LEGAL CORNER
Supply Co-op Faces Robinson-Patman Act and Antitrust Liability
Donald A. Frederick
Program Leader/Law, Policy & Governance
USDA Rural Business-Cooperative Service
Fur Breeders Agricultural
Cooperative supplies feed to breeders of fur bearing animals. It has delivery routes that
serve areas with a high concentration of members. The co-op delivers feed to these members
free of charge. Other members must pick up their feed at the co-op's facility.
Two of the cooperative's members, whose ranch
is approximately 80 miles from the nearest delivery route, sued the cooperative. They
asked for an injunction requiring the cooperative to deliver feed to them, claiming that
the policy of delivering feed free of charge to some members but not to others constituted
price discrimination in violation of Section 2(a) of the Clayton Act (as amended by the
Robinson-Patman Act). They also asked for triple damages based on lost profits, litigation
costs, and attorney's fees under Section 4 of the Clayton Antitrust Act.
The cooperative asked the court to dismiss the
litigation on the grounds that the plaintiffs' claims, even if true, didn't allege
anything illegal. A United States District Court Judge in Utah denied the co-op's motion,
holding that the delivery policy could be found to be unlawful price discrimination and a
violation of antitrust law entitling plaintiffs to triple damages and costs. Bell v. Fur
Breeders Agricultural Cooperative, 3 F Supp. 2d 1241 (D. Utah 1998).
Robinson-Patman primer
Federal antitrust and trade
regulation laws do not give the government authority to tell a business what prices to
charge, but they do forbid discrimination among buyers in those prices, under certain
conditions. One element of those laws, Section 2(a) of the Clayton Act as amended by the
Robinson-Patman Act, makes it unlawful for a seller "to discriminate in prices
between different purchasers" of the same products "where the effect of such
discrimination may be to substantially lessen competition ....."15 U.S.C. ' 13(a).
The intent of Section 2(a) is to prevent large
buyers from using their market power to purchase goods at lower costs than their smaller
competitors. Nonetheless, the legal onus is placed on sellers.
Charging a lower price to some buyers is
allowed in some situations, such as to meet an equally low price offered by a competitor
or where the difference in price can be justified by differences in the costs of serving
customers. Fortunately for our purposes, these complex defense issues aren't involved in
the case covered in this article.
The Robinson-Patman Act has not been a major
restraint on cooperatives. The Act specifically provides that paying patronage refunds to
members and other patrons is not price discrimination. 15 U.S.C.'13(b). However, this
decision is a reminder that cooperatives are not totally exempt from Robinson-Patman.
Robinson-Patman Act issues
The court first discussed whether the cooperative's delivery practices
could affect the "price" members paid for feed. It found that "price"
encompassed more than the invoice price. "Price" was de-fined as also including
other terms of sale that allowed some customers to purchase something at a lower overall
cost than other customers. The court determined that the additional cost incurred by the
plaintiffs in picking up their feed could amount to illegal indirect price discrimination.
Next the court looked at whether the
cooperative's delivery policy might result in a substantial reduction in competition. The
court observed that since fur is sold at auction, the cooperative's practice could not
result in a lower price for the plaintiff's products.
However, it said plaintiffs could establish
that the discrimination resulted in lower profits for themselves. The court noted that fur
breeders operate on a relatively low profit margin and the cooperative's delivery policy
provided plaintiffs' competitors with a significant competitive advantage. This, in the
court's mind, was enough to justify an inference of competitive injury.
While the opinion addresses this issue in vague
terms, a footnote is more to the point. Here the judge states, "It seems obvious to
the court that plaintiffs' competitive opportunities may be harmed when it is forced to
incur $16-17,000 dollars in costs to pick up feed that its competitors have delivered at
no cost. This is clearly the type of competitive injury the Robinson-Patman Act was
designed to discourage and prevent."
Thus the judge rejected the cooperative's
motion to dismiss the Robinson-Patman Act charges.
Antitrust issue
Finally, the court addressed
plaintiffs' charge that the cooperative's delivery policy also violates federal antitrust
law, subjecting the co-op to triple damage liability. It reviewed the charges in
plaintiffs' compliant and stated that since it was ruling on the cooperative's motion to
dismiss, it had to construe all allegations in the case in favor of the other party-in
this instance the disgruntled member plaintiffs.
The court concluded that where, as in this
dispute, a cooperative's conduct increases the costs of some customers and those customers
can't raise their prices to recover the cost differences between themselves and other
competitors receiving the same product at a lower cost, the harm to the disadvantaged
customers is something the antitrust laws are designed to prevent. The cooperative's
motion to dismiss the antitrust allegations was also denied.
Implications for cooperatives
While this case involves a
dispute between a cooperative and some of its members, it raises a broader issue. Other
than paying patronage refunds what, if anything, can a supply cooperative offer its
customers as inducements to become members? Is every member-only discount or service a
possible Robinson-Patman and antitrust laws violation?
As for the charges of antitrust law violations,
perhaps they will resurrect interest in whether the Capper-Volstead Act defense to
anticompetitive conduct by agricultural producers covers providing supplies to producers.
Certainly any issue that poses the possibility of triple-damage awards against
cooperatives requires consideration of all possible defenses. 
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