Exclusive Ford showrooms do not violate the Robinson-Patman Act

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On March 1, 2022, a federal judge granted summary judgment in favor of Ford Motor Company (“Ford”), finding that the Ford Brand Exclusivity Standard, which is part of Ford’s Lincoln Commitment Program, does not does not violate the Robinson-Patman Act prohibitions on price discrimination. or discriminatory compensation under Sections 2(a) and (d) of the Robinson-Patman Act, codified at 15 USC § 13(a) and (d). The court ruled that Ford’s program, which pays its Lincoln dealers a percentage of the manufacturer’s suggested retail price for each vehicle sold if the dealership agrees to build (or has already built) a showroom devoted exclusively to Lincoln vehicles, does not constitute a discriminatory rebate or indemnity, nor does such exclusive showroom constitute a “promotional facility” within the meaning of the Robinson-Patman Act.

The trial

A group of Wisconsin Lincoln Ford vehicle dealerships filed suit against Ford in the Western District of Wisconsin in October 2020. See Dahl Automotive Onalaska Inc. d/b/a Dahl Lincoln et al. v Ford Motor Company d/b/a Lincoln Motor Company, no. 20-CV-932-JDP (WD Wis. 6 Oct. 2020). The plaintiffs alleged1 that Ford’s brand exclusivity standard violated the Robinson-Patman Act because it unfairly favored large dealerships over smaller ones, such as the group of complainant-dealers. Under Ford’s program, if a dealer builds a showroom devoted exclusively to Lincoln vehicles (the required size of the showroom based on the dealer’s estimated sales), then the dealer would receive a “payment per vehicle equivalent to 2.75% of the manufacturer’s suggested retail price. the price.

The plaintiffs argued that it would cost them between $2 million and $4 million to build an exhibition hall and that it would take them between 12 and 170 years to offset construction costs under the program, while large dealers could pay for a showroom in less than seven years. In the meantime, according to the plaintiffs, large dealers participating in the program are unfairly benefiting from the ability to use the incentive payment to lower prices and undersell smaller dealers.

decision

The Robinson-Patman Act was enacted to address competitive harm caused by powerful buyers who could obtain lower prices for goods than small buyers. Section 13(a) does this by prohibiting price discrimination between purchasers of like products. Other sections of the Robinson-Patman Act, such as Section 13(d), were later enacted to combat attempts to conceal price discrimination through the provision or payment for support and services. promotional. The court rejected the plaintiffs’ theories under both paragraphs.

Section 13(a) Complaints

First, the court ruled that Ford’s 2.75% incentive payment under the program did not constitute price discrimination within the meaning of Section 13(a). In doing so, the court rejected the plaintiffs’ argument that the incentive payment is really a “discount” or “allowance” that effectively reduces the price a dealer must otherwise pay for the vehicle. Although the analysis of price discrimination “takes[s] taking into account anything that effectively reduces the price, including discounts and allowances,” the court explained that “discounts and allowances are essentially free money that a buyer receives with no corresponding cost or obligation” . Because Ford’s incentive payment is tied to a dealer’s commitment to spend millions of dollars to build an exclusive showroom, the court rejected the idea that it was a rebate or compensation.

The court also found that the plaintiffs failed to show competitive harm. Not persuaded by plaintiffs’ theory that large dealers participating in the program are able to undersell plaintiff-dealers under the 2.75% incentive payment, the court explained that plaintiffs assume that large dealerships receive the incentive payments without incurring any fees. But the court pointed out that participating dealers “either have already built an exclusive multimillion-dollar showroom or are committed to doing so in 2022” and that even the largest dealers would need at least six seven years to repay these construction costs. Although the court observed that the plaintiffs would have a stronger claim if Ford continued to pay bonuses to dealers after recovering their costs, such a claim was premature. The court also noted that Ford’s program runs from year to year and therefore Ford could withdraw the incentive payments whether or not a dealer has realized a return on its investment.

The plaintiffs disagreed, arguing that at least one major dealership already has an exclusive showroom and Ford is giving it bonuses even though the dealership hasn’t incurred any additional capital costs. The court also rejected this argument, stating that “plaintiffs cite no authority to assert that section 13(a) prohibits a seller from partially reimbursing a buyer for costs already incurred by him”. In fact, the court held that if Ford withheld an incentive payment “simply because a dealer had already incurred those costs, that in itself could be considered discriminatory.”

Section 13(d) Complaints

Second, the court held that exclusive showrooms are not “promotional facilities” within the meaning of Section 13(d). According to the court, the crux of the plaintiffs’ argument was that an exclusive showroom is a promotional facility because that is where vehicles are sold. The court explained that the law is not so broad.

Based on the decision of the Seventh Circuit in Woodman’s Food Mkt., Inc. v. Clorox Co.833 F.3d 743 (7th Cir. 2016), which we discussed earlier, as well as the Federal Trade Commission’s interpretative guidance at 16 CFR § 240.7,2 the court explained that subsection 13(d) of the Robinson-Patman Act targets only a narrow category of conduct that Congress has identified as problematic – “the provision of advertising benefits to purchasers as a means to circumvent the subsection 13(a) prohibition on price discrimination. According to the court, it is not enough that an exclusive showroom can help dealers resell vehicles. To find otherwise would expand the application of Section 13(d) far beyond the Seventh Circuit’s view that it is limited to “advertising benefits”.

The court held that the plaintiffs’ interpretation would cause paragraph 13(d) to apply to service departments, warranties, or any other attractive feature of a vehicle, and that the Seventh Circuit had already rejected the argument in Woodman’s that paragraph 13(d) applies to any product attribute that makes the product more desirable. This is consistent with FTC interpretive guidelines. Noting that the FTC’s guidelines “are instructive as to what qualifies as a service or facility under § 13(d)”, the court concluded that a “showroom is unlike any of the on the FTC’s list.

Ultimately, given the narrow interpretation of paragraph 13(d), as well as the fact that the plaintiffs could not identify any case law supporting their position, the court concluded that payments under the Ford did not fall within the scope of Section 13(d) of the Robinson-Patman Act.

Conclusion

In order to be more competitive in the market, manufacturers may require dealers to use exclusive showrooms. If they do, manufacturers may have to compensate or reward dealers for those kinds of investments required for that level of commitment to a brand. Here, the court found that the plaintiffs had failed to demonstrate that Ford’s Lincoln Pledge Program constituted price discrimination because the incentive payment was not a rebate or compensation and the program had no in no way have an effect on competition. The decision is also notable for providing additional guidance on the interpretation of section 13(d) of the Robinson-Patman Act and, in doing so, relies heavily on precedent and interpretive guidance to narrowly interpret the scope of paragraph 13(d).

NOTES:

1 The court also granted summary judgment in favor of Ford and denied plaintiffs’ claims under Wisconsin’s Automobile Dealers Act and the Uniform Commerce Code’s duty of good faith and fair dealing.

2 These are also known as the Fred Meyer Guidelines, which are the FTC’s guides to advertising allowances and other merchandising payments and services. To see 79 Fed. Reg. 58245-01 (FTC 29 Sept. 2014) (codified 16 CFR Part 240).

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