Functional Discounts After Texaco v. Hasbrouck

Fordham Law Review Volume 59 | Issue 5 Article 4 1991 Functional Discounts After Texaco v. Hasbrouck Richard M. Steuer Recommended Citation Richard M. Steuer, Functional Discounts After Texaco v. Hasbrouck, 59 Fordham L. Rev. 791 (1991). Available at: http://ir.lawnet.fordham.edu/flr/vol59/iss5/4 This Article is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Law Review by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact . 1991] ANTITRUST REVIEW The fact that the ARCO conspiracy was vertical while the Trial Lawyers case involved a horizontal arrangement is insignificant. As Justice Stevens points out in hisARCO dissent, the result inARCO should be the same if the conspiracy not to charge more than a specified maximum price were horizontal among all of the ARCO dealers and not vertically imposed by their common supplier."0 5 In either case, the competitive injury, or absence thereof, would be the same, and thus they should receive the same treatment from the law. Indeed, Justice Brennan's argument that "[l]ow prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition"" 6 applies both to horizontal as well as vertical arrangements. One cannot read ARCO without wondering whether the majority of the Justices really believe that, as a matter of substantive law, the per se rule ought to apply to a vertical maximum price-fixing scheme but are unwilling to come right out and say so by overruling Albrecht. More significantly, the case may signal acceptance by the Court's majority of an antitrust outlook that focuses on consumer welfare as the Alpha and Omega of Sherman-Act concern and permits restraints that are not likely to injure consumers somewhere down the road. There certainly is enough language in the ARCO opinion to support such a conclusion. CONCLUSION It might be good public policy to limit the ambit of per se antitrust doctrine to anticompetitive conduct that is highly likely to injure consumers. And it might be equally good policy to permit underpaid public defenders to use coercive pressure to persuade their governmental customers to raise their rates of pay-particularly when the D.C. Superior Court lawyers, had they been employees of the Legal Aid Society, could have gone on strike without any antitrust concern. In confronting these troubling policy issues, I fear that Trial Lawyers and ARCO have produced results that are difficult to rationalize. Whether that is because the Justices do not have small minds and consistency would have been foolish I leave to the reader. FUNCTIONAL DISCOUNTS AFTER TExAco v HASEROUCK by Richard M. Steuer 1 IN Texaco Inc. v. Hasbrouck, the much-maligned Robinson-Patman Act-that pariah of antitrust---came face to face with the Supreme 105. See id. at 1900 (Stevens, J., dissenting). 106. Id. at 1892. 107. Partner, Kaye, Scholer, Fierman, Hays & Handler, New York. 108. 110 S.Ct. 2535 (1990). The author's law firm represented Texaco before the Supreme Court. FORDHAM LAW REVIEW (Vol. 59 Court for the first time in seven years. In years past, commentators have called for the abolition of this law, terming it, among other things, "obstructive,,,"o "pernicious""o and "perverse. ' '1 The Court's objective in Hasbrouck, however, was confined to correcting a renegade ruling by the Ninth Circuit that jeopardized the continued existence of wholesaling as we know it. To understand the Court's holding, it is essential to understand the import of the Ninth Circuit's later-reversed ruling. Texaco sold gasoline at three price levels in the area of Spokane, Washington in the 1970s. First, it sold directly to independent retailers, including Mr. Hasbrouck, who operated service stations under the Texaco trademark. Second, it sold to Dompier Oil Company, which functioned originally as a wholesaler and later as both a wholesaler and a retailer. Dompier resold to independent retailers operating under the Texaco trademark, and later began reselling directly to the public through stations that it owned and that also were operated under the Texaco trademark. Texaco charged Dompier between 3.95 and 3.65 cents less than the price paid by Hasbrouck and the other independent retailers. 12 Although Dompier operated a small bulk storage facility, the Court found that it usually delivered gasoline directly from Texaco to the retail stations, for which Texaco paid it an additional hauling fee.1 13 The third price level at which Texaco sold gasoline applied to another customer, Gull Oil Company. Gull sold directly to the public through retail service stations operated by third-party contractors under the "Gull" trademark. 14 Texaco charged Gull four to six cents less than the price Hasbrouck paid.115 The Texaco stations supplied by Dompier regularly sold Texaco brand gasoline to the public at lower prices than Hasbrouck and the other Texaco stations that were supplied directly by Texaco. This caught the attention of Mr. Hasbrouck and the other independent retailers, and ultimately that group filed suit. The case was tried before a jury. 16 The plaintiffs demonstrated that Texaco had granted wholesale discounts to 109. Baxter, Vertical Practices- Half Slave, Half Free, 52 Antitrust L.J. 743, 754 (1983). 110. R. Bork, The Antitrust Paradox 382 (1978). 111. R. Posner, Antitrust Law 62 n.35 (1976). See generally ABA Antitrust Section Monograph No. 4, The Robinson-Patman Act: Policy and Law Volume I at 27-37 (1980) (critically examining the Robinson-Patman Act). 112. See Texaco Inc. v. Hasbrouck, 110 S. Ct. 2535, 2539 (1990). 113. See id. at 2540. 114. The stations were owned by third party operators, but Gull retained title to the gasoline until it was sold to the consumer. See id. at 2539. 115. See id. 116. The case actually was tried twice. The first jury found against Texaco, but the district court granted Texaco judgment notwithstanding the verdict on the ground that it was improper to award what amounted to "automatic" damages by simply calculating the amount of the "overcharge" to the dealers. Shortly thereafter, the Supreme Court confirmed the correctness of the district court's analysis in J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 567-68 (1981). The Ninth Circuit overruled the district court's grant of judgment notwithstanding the verdict, but remanded for a new 1991] ANTITRUST REVIEW Dompier and Gull, and asserted that as a consequence they had lost business to the retailers that Dompier and Gull supplied. 1 7 Thejury agreed, and returned a verdict for the plaintiffs that was trebled to $1,349,700. 18 The Ninth Circuit affirmed.' 19 Because the plaintiffs had not drawn any distinction between the wholesale and retail functions of Dompier and Gull, the court focused exclusiv (...truncated)