonged period.

Alternatively, a claimant may be required to present a detailed market analysis proving a seller’s price discrimination injured competition. In American Oil Co. v. FTC, an oil company gave greater price concessions to retailers in a town where competing brands began a price war, but kept concessions in neighboring towns constant. As a result, dealers in the town affected by the price war paid lower prices for gas than dealers in the neighboring town over a seventeen-day period. The FTC found that the oil company had engaged in price discrimination in violation of the RPA and issued a cease-and-desist order.

The Court of Appeals for the Seventh Circuit vacated the FTC’s order, asserting that, although the oil company’s prices during the seventeen-day period were discriminatory, there was no evidence the discrimination actually harmed competition. The court emphasized that the RPA’s primary concern was the preservation of competition and that the statute’s concern for individual competitors was “incidental.” The court analyzed the relevant market and lost profits of the disadvantaged retailers and determined that their actual economic losses were slight.

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