“Unlawful Price Discrimination under Federal and California Law”
(By William Markham, © 2013-2025)
Introduction
In this article, I take up the obscure, problematic law of unlawful price discrimination, which was originally codified by Section 2 of the Clayton Act and directed against predatory pricing, and which was supplemented by the Robinson-Patman Act during the Great Depression in order to reach discriminatory pricing given to large commercial customers in downstream markets. In the modern era, the Supreme Court has sharply limited these laws.
Even so, price discrimination remains a federal antitrust offense, and a litigant that prevails on a claim for unlawful price discrimination can obtain treble damages, injunctive relief, and its attorney’s fees, while the defendant, even if it prevails, cannot recover its attorney’s fees, unless the plaintiff’s case was obviously and indisputably frivolous or malicious, in which case the defendant can recover its attorney’s fees and other costs under Rule 11 of the Federal Rules of Civil Procedure or by a sequel suit for malicious prosecution.
In sharp contrast, California’s laws on unlawful price discrimination have been expansively interpreted and reach the sale not only of commodities, but also most kinds of services. Of note, these laws largely afford the same civil remedies available under federal law. A prevailing plaintiff is entitled to recover treble damages (its proven damages, times three) as well as an award of attorney’s fees and statutory costs of suit. Upon sufficient showings, a plaintiff can also obtain injunctive relief (temporary and permanent). A prevailing defendant can recover only its statutory costs of suit, which are limited in scope and usually very modest. In theory, California’s laws on price discrimination even impose criminal penalties, but in practice there has never been any such criminal prosecution (so far as this author can discern from the published decisions). I address California’s distinct laws on price discrimination towards the very end of this article.
What Is Price Discrimination?
Price discrimination is a commonplace practice that is presumptively lawful, save under special circumstances discussed below. It occurs when a seller of products offers lower prices to one or more preferred customers and higher prices to one or more disfavored customers when selling the same or substantially similar products at around the same time. See Continental Baking Co. v. Old Homestead Bread Co., 476 F.2d 97, 103 (10th Cir. 1973) (“The term ‘price discrimination’ means no more than price differentiation, or the charging of different prices to different customers for goods of like grade and quality.”) (citing FTC v. Anheuser-Busch, Inc., 363 U.S. 536 (1960)).
Virtually every seller of products engages in some sort of price discrimination. It is commonplace for sellers to give discounts to customers who pay their bills early and to offer their lowest prices to customers who make large or recurring purchases. Do these sellers run the risk of violating federal antitrust law merely because they offer discounts and low prices to good customers? Of course not.
Price Discrimination Is Often Lawful
Presumptively, a seller is entitled to set prices as he chooses when dealing with his different customers. Most sellers would resent any effort to restrict their discretion to set and vary their prices for different sales. In market economies such as our own, firms decide for themselves what to charge for their products and to whom they wish to make sales. It is contrary to the fundamental principles of market economics to regulate what sellers charge for their products or impose a rule that they cannot vary their prices for the same goods when selling them to different customers.
The general rule is that a seller can practice price discrimination, except when doing so poses a substantial risk of injury to competition. A seller can therefore charge you $5 for a widget that he will sell to me only for $10, unless this price discrimination is likely to cause a substantial diminution of competition in any market affected by the sales.
Crucially, such injury to competition is said to occur when the seller makes sales of the same or similar goods to commercial customers, but gives preferred prices to one or more favored commercial customers, and withholds its preferred prices from other commercial customers that compete against the favored customers, or whose own customers compete against the favored customers.
Unlawful Price Discrimination, Defined
Stated as a rule, price discrimination becomes unlawful under federal antitrust law only when it threatens to undermine competitive processes in an affected market and otherwise meets the specific criteria of the federal price discrimination statutes (viz., the simultaneous, ongoing sale of the same or similar products to commercial customers at different prices in transactions that implicate interstate commerce).
This harm is said to occur within the meaning of the federal price-discrimination statutes when the following circumstances are present: (1) the seller makes sales of goods in interstate commerce to commercial customers; (2) the seller sells the same goods in the same quantities at around the same times to different commercial customers, offering lower prices only to one or some of these customers; and (3) the seller uses the discriminatory pricing to undermine its own competitors (but subject to highly restrictive doctrines on proving predatory pricing); or the seller’s discriminatory pricing affords a competitive advantage to at least one favored customer, allowing it or its own customer to take sales from a disfavored customer or disfavored customer’s customer. If plaintiff has been directly harmed by the seller’s discriminatory pricing, it can sue the seller and sometimes the favored customer under the Robinson-Patman Act, and upon prevailing it becomes entitled as a matter of law to treble damages and reasonable attorney’s fees, but the defendant cannot recover its own attorney’s fees even if it prevails on the claim.
Let’s see how this principle might work in practice.
Hypothetical Example of Unlawful Price Discrimination
Suppose a large national supplier of raw widgets, whom we will call the Price-Discriminating Supplier, sells its raw widgets to manufacturing companies that in turn process them into finished widgets, which they then sell to wholesale distributors, who in turn sell them to retail outlets for point-of-sale transactions to consumers.
One of the manufacturers is the largest producer of finished widgets in North America. We will call this company the Favored Customer because the Price-Discriminating Supplier always gives it its best prices, which are significantly lower than the prices it charges all other manufacturers of finished widgets, whom we will therefore designate as its Disfavored Customers.
The Price-Discriminating Supplier thus gives better prices for a commodity (raw widgets) to the Favored Customer, which in turn can produce its own goods (finished widgets) at lower cost and sell them to wholesale distributors at lower prices than can any of the Disfavored Customers. This circumstance eventually leads to a predictable result: the Favored Customer increasingly dominates the manufacture of finished widgets in virtually all regional markets across the county, while its direct competitors are run out of these markets or out of business altogether.
Moreover, the Favored Customer’s wholesale distributors make sales of finished widgets to retailers at prices that cannot be matched by any wholesaler of a Disfavored Customer.
On these facts, each Disfavored Customer can bring suit against the Price-Discriminating Supplier for unlawful price discrimination in violation of the Robinson-Patman Act, alleging that the supplier has practiced price discrimination (charged different prices to different customers for the same or similar products sold at around the same time) in a manner that has harmed competition between its Favored Customer and its Disfavored Customers for sales to wholesale distributors and also harmed competition for retail sales that occurs between the Favored Customer’s wholesale distributors and Disfavored Customers’ wholesale distributors.
In any such case, the Price-Discriminating Supplier will have various affirmative defenses, which might succeed, but each Disfavored Customer will have arguable, potentially successful claims for unlawful price discrimination.
In addition, each Disfavored Customer can sue the Favored Customer for inducing unlawful price discrimination by alleging and proving that the Favored Customer has used coercion or inducements to prevail on the Price-Discriminating Supplier to offer it discriminatory prices that it knows will allow it to undersell and thereby undermine competition in its own markets and/or in downstream markets.
Such facts give rise to tenable claims for unlawful price discrimination in violation of the Robinson-Patman Act.
Injury to Competition
Price discrimination rises to the level of an antitrust offense only when it threatens competitive conditions in at least one affected market. That is, the practice of price discrimination implicates the antitrust laws only when it is done in a manner that poses a “reasonable probability” of significant harm to competitive processes either in the seller’s own market or in downstream markets. See Federal Trade Commission v. Morton Salt Co., 334 U.S. 37, 46–47 (1948) (“After a careful consideration of this provision of the Robinson-Patman Act, we have said that the statute does not require that the discriminations must in fact have harmed competition, but only that there is a reasonable possibility that they ‘may’ have such an effect.”) (internal quotation in original).
Nevertheless, this showing is far easier to make under the Robinson-Patman Act than it is under any other provision of federal antitrust law, as is explained below.
Three Kinds of Unlawful Price Discrimination
There are three different kinds of harm to competition that can arise because of price discrimination.
The first kind, which is called primary-line injury, is so difficult to prove under the modern standards that it likely should be excluded from the list. But since it remains a recognized category, I will include it in my list, but also explain how it has been rendered toothless by the modern rule on predatory pricing.
Subject to this caveat, I now list the three recognized kinds of harm caused by price discrimination: Primary-line harm, which occurs when the seller uses low prices to undermine its own direct competitors by underselling them until they are ruined; secondary-line harm, which occurs when the seller’s low prices to the favored customer allow this customer to undersell and thereby ruin its own direct competitors; and tertiary-line harm, which occurs in downstream markets when the seller’s low prices to the favored customer allow the favored customer or its own customers to undersell and thereby ruin the disfavored customers’ customers.
For example, both secondary and tertiary harm occur when the favored customer makes wholesale and retail sales and uses the seller’s preferred prices in order to undersell and thereby ruin rival wholesalers in the wholesale markets (secondary-line harm) and also to undersell and thereby ruin retailers that buy their products from the disfavored wholesalers (tertiary-line harm).
Primary-Line Harm Is Almost Impossible to Prove under the Modern Standards
Primary-line cases arise when the price-discriminating seller is a dominant firm that sells its products for an extended period at prices that are lower than its average variable costs, thereby imposing intolerable pressure on its direct competitors, who cannot remain in business if they must match these prices, and who in consequence either stop competing or agree to join a price-fixing cartel organized by the price-discriminating seller.
This offense is also known as predatory pricing, and under modern federal law it is exceedingly difficult if not impossible to prove because the claimant must prove all of the following points: (1) The price-discriminator is selling its products at prices lower than its average variable costs; (2) the price discriminator, by offering lower prices to selected customers, will likely force its competitors to abandon sales of the product in question because they cannot compete on price against the price-discriminator; (3) after its rivals leave the market, the price-discriminator can raise its prices to supracompetitive rates with impunity because no rival will be able to re-enter the affected markets to offer the same or similar products at lower prices in response to the price-discriminator’s supracompetitive prices (or, alternatively, the price discriminator will oblige its rivals to enlist in a price-fixing or market-allocation cartel after subduing them by its predatory pricing).
In most cases that might arise, proving all of these points is not a practical endeavor, so that primary-line harm as a practical matter can no longer be proven in most cases.
A simple hypothetical example makes this point all too clearly. Suppose that Samsung started to sell its smartphones at a penny per phone to all customers all over the world. The rival makers of smartphones would find that they could not compete any longer against Samsung. While some customers might continue to buy smartphones from other makers at dramatically higher prices, most would begin to purchase their smartphones only from Samsung. All of Samsung’s rivals, even mighty Apple, would eventually be run out of the smartphone markets. Yet even this spectacular development would not suffice to establish unlawful price discrimination or predatory pricing under the modern federal doctrines. Rather, Apple and the other excluded competitors must also show that Samsung, after running its rivals out of business, planned to charge supracompetitive prices for its smartphones (i.e., prices higher than those that it could profitably charge in competitive markets), and that no future rival could challenge these prices by entering the smartphone markets in order to offer lower, competitive prices for smartphones in response to Samsung’s price-gauging. Alternatively, Apple and the others might be able to prevail by proving that Samsung planned to browbeat them into submission with its price of a penny per phone until they agreed to participate in a price-fixing or market-allocation cartel orchestrated by Samsung.
Needless to say, the above standard is just about impossible to meet – a point that the antitrust courts likely understood when they established it. The standard, which is the modern doctrine on predatory pricing, was first used in predatory pricing cases brought under Section 2 of the Sherman Act and later adopted for primary-line injury cases brought under the Robinson-Patman Act.
Notably, California antitrust law has rejected this doctrine and still allows claims for predatory pricing when the predatory firm sells its goods below its own costs in order to eliminate rivals. See Bay Guardian Co. v. New Times Media LLC, 187 Cal. App. 4th 438, 457–58 (2010).[1]This article offers a more complete explanation of California’s seldom-invoked law on unlawful price discrimination.
While a claimant still can prevail on this kind of claim under California law, a federal claim along these lines under the Robinson-Patman Act (or under Section 2 of the Sherman Act) is likely doomed from the start.
Don Quixote stood a better chance of vanquishing the windmills of Spain than does a firm of proving a predatory pricing or primary-line harm under the modern federal doctrine. It might thus be said that, under federal law, there are three kinds of harm to competition recognized in price discrimination cases, and one of them exists in theory only!
Secondary and Tertiary Harm Can Be Shown
In contrast, secondary-line and tertiary-line harm to competition can give rise to actionable claims for unlawful price discrimination. This harm occurs when a seller practices price discrimination in a manner that impairs or undermines competitive processes in its customers’ markets or in markets even further downstream, such as a market in which the seller’s preferred customer competes for sales against customers of the seller’s disfavored customers. This offense can still be shown upon presentation of sufficient proofs.
Typically, the claim arises when seller offers market-beating prices to a dominant customer that has demanded that the seller do so. The dominant customer thus obtains the seller’s best prices for a key product, while the dominant customer’s rivals obtain the same product only at higher prices, so that they are largely unable to compete against the dominant customer for sales of the key product or other products for which the key product is a necessary input.
To prevail on the claim, a disfavored customer must show at a minimum that (1) the seller sold the same goods at around the same time at comparatively lower prices per unit to the dominant customer and at higher prices per unit to the disfavored customer; and (2) in consequence, the disfavored customer lost sales to the favored customer — which is inferred if the favored customer received preferred prices over time.
In the modern era, a disfavored customer should also try to make the following additional showings to avoid complications on appeal: (1) it requires the seller’s products in order to provide its own products or services; (2) there is no substitute source of products at sufficiently low prices to allow it to avoid the harm caused by the seller’s price discrimination; and (3) disfavored customers therefore cannot compete on price against the favored customer or its customers, and this circumstance in turn plausibly threatens to undermine competitive interplay in at least one the affected market.
In the modern era, then, a strong claim for secondary-line or tertiary-line price discrimination arises when the following circumstances are shown to exist: (1) a seller has routinely sold the same or similar goods to its favored customer at lower prices and to others at higher prices in sales made at around the same time; and (2) in consequence, the favored customer has gained an insuperable advantage over disfavored customers or over the customers of the disfavored customers; and (3) in consequence, there is a “reasonable probability” of a substantial loss of competition in at least one secondary or tertiary market because a substantial percentage of the disfavored customers can no longer successfully compete for sales in these markets.
Affirmative Defenses to a Claim for Price Discrimination
Even when a claimant has made one of the above showings, a seller accused of price discrimination can absolve itself by showing that (1) it offered the low prices to the favored customer in order to match prices offered by rival sellers; (2) it offered the low prices to the favored customer in exchange for marketing or distribution services not offered by other customers; or (3) the preferred customer purchased very large quantities of the seller’s products that afforded the seller economies of scale on these sales, but only if the seller is willing to offer the same unit prices to any other customer that purchases the same or similar quantities.
Also, a favored customer that wrongly induces price discrimination might remain responsible for inducing several sellers to give it preferred prices, even if each seller might be excused on the ground that it merely matched the prices offered by the others.
The above points constitute the necessary essentials of price discrimination. If this article has already proven more dry and less interesting than you first expected, you can safely disregard the remainder. But if you wish to have a deeper understanding of these points, I offer the following discussion below.
Statutory Grounds for Unlawful Price Discrimination Under Federal Law
Under federal law, the offense of unlawful “price discrimination” is governed by the Robinson-Patman Act, which is codified at 15 U.S.C. §§ 13 et seq.
Stated with precision, the federal rule against price discrimination is set forth in the Robinson-Patman Act at 15 U.S.C. § 13(a) and is as follows. (1) A supplier cannot charge different prices, (2) for the same or similar goods, (3) that it sells at around the same time, (4) when making these sales in interstate commerce in the United States to different commercial purchasers, but (5) only if the practice will likely impair or undermine competitive conditions in the seller’s own market or in an affected downstream market. See 15 U.S.C. § 13(a); Feesers, Inc. v. Michael Foods, Inc., 498 F.3d 206, 212 (3rd Cir., 2007). See also Energex Lighting Industries, Inc. v. North American Philips Lighting Corp., 656 F. Supp. 914, 919–20 (S.D.N.Y. 1987) (“Three elements are necessary to state a claim for an actionable violation of the Robinson-Patman Act. Plaintiff must complain that (1) the alleged price discrimination meets the ‘in commerce’ requirement, i.e., that ‘either or any’ of the purchases involved are in commerce; (2) there has been discrimination in price between different purchasers of products of like grade and quality; and (3) the effect of the discrimination ‘may be substantially to lessen competition or tend to create a monopoly.’”) (quoting Hoyt Heater Co. of Northern California v. American Appliance Mfg. Co., 502 F. Supp. 1383, 1386–87 (N.D. Cal. 1980)).
Even then, a seller can avoid liability for unlawful price discrimination by showing that it has offered the lower prices to a favored customer for a procompetitive purpose that on balance justifies the harm caused to competitive processes in affected markets; or that it has offered the lower prices in order to match comparable prices offered by a rival seller; or that it has done so because the favored customer buys such large quantities of its products that it enjoys economies of scale on these sales. See 15 U.S.C. §§ 13(a), 13(b). See also Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 220 (1993) (“By its terms, the Robinson–Patman Act condemns price discrimination only to the extent that it threatens to injure competition. The availability of statutory defenses permitting price discrimination when it is based on differences in costs, changing conditions affecting the market for or the marketability of the goods concerned, or conduct undertaken in good faith to meet an equally low price of a competitor, confirms that Congress did not intend to outlaw price differences that result from or further the forces of competition. Thus, the Robinson–Patman Act should be construed consistently with broader policies of the antitrust laws.”) (internal quotations and citations omitted).
To cut to the chase, either the seller means to run its rivals out of business by its prohibitively lower prices, after which it will establish a monopoly or force its rivals to join a price-fixing cartel (a scenario that is prohibitively difficult to prove); or the seller has made discriminatory sales at lower prices to its largest customer, which is typically a dominant firm, giving it an insuperable advantage over its own rivals in downstream product markets, and the price-differential cannot be justified by economies of scale or other procompetitive responses to market conditions (e.g., a national chain of office-supply products might prevail on its suppliers to offer market-beating prices for their supplies, then use these prices in order to offer its products at prices that its competitors cannot match, thereby establishing an insuperable advantage on prices that it can use to exclude competitors or force them to agree to terms of trade that harm consumers).
This is the stuff of actionable price discrimination. In the modern era it is usually a difficult claim to plead and prove.
The elements of the offense can be listed as follows: There must be (1) commercial price discrimination, – i.e., a commercial supplier must charge differing prices for the same or similar goods when selling them at around the same time to its favored and disfavored commercial customers; (2) the practice must entail a reasonable probability or likelihood of harm to competition in at least one affected market; (3) the practice must concern interstate transactions; and, lastly, (4) the supplier must lack a procompetitive justification for the practice, such as economies of scale on large sales, discounts in exchange for marketing or distribution services, or the mere matching of prices offered by a rival seller.
Unlawful Inducement of Price Discrimination
Under specific circumstances, it is unlawful to induce unlawful price discrimination. The rule against inducing price discrimination is set forth in the Robinson-Patman Act at 15 U.S.C. § 13(f). According to the Supreme Court, this rule does not prevent a buyer from negotiating the most favorable possible prices for its supplies, unless it obtains these prices precisely in order to prevent its competitors from competing against it in one or more affected markets. Thus a commercial customer commits an antitrust offense only if it induces its supplier to give discriminatory prices that it correctly anticipates will disrupt competitive processes in secondary or tertiary markets. See 15 U.S.C. § 13(f). See also Automatic Canteen Co. of Am. v. Fed. Trade Comm’n, 346 U.S. 61, 71 (1953) (“[The statutory ban on inducing unlawful price discrimination] does not reach all cases of buyer receipt of a prohibited discrimination in prices. It limits itself to cases of knowing receipt of such prices.”).
This rule is aimed at dominant buyers that would otherwise prevail on their suppliers to give them market-beating prices on a wide range of products, leaving their competitors unable to compete with them in an ever larger number of markets. But the rule also illustrates the difficulty of enforcing the price discrimination statutes in furtherance of the stated aim of antitrust law, which is to promote competition on the merits and prevent anticompetitive cartels and monopolies from suffocating or sabotaging competition.
After all, a business that seeks market-beating prices would seem to be engaged in the very kind of procompetitive activity that the antitrust laws are supposed to protect and champion. But the anticompetitive danger arises when a small number of dominant buyers in each market prevail on their suppliers to give them price advantages that are ruinous to any would-be rival, so that over time the dominant buyer in each market can exclude most or all of its rivals.
To ensure that the price discrimination statutes are not used to punish businesses whose only offense is that they have successfully negotiated better prices for their supplies, the rule against inducing price discrimination applies only when the buyer, typically a dominant firm, has prevailed on a supplier to give it prices that it knows will likely undermine competitive processes in the buyer’s markets. See 15 U.S.C. § 13(f). See also Automatic Canteen Co. of Am. v. Fed. Trade Comm’n, 346 U.S. 61, 71 (1953).
Even so, this rule has troubling implications, as it could be used to discourage firms from using commercial acumen to obtain low prices for necessary products. The rule against inducement should therefore be invoked only when the price discrimination is blatant, cannot be justified by a procompetitive rationale, and clearly undermines competition on the merits by allowing the dominant buyer to undersell its rivals until they are ruined.
The Principal Purpose of the Price-Discrimination Laws: Curbing Abuses by Dominant Buyers
Although it is problematic (see above), the rule against inducing price discrimination is intended to further a key if not the principal aim of the law on price discrimination, which is to protect smaller competitors from the excessive market power of a dominant purchaser. Otherwise, the dominant purchaser could use its purchasing power to oblige suppliers to give it better prices that it could then use to undersell and thereby ruin its direct competitors. The disfavored customers would find themselves unable to compete on price against the favored customer, and over time they would go out of business or accept anticompetitive terms of trade proposed by the dominant customer. See F.T.C. v. Fred Meyer, Inc., 390 U.S. 341, 349 (1968) (“[T]he Robinson-Patman Act was enacted in 1936 to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power.”) (internal quotation omitted); F.T.C. v. Henry Broch & Company, 363 U.S. 166, 168–69 (1960) (“The Robinson-Patman Act was enacted in 1936 to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power.”); Innomed Labs, LLC v. Alza Corp., 2002 WL 31521084, *3 (S.D.N.Y. 2002) (“[The Robinson-Patman Act] was intended, in part, to protect small competitors from discriminatory pricing in favor of larger purchasers, who would have the power to impose higher prices with their stronger brand names.”) (citing Abbott Labs. v. Portland Retail Druggists Ass’n, Inc., 425 U.S. 1, 11 (1976)); Lupia v. Stella D’Oro Biscuit Co., Inc., 586 F.2d 1163, 1170 (7th Cir. 1978) (“Section 2(c) [of the Robinson-Patman Act] was enacted in order to prevent discriminatory rebates granted large sellers under the guise of ‘brokerage fees’ never actually earned.”); Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164, 175 (2006) (By enacting the Robinson-Patman Act, “Congress sought to target the perceived harm to competition occasioned by powerful buyers….”).
Unlawful Price Discrimination, Doctrine Stated in Full
Here is a full statement of the doctrine from a recent decision rendered by a United States Court of Appeal:
[I]n order to prove a violation of section 2(a) of the Robinson–Patman Act, a plaintiff must show (1) that sales were made to two different purchasers in interstate commerce; (2) that the product sold was of the same grade and quality; (3) that defendant discriminated in price as between the two purchasers; and (4) that the discrimination had a prohibited effect on competition.
Feesers, Inc. v. Michael Foods, Inc., 498 F.3d 206, 212 (3rd Cir. 2007). See also Energex Lighting Industries, Inc. v. North American Philips Lighting Corp., 656 F. Supp. 914, 919–20 (S.D.N.Y. 1987) (“Three elements are necessary to state a claim for an actionable violation of the Robinson-Patman Act. Plaintiff must complain that (1) the alleged price discrimination meets the ‘in commerce’ requirement, i.e., that ‘either or any’ of the purchases involved are in commerce; (2) there has been discrimination in price between different purchasers of products of like grade and quality; and (3) the effect of the discrimination ‘may be substantially to lessen competition or tend to create a monopoly.’”) (quoting Hoyt Heater Co. of Northern California v. American Appliance Mfg. Co., 502 F. Supp. 1383, 1386–87 (N.D. Cal., 1980)).
The Requirement of Sales to Commercial Purchasers In Competition With One Another
In the typical case, which is for so-called “secondary line competitive injury,” price discrimination becomes an offense only when the supplier makes its sales at around the same time to commercial purchasers that are in direct competition with one another, or, alternatively, in “tertiary line cases,” when one of the commercial purchasers or its customers are in direct competition with the customers of the other (e.g., a manufacturer sells the same widgets at different prices to two different widget distributors, and the favored distributor also re-sells widgets at retail in direct competition with the retail customers of the disfavored distributor). See Bel Air Markets v. Foremost Dairies, Inc., 55 F.R.D. 538, 540–41 (N.D. Cal., 1972) (“One essential element of a price discrimination case is that there exist competition between the favored customer and the disfavored customer.”). See generally Volvo Trucks, 546 U.S. at 176–177 (“Our decisions describe three categories of competitive injury that may give rise to a Robinson–Patman Act claim: primary line, secondary line, and tertiary line. Primary-line cases entail conduct – most conspicuously, predatory pricing – that injures competition at the level of the discriminating seller and its direct competitors. Secondary-line cases … involve price discrimination that injures competition among the discriminating seller’s customers…. Tertiary-line cases involve injury to competition at the level of the purchaser’s customers.”); Conoco Inc. v. Inman Oil Co., Inc., 774 F.2d 895, 902–03 (8th Cir. 1985) (“The [Robinson-Patman Act] is concerned with the protection of competition on three levels: (1) competition with the seller who granted the discriminatory prices (primary line); (2) competition with the seller’s purchaser who received the favorable lower price (secondary line); and (3) competition with a customer of the favored purchaser (tertiary line).”). See, e.g., Texaco Inc. v. Hasbrouck, 496 U.S. 543, 556 (1990) (price-discrimination case in which defendant supplier provided better prices to distributor that re-sold at retail than it did to retail customers).
The Requirement of Contemporaneous Sales
Moreover, the sales at differing prices must be made at approximately the same time. See Rutledge v. Elec. Hose & Rubber Co., 327 F. Supp. 1267, 1275 (C.D. Cal. 1971) (“[P]roof of a violation of [the Robinson-Patman Act] must consist of groups of two or more contemporaneous sales which, when compared, permit the drawing of an inference of price discrimination. The sales should be contemporaneous to eliminate the possibility that their differences are caused by market fluctuations ordinarily happening during an extended time interval between sales.”).
The Requirement of Injury to Competition
Crucially, price discrimination occurs only where the practice gives rise to a “substantial possibility” or “reasonable probability” of ‘injury to competition” – which must occur in the seller’s market (“primary-line harm”), or in a secondary or tertiary market, as explained above. See Conoco, 774 F.2d at 902–903.
Significantly, “injury to competition” under the Robinson-Patman Act is easier to prove than is “harm to competition” under Sections 1 and 2 of the Sherman Act. For purposes of showing unlawful price discrimination, “injury to competition” is established upon a showing of the following matters: (1) The supplier has been charging the disfavored commercial customers comparatively higher prices than those it has been charging its favored commercial customer for the same or similar goods sold at around the same time; (2) the sales were made in interstate commerce in the United States, and the favored and disfavored customers are commercial purchasers that directly compete against one another or against the customers of one or the other; (3) the defendant seller has engaged in the challenged price discrimination over an extended period, and (4) the consequence is that the disfavored customers have lost sales and profits to the favored customer, and the sales in question constitute a significant part of overall sales in the market in question. Indeed, proving the first three of these three points gives rise to a rebuttable inference of the last point. See, e.g., Volvo Trucks, 546 U.S. at 177 (“A hallmark of the requisite competitive injury, our decisions indicate, is the diversion of sales or profits from a disfavored purchaser to a favored purchaser. We have also recognized that a permissible inference of competitive injury may arise from evidence that a favored competitor received a significant price reduction over a substantial period of time.”) (citing FTC v. Sun Oil Co., 371 U.S. 505, 518–519 (1963); Morton Salt Co., 334 U.S. at 49–51; Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 435 (1983) (“[I]njury to competition is established prima facie by proof of a substantial price discrimination between competing purchasers over time. In the absence of direct evidence of displaced sales, this inference may be overcome by evidence breaking the causal connection between a price differential and lost sales or profits.”)
Even so, modern antitrust jurisprudence disfavors a claim of price discrimination that depends solely on a showing that the favored customer received better prices over time. For practical purposes, it is now necessary to demonstrate by empirical evidence that the effect of the price discrimination has been to allow the favored customer to gain sales at the expense of its competitors, a substantial percentage of whom have therefore ceased to compete for future sales in the affected market. I address this point more fully immediately below.
The Prices at Issue are the Actual Prices Paid, Net of Discounts, Rebates or Other Offsets
Significantly, the prices to the favored customer are calculated according to the net price actually paid, which expressly means (1) the list price, less (2) any applicable discount, rebate or other offset, however characterized. See 15 U.S.C. § 13a. See also Checker Motors Corp. v. Chrysler Corp., 283 F. Supp. 876, 887 (D.C.N.Y., 1968) (“[A] rebate may be violative of the Robinson-Patman Act….”); Diehl & Sons, Inc. v. International Harvester Co., 445 F. Supp. 282, 286 (D.C.N.Y. 1978) (“The generally accepted rule is that ‘price’ for purposes of [the Robinson-Patman Act] means the amount actually paid by the purchaser, that is, the quoted invoice price less any discounts, offsets or allowances afforded the purchaser and not otherwise reflected in the invoice price.”); Kapiolani Motors, Limited v. General Motors Corp., 337 F. Supp. 102, 104 (D. Haw. 1972) (“In calculating the price a buyer actually pays, the courts deduct from the base price or invoice price the amount or value of any discounts or offsets knowingly granted to a buyer…. Discounts and offsets which have been held violative of [the Robinson-Patman Act] usually involve (1) quantity discounts, (2) cash discounts based on time or mode of payment or ‘off the top’, or (3) rebates, all knowingly given by the supplier. All such obviously affect the ‘price’ and were clearly in the mind of Congress when they enacted the Robinson-Patman Act.”)
The Requirement of Like Commodities
In addition, the goods sold must be the same or similar, but this requirement is met if the purchasers of the goods use them as inputs or resell them in order to fulfill the same function. See Lubbock Glass & Mirror Co. v. Pittsburgh Plate Glass Co., 313 F. Supp. 1184, 1187 (N.D. Tex. 1970) (“These requirements of ‘like grade and quality’ [in the Robinson-Patman Act] mean that commodities must have similar characteristics before a charge of price discrimination under the Act can be maintained. Actual and genuine differences between products generally remove differential pricing of the two from the reach of the Robinson-Patman Act.”); McWhirter v. Monroe Calculating Mach. Co., 76 F. Supp. 456, 461 (D.C. Mo. 1948) (where two different kinds of calculators perform the same function and are competitively priced with one another, they are deemed ‘like commodities’ for the purposes of the Robinson-Patman Act).
Narrow Application in Modern Jurisprudence
In recent times, the courts have impliedly imposed a more demanding standard for proving “injury to competition” that is sufficient to establish a claim for price discrimination. That is, the Courts have not expressly established a new, more exacting standard, but in their dicta have suggested that a claim for price discrimination cannot succeed unless the plaintiff makes a sufficient showing of a substantial lessening of competition because of the challenged price discrimination. The plaintiff’s own loss of sales to the favored customer will suffice only if the plaintiff was formerly a major competitor whose effectual exclusion from an affected market has the effect of substantially lessening overall competition in the market. Alternatively, a group or class of plaintiffs can prevail by showing that their cumulative exclusion accounts for a substantial lessening of competition in at least one affected market. See Brooke Group, 509 U.S. at 220 (“By its terms, the Robinson–Patman Act condemns price discrimination only to the extent that it threatens to injure competition. The availability of statutory defenses permitting price discrimination when it is based on differences in costs, changing conditions affecting the market for or the marketability of the goods concerned, or conduct undertaken in good faith to meet an equally low price of a competitor, confirms that Congress did not intend to outlaw price differences that result from or further the forces of competition. Thus, the Robinson–Patman Act should be construed consistently with broader policies of the antitrust laws.”) (internal quotations and citations omitted); Volvo Trucks, 546 U.S. at 176-81, 126 S.Ct. at 870-73 (“Robinson–Patman does not ban all price differences charged to different purchasers of commodities of like grade and quality; rather, the Act proscribes price discrimination only to the extent that it threatens to injure competition…. Interbrand competition, our opinions affirm, is the primary concern of antitrust law. The Robinson–Patman Act signals no large departure from that main concern….[W]e would resist interpretation geared more to the protection of existing competitors than to the stimulation of competition….”).
FTC Proceedings, Injunctive Relief, Treble Damages, and Criminal Penalties
Although disfavored and narrowly enforced, the price-discrimination statutes remain standing law and are enforced as follows:
FTC Proceedings. The FTC can conduct administrative proceedings, which entail lengthy investigations, hearings, and, if warranted, injunctive relief and civil penalties. See Sperry & Hutchinson, 405 U.S. at 235–236.
Private Injunctive Relief. A private plaintiff can seek an injunction and attorney’s fees under 15 U.S.C. § 26 that forbids the defendants to continue practicing the challenged price discrimination. See Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 637 F.2d 105, 119 (3rd Cir. 1980) (“A plaintiff seeking either injunctive or damage relief under the Robinson-Patman Act must demonstrate that the defendant has discriminated in price against the plaintiff and in favor of at least one of the plaintiff’s competitors. It also must prove that the discrimination may substantially lessen competition.”) (internal quotation omitted).
Treble Damages. In addition, a private plaintiff can bring suit under 15 U.S.C. § 15 to seek treble damages and attorney’s fees for the challenged price discrimination (and can seek both treble damages and injunctive relief in the same lawsuit). See Innomed Labs, 368 F.3d at 163–64 (“In order to establish that a violation of the Robinson-Patman Act warrants an award of treble damages, the plaintiff must establish that it has suffered actual economic injury as a result of the defendant’s conduct.”) In such a case, the measure of a plaintiff’s damages are the lost profits that it can attribute to the price discrimination. See id. (“A plaintiff may establish economic injury by showing that its ability to compete has been harmed by the price discrimination; for instance, if the plaintiff distributor must charge higher prices than the favored distributors in order to cover its higher costs, and loses sales and profits as a result, then the plaintiff has suffered antitrust injury.”) These damages, if awarded, must then be trebled under 15 U.S.C. § 15. See Volvo Trucks, 546 U.S. at 176 (“Pursuant to § 4 of the Clayton Act [15 U.S.C. § 15], a private plaintiff may recover threefold for actual injury sustained as a result of a violation of the Robinson–Patman Act.”) (citing 15 U.S.C. § 15(a); J. Truett Payne, 451 U.S. at 562.
Attorney’s Fees. If the plaintiff prevails on a claim for injunctive relief or treble damages, it is entitled as a matter of law to recover its attorney’s fees (under 15 U.S.C. § 15 on a claim for treble damages, and under 15 U.S.C. § 26 on a claim for injunctive relief). Significantly, the defendant, even if successful, cannot recover its own attorney’s fees, save where the plaintiff’s case was sanctionably frivolous. See Syufy Enterprises v. Am. Multicinema, Inc., 602 F. Supp. 1466, 1472 (N.D. Cal. 1983) (an antitrust defendant can recover its attorney’s fees after prevailing in an antitrust case, but only if the plaintiff’s claims “clearly were [] so lacking in merit as to constitute an abuse of the processes of the court.”)
Criminal Prosecution. In rare cases, the Antitrust Division of the United States Department of Justice theoretically can prosecute criminal claims for unlawful price discrimination. See 15 U.S.C. § 13a (imposes criminal penalties for price discrimination). In practice, the offense is not prosecuted as a criminal offense, nor should you hold your breath until the Department of Justice announces its next indictment for felony price discrimination. I was able to find one case in which the defendant was convicted of both felony price discrimination and felony price-fixing. Price-fixing is criminally prosecuted on a routine basis, and in this one instance the prosecutor apparently added a count for price discrimination, and thereafter obtained convictions against the defendant for both offenses. Even so, this one felony conviction for price discrimination in the books was vacated by the United States Supreme Court because the prosecutor failed to observe his disclosure obligations. See Nat’l Dairy Products Corp. v. United States, 350 F.2d 321, 323 (8th Cir. 1965) vacated, 384 U.S. 883 (1966). I am unaware of any other case in which any federal prosecutor sought a criminal indictment for price discrimination. On the contrary, the Antitrust Division of the U.S. Department of Justice has publicly confirmed that it does not treat alleged price discrimination as a criminal matter.
Statutory Affirmative Defenses
Even if a plaintiff or the FTC can establish a prima facie case of price discrimination, a supplier can defeat the charges by showing either of the following facts: (1) its lower prices were justified by economies of scale attained when filling large orders; or (2) it offered lower prices to meet prices offered by a direct competitor. See 15 U.S.C. § 13(b). See also Texaco, 496 U.S. at 556 (“[The Robinson-Patman Act] does contain two affirmative defenses that provide protection for two categories of discounts – those that are justified by savings in the seller’s cost of manufacture, delivery, or sale, and those that represent a good-faith response to the equally low prices of a competitor.”)
Also, a supplier can defend its price discrimination by showing that it offers discounts to favored customers in exchange for their marketing or distribution services, but the discount must approximate the fair-market value of the services.
California’s Expansive Law Against Price Discrimination
California has its own laws on unlawful price discrimination, which seem to be seldom used by litigants, even though they are broader in reach and enforced more expansively than are their federal counterparts. These laws are codified in California’s Unfair Practices Act (Cal. Bus. & Prof. Code, §§ 17000–17101). They prohibit the following kinds of price discrimination: (1) predatory pricing, by which a seller undermines its direct competitors in one or more locales; and (2) secret, unjustified price advantages, which a seller gives to one or more of its favored commercial customers, but withholds from one or more disfavored commercial customers; but only if in consequence (a) one or more of the favored customers divert sales from one or more of the disfavored customers, and (b) competition among such customers is either harmed or likely to be harmed if the practice persists.[2]This article provide a complete explanation of California’s law on unlawful price discrimiation.
California’s Unfair Practices Act also reaches customers and other market participants that induce or coerce sellers to commit a violation of the above prohibitions. It also decrees null and void any contract that memorializes or accomplishes any such violation. By statutory decree and subsequent case-law decisions, this Act must be construed “liberally” and enforced expansively. See Cal. Bus. & Prof. Code, § 17002 (“This chapter shall be liberally construed that its beneficial purposes may be subserved.”); see also ABC Int’l Traders, Inc. v. Matsushita Elec. Corp., 14 Cal. 4th 1247, 1256 (1997) (“That it might have a better chance of success, the Legislature specifically directed that the [Unfair Practices Act’s] provisions ‘shall be liberally construed that its beneficial purposes may be subserved.'”) (quoting Cal. Bus. & Prof. Code, § 17002.).
California’s Law of Price Discrimination Reaches the Sale of Most Kinds of Services. California’s Unfair Practices Act reaches the sale of not only of goods, but also most kinds of services, excluding only the distribution of motion pictures for exhibition and the sale of utility services that are typically regulated by California’s Public Utilities Commission providers (e.g., electricity, municipal water, etc.). See Cal. Bus. & Prof. Code, § 17024. There are also specific technical requirements that concern price discrimination in retail sales of cellphones (Cal. Bus. & Prof. Code, § 17026.1) and sales of cigarettes to wholesale distributors (Cal. Bus. & Prof. Code, § 17026.5).
California’s Civil Remedies for Unlawful Price Discrimination. A plaintiff’s remedies under the Unfair Practices Act are the same as they are under federal law. A prevailing plaintiff is entitled to recover treble damages and attorney’s fees, and upon proper showings it can also obtain expansive injunctive relief (both temporary and permanent). See Cal. Bus. & Prof. Code, § 17070 (compensatory damages and injunctive relief), § 17082 (mandatory treble damages and mandatory fee award), §§ 17079–81 (injunctive relief).
California’s Criminal Penalties for Unlawful Price Discrimination. California’s Unfair Practices Act includes criminal penalties that a public prosecutor can seek upon obtaining a criminal conviction for a violation of the Act. Namely, each violation of the Act constitutes a criminal misdemeanor, for which the defendant can be punished by a fine of $100 to $1,000 per violation, as well as incarceration for six months for each violation. See Cal. Bus. & Prof. Code, § 17100. The author of this article is unaware of any case in which a defendant was criminally prosecuted for any such violation.
Predatory Pricing Remains Unlawful under California’s Law of Price Discrimination. The classical antitrust offense of predatory pricing was originally targeted by section 2 of the federal Clayton Act (15 U.S.C. § 13), but in modern times the Supreme Court has imposed evidentiary requirements for such a claim that have rendered it all but impossible to prove, as is explained above. But this offense, as originally understood, remains flatly unlawful under California law. Those who engage in commerce in California should take notice.
Specifically, section 17040 of the Unfair Practices Act forbids a seller to injure a direct competitor by a “locality discrimination,” which occurs when a seller charges lower net prices in one location than it does in others and specifically does so to drive its rivals out of the local market. See Cal. Bus. & Prof. Code, §§ 17031, 17040, 17049; see also Wholesale Tobacco Dealers Bureau of S. California v. Nat’l Candy & Tobacco Co., 11 Cal. 2d 634, 655 (1938) (“[Section 17040] merely fixes a level below which the producer or distributor may not sell with intent to injure a competitor. In all other respects price is the result of untrammelled discretion.”); G.H.I.I. v. MTS, Inc., 147 Cal. App. 3d 256, 274 (Cal. Ct. App. 1983) (“[A]ppellants and respondents are in fact ‘primary competitors,’ and the complaint alleges that sales were made by respondents at different prices in the San Francisco area than in other locations with the intent to eliminate competition provided by other retailers such as appellant. We think this is precisely the kind of action contemplated by section 17040….”).
In addition, section 17043 of the Unfair Practices Act forbids a seller to sell products below its own costs if its purpose for doing so is to injure a direct competitor. See Cal. Bus. & Prof. Code, § 17043 (“It is unlawful for any person engaged in business within this State to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition.”). The seller’s anticompetitive purpose can be inferred from the mere fact that it has sold a product below its own costs and thereby diverted sales from a direct competitor. See Cal. Bus. & Prof. Code, § 17071 (“[P]roof of one or more acts of selling or giving away any article or product below cost or at discriminatory prices, together with proof of the injurious effect of such acts, is presumptive evidence of the purpose or intent to injure competitors or destroy competition.”).
Indeed, sections 17030 and 17044 of the Unfair Practices Act expressly clarify that a seller cannot use “loss leaders” (products sold at prices lower than the seller’s own costs) in order to “divert trade from or otherwise injure competitors.” See Cal. Bus & Prof. Code, §§ 17030, 17044.
Under California law, it suffices to show that the defendant lowered its prices below its own costs with the intent of driving one or more competitors out of business. If a direct competitor thereby lost sales to the defendant, it has a tenable claim for predatory pricing. Unlike the federal standard, California law imposes no requirement that the harmed competitor also show that the defendant can and likely will impose “supracompetitive” pricing with impunity after driving substantially all of its competitors from a given market by its predatory pricing. That is a critically important distinction, which was summarized as follows in one of the leading decisions on the matter.
The defendant’s ability to recoup losses is unnecessary to the dual objectives of preventing unfair trade practices and protecting comparatively smaller enterprises from predatory pricing schemes of larger competitors. Thus, California and federal cases have recognized that [California’s Unfair Practices Act] in many respects does not mirror federal predatory pricing law. Defendant’s reliance on federal law fails to acknowledge the significant differences between the language of the Sherman Act, the federal antitrust statute prohibiting predatory below-cost pricing, and its state counterpart, section 17043 of the UPA. It has been observed that the UPA, in contrast to the federal antitrust statutes, is precisely drawn to eliminate defined commercial practices such as predatory pricing. Therefore, changing judicial perspectives on antitrust enforcement have far less influence on the development of California predatory pricing law than on the development of the federal counterparts.
See Bay Guardian Co. v. New Times Media LLC, 187 Cal. App. 4th 438, 457–58 (2010) (internal quotations and citations omitted).
Predatory pricing can therefore be challenged and stopped under California law.
Secondary-Line and Tertiary-Line Price Discrimination under California Law. Section 17045 of California’s Unfair Practices Act prohibits the following kinds of discounts, rebates, and other pricing advantages: those that the seller secretly gives to one or more favored commercial customers, but withholds from one or more disfavored commercial customers; but only if (1) the secret advantage afforded to the favored customer is “unearned” or not made available on proportional terms to the unfavored customer; (2) by exploiting this secret advantage, one or more favored customers successfully divert sales from one or more disfavored customers or from customers of the disfavored customer(s); and (3) the secret pricing advantage harms or tends to harm competition between such customers. See Cal. Bus. & Prof. Code, § 17045; see also ABC Int’l Traders, Inc. v. Matsushita Elec. Corp., 14 Cal. 4th 1247, 1252 (1997) (“[Section 170345] prohibits a seller from secretly allowing a purchaser special ‘unearned discounts’ that injure ‘a competitor’ and tend to destroy ‘competition.’… [A] disfavored buyer adequately plead[s] a cause of action against a seller for violation of section 17045 by alleging the seller’s secret discrimination injured the buyer and tended to destroy competition among buyers….”).
Section 17045 is therefore closely similar to secondary-line and tertiary-line price discrimination of the kind prohibited by the Robinson-Patman Act, except that it reaches the sale of most kinds of services and has been interpreted and enforced much more expansively in the modern era.
Specifically, Section 17045 establishes the following prohibition:
The secret payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the form of money or otherwise, or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions, to the injury of a competitor and where such payment or allowance tends to destroy competition, is unlawful.
California Business & Professions Code, § 17045 (emphasis supplied).
To prevail on a claim under section 17045, a plaintiff must show the following: (1) the seller discriminated in favor of a favored commercial customer by secretly giving it lower net prices or other pricing advantages that it withheld from a disfavored customer; (2) in consequence, the disfavored customer lost sales to the favored customer and was thereby “harmed”; and (3) in consequence, competition among commercial buyers of the at-issue products or services was either harmed or tended to be harmed. See ABC Int’l Traders, Inc. v. Matsushita Elec. Corp., 14 Cal. 4th 1247, 1252 (1997) (to plead a violation of section 17045, a “disfavored buyer” must allege that (1) it was harmed by “the seller’s secret discrimination” against it; and (2) its own harm tended to destroy competition among commercial buyers of the same or like products); Fisherman’s Wharf Bay Cruise Corp. v. Superior Ct. of San Francisco,114 Cal. App. 4th 309, 331 (2003) (“Violation [of Section 17045] requires proof that payments were, in fact, secret and discriminated among customers of the entity granting the rebates.”); Chicago Title Ins. Co. v. Great W. Fin. Corp., 69 Cal. 2d 305, 323 (1968) (a violation of section 17045 requires a showing that “the prices charged by [the seller] differ from customer to customer”).
Broadly speaking, the California courts have enforced Section 17045 and related provisions of the Unfair Practices Act by adopting some, but not all of the legal standards used by the federal courts when deciding claims under the Robinson-Patman Act. Compare 15 U.S.C. §§ 13, 13a and 13b with Cal. Bus. & Prof. Code §§ 17000–17096. See generally ABC International Traders, Inc. v. Matsushita Electric Corp., 14 Cal.4th 1247, 125664 (1997) (extended discussion of the history, purpose, and reach of California’s Unfair Practices Act); Harris v. Capitol Records Distributing Corp., 64 Cal.2d 454, 459 (1966) (discussion of the differences between the Robinson-Patman Act and California’s prohibition of certain kinds of price discrimination under the Unfair Practices Act).
In sum, California law prohibits classical predatory pricing (primary-line price discrimination) as well as a broad category of secondary-line and tertiary-line price discrimination (namely, unjustified price advantages secretly given to one or more favored customers that harm one or more disfavored customers and thereby harm or tend to harm competition among such customers). These prohibitions govern sales of goods and most kinds of services, but do not reach the distribution of motion pictures for exhibition or regulated utilities. There are also minor, technical qualifications that concern retail sales of cellphones and sales to cigarette wholesalers.
Affirmative Defenses under California’s Unfair Practices Act. The Unfair Practices Act expressly establishes affirmative defenses that are the same or closely similar to those codified in the Robinson-Patman Act.
Specifically, section 17040 exempts from its reach any low price in a particular locale that a seller sets merely to meet a competitor’s price in that market. See also Cal. Bus. & Prof. Code, § 17050(d)–(e). Also, section 17041 exempts a seller from liability when the seller shows that its lower per-unit prices in a given locale or to a preferred customer are “justified” by a demonstrable commercial efficiency—”the cost of manufacture, sale or delivery” of each unit sold. Also, section 17042 of the Act authorizes a seller to charge lower per-unit prices to a distinct category or type of commercial customer that demonstrably performs certain “functions” for the seller, such as wholesale distribution, logistics, product promotion, or like matters.
Conclusion
The above points lead me to draw the following conclusions.
First, your business might usefully seek relief for price discrimination under federal law when it faces the following circumstances: (1) your business purchases raw materials or goods from a supplier that gives better prices or pricing terms to one or more of your competitors; (2) in consequence, one or more favored customers have diverted substantial sales from your business; and (3) this diversion of sales has constituted a substantial percentage of overall sales in your market. Even then, your business must also show that (a) the seller refused to offer you a similar pricing arrangement on “proportional terms”; (b) the seller cannot justify its preferred pricing on the ground of commercial efficiencies available to it only when selling to its favored customers; and (c) the seller cannot justify its preferred pricing on the ground that it has merely matched a rival seller’s pricing. Under the modern federal standards, then, unlawful price discrimination is usually a difficult claim to prove and is usually best asserted alongside other, related antitrust claims, such as restraint of trade.
Second, in the modern era a federal claim for price discrimination can be tenable or even compelling under specific circumstances, but such claims are typically disfavored, vulnerable to challenge on a variety of technical grounds, and deemed “problematic” by many judges and antitrust commentators. From 2021 to 2024, however, the FTC resumed its investigation and prosecution of claims for unlawful price discrimination, and in recent years some courts began to afford more lenient treatment of these claims. In this author’s view, federal claims for price discrimination are often viable when brought by a commercial customer that faces ruin because of an obvious, indefensible instance of price discrimination that appears calculated to destroy competition in downstream markets. Such secondary-line and tertiary-line price discrimination can still be effectively challenged under modern federal standards. Indeed, some commercial customers might have no choice other than to exit a market or assert this kind of claim and seek corresponding relief.
Third, California’s laws on price discrimination offer greater relief for claims that are limited to California’s own commerce. Unlike their federal counterparts, these laws expansively enforced. A plaintiff who prevails on a claim for price discrimination under California law becomes entitled to treble damages and attorney’s fees and can also obtain effectual injunctive relief.
Fourth, California’s laws on price discrimination permit your business to challenge a direct competitor’s predatory pricing without any need to prove recoupment (which, practically speaking, has been impossible to prove in actual federal cases). If a direct competitor has run you out of a market by selling at prices lower than its own costs, you have a strong claim against it under California’s Unfair Practices Act.
Fifth, California’s laws also permit your business to challenge secondary-line and tertiary-line price discrimination accomplished by secret price advantages. To this end, you must show that a seller has given secret pricing advantages to a favored commercial customer but not to your business, which in consequence has lost sales to the favored customer. You must also show that the practice tends to harm competition, but this showing is reviewed under a relaxed standard.
Sixth, when bringing or opposing a claim for price discrimination under California law, litigants should bear in mind that the California courts have adopted a broad definition of “harm to competition,” deeming it to occur even when the challenged practices do not lead to a market-wide increase in prices or a reduction in output. It suffices under California law to show that the challenged practices are calculated and likely to suppress competitors and thereby lessen or eliminate consumer choice. See Lloyd Design Corp. v. Mercedes Benz of North America, Inc., 66 Cal. App.4th 716, 721 (1998) (California’s antitrust laws broadly condemn business practices that serve no purpose other than the “suppression of competition” since such practices “deny competitors free access to the market” and “[a]t the same time buyers are forced to forego their free choice between competing products.”).
Seventh, a defendant has many protections against liability for price discrimination, but they are not assured of success in every case.
Eighth, most substantial sellers should confer with antitrust counsel from time to time to ensure that their pricing policies do not run afoul of the price discrimination laws.
I hope that this article is useful to those who are interested in this topic. For your immediate reference, you will find below the key statutory provisions of the Robinson-Patman Act, which is the federal law that governs unlawful price discrimination.
(William Markham, ©2013–2025).
Appendix: The Applicable Statutes
The Robinson-Patman Act of 1936 established the current federal offense of unlawful price discrimination. This Act modified the Clayton Act and is codified at 15 U.S.C. §§ 13 et seq. Here are its key excerpts, quoted verbatim:
15 U.S.C. § 13(a): Price; selection of customers
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 … 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 competition 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 differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered…. 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, obsolescence of seasonal goods, distress sales under court process, or sales in good faith in discontinuance of business in the goods concerned.
15 U.S.C. § 13(b): Burden of rebutting prima-facie case of discrimination
Upon proof being made, at any hearing on a complaint under this section, that there has been discrimination in price or services or facilities furnished, the burden of rebutting the prima-facie case thus made by showing justification shall be upon the person charged with a violation of this section…. Provided, however, That nothing herein contained shall prevent a seller rebutting the prima-facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor….
15 U.S.C. § 13(f): Knowingly inducing or receiving discriminatory price
It shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section.
15 U.S.C. § 13a: Discrimination in rebates, discounts, or advertising service charges; underselling in particular localities; penalties
It shall be unlawful for any person engaged in commerce, in the course of such commerce, to be a party to … any transaction of sale … which discriminates to his knowledge against competitors of the purchaser, in that, any discount, rebate [or] allowance is granted to the purchaser over and above any discount, rebate [or] allowance available at the time of such transaction to said competitors in respect of a sale of goods of like grade, quality, and quantity….
