U.S. Supreme Court Clears Volvo in Competitive Bidding Case --Would Result Have Been the Same in Canada?
In Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., the United States Supreme Court recently decided that a truck manufacturer (Volvo) that had offered its dealers different wholesale prices was not liable for price discrimination because there was no evidence that Volvo discriminated between dealers contemporaneously competing to resell to the same retail customer.
The Plaintiff, Reeder-Simco GMC, Inc. (Reeder), was an authorized dealer of Volvo trucks. Reeder generally sold Volvo trucks through a competitive bidding process in which the retail customers would determine their specific heavy-truck product requirements and invite bids from several selected dealers. Once Reeder received the customer's specifications, it would request a discount or concession off the wholesale price from Volvo. Volvo would decide on a case-by-case basis whether to offer a discount and what the discount rate would be, taking into account factors such as industry-wide demand, and whether that particular retail customer historically purchased a different brand of trucks. Reeder would then use the discount offered by Volvo in preparing its bid to the retail customer.
Reeder was assigned by Volvo to a geographic territory and only rarely bid against other Volvo dealers. In circumstances where the same retail customer solicited a bid from more than one Volvo dealer, Volvo's policy was to provide the same discount to each dealer competing head-to-head for the same sale. Reeder's main allegation against Volvo was that the discounts it gave other Volvo dealers who were bidding against non-Volvo dealers were greater than those Volvo gave Reeder when it bid against non-Volvo dealers.
The majority of the Court of Appeals for the Eighth Circuit held that Volvo's actions violated the U.S. price discrimination laws contained in the Robinson-Patman Act (RPA), 15 U.S.C. s.13. The U.S. Supreme Court reversed the Court of Appeals and adopted the dissenting judgment of Judge Hansen of the Court of Appeals. In Judge Hansen's view, unlawful price discrimination was not established by Reeder, since there was no actual competition between Reeder and another favoured Volvo dealer with respect to the same retail customer at the time of Reeder's purchases.
Under the U.S. Supreme Court's analysis, the fact that Reeder and the favoured Volvo dealers may have competed for bidding opportunities or for potential sales within a specified geographic area was not relevant to a price discrimination analysis. Citing the dissent of Judge Hansen, the U.S. Supreme Court determined that once the competitive bidding begins, "the relevant market becomes limited to the needs and demands of a particular end user."1 As Reeder provided only limited evidence of differentially priced transactions in which it actually bid against another Volvo dealer for the same customer, any price discrimination that might have existed was not of such a magnitude as to substantially affect competition and violate the RPA.2 The U.S. Supreme Court determined that it need not decide the broader issue of whether the price discrimination prohibition under the RPA applies to markets characterized by competitive bidding and special order sales.3
Application to Canada
The legal tests for price discrimination in the United States and Canada differ significantly. In some senses, the Reeder decision may appear to have moved in the direction of Canadian law in its emphasis on the need to establish the existence of competition between the favoured and disfavoured customers in order to prove a practice of discrimination. However, if a case with these same facts arose in Canada it is not clear that a Canadian court would have absolved Volvo from liability for price discrimination. First, Canadian law (unlike that of the United States) does not require that a competitor actually complete a transaction at a discriminatory price. To the extent that concerns about whether Reeder was in fact a "purchaser" influenced U.S. Supreme Court's analysis, these concerns would not be relevant to a Canadian court. Second, unlike the provision at issue in the Volvo case, the price discrimination provision under Canada's Competition Act is a per se criminal offence, in which injury to competition need not be proven. That said, to establish liability for price discrimination under section 50(a) of the Competition Act, it would still be necessary for the two dealers to be competitors.
Section 2.5.5 of the Competition Bureau's (the Bureau's) Price Discrimination Enforcement Guidelines states that determining whether purchasers are "competitors" involves identification of the relevant product and geographic markets. Whether a Canadian court would accept the narrow market definition set out by Judge Hansen and adopted by the U.S. Supreme Court is unclear. There was evidence at first instance that Reeder and other "favoured" Volvo dealers competed within the same geographic market for opportunities to bid on heavy truck sales. On that basis, a Canadian court could find that Volvo had an obligation within that broader geographic market to ensure that no price discrimination existed with respect to goods of like quality and quantity. However, even if a broader geographic market were accepted, liability is far from certain, given the need to prove all of the elements of the offence beyond a reasonable doubt, including knowledge of discrimination on the part of Volvo, the existence of a "practice" of discrimination and that the goods sold at allegedly discriminatory prices were of like quality and quantity and sold at the same time. While legislative amendments were proposed by the last government which would have de-criminalized price discrimination in Canada (and by virtue of treating it as an abuse of dominance, imposed a substantial lessening of competition test), sellers who provide products in competitive bidding situations in Canada should not assume, based upon this U.S. Supreme Court decision, that they are immune from prosecution or civil suits for damages in respect of similar conduct in Canada.
FOOTNOTES
[1] This analysis was consistent with the position in the amicus curiae brief filed by the United States Department of Justice and Federal Trade Commission, which stated as follows: "That dealers bid for sales in the same multistate area, or that customers and trucks may travel, does not show that the Volvo dealers were in actual competition for the same sales in any sense relevant to the Act, for they never purchased trucks with an eye toward reselling them to the same customer and they rarely even bid against one another."
[2] The Supreme Court noted that Reeder may have competed with other Volvo dealers for the opportunity to bid on potential sales in a broad geographic area, but held that competition is not affected by differential pricing at that initial stage. While a dealer's reputation for securing favourable concessions may influence a customer's bidding invitations, this was not addressed because Reeder did not present any evidence of such a factor.
[3] This argument was based on the fact that the RPA only prohibits discrimination between different purchasers and when multiple dealers bid for the business of the same customer, only one dealer will win the business and thus become an actual purchaser of the supplier's product.
