6. Plaintiffs in this lawsuit are precluded from challenging
the legality of an, discounts defendants received from Rutledge
Hill on or after October 13, 1998 that comply with the Plan set
forth in Exhibit B to the First Amended Consent Order between
the New York plaintiffs and Rutledge Hill.
7. Plaintiffs in this lawsuit are precluded from challenging
the legality of and discounts defendants received from St.
Martin's between September 3, 1996 and September 14, 1998 that
comply with the pricing plan set forth in Exhibit B to the
original Consent Order between the New York plaintiffs and St.
8. Plaintiffs in this lawsuit are precluded from challenging
the legality of any discounts defendants received from St.
Martin's on or after September 14, 1998 that comply with the
Plan set forth in Exhibit B to the First Amended Consent Order
between the New York plaintiffs and St. Martin's.
9. The New York plaintiffs are precluded from challenging the
legality of any discounts defendants received from Levin after
February 7, 1995 that comply with the terms of the Consent Order
between the New York plaintiffs and Levin.
10. The Happy New York plaintiffs are precluded from
challenging the legality of any discounts defendants received
from Random House on or after January 1, 1997 that comply with
the Statements set forth in Exhibit A to the Consent Order
between the Happy New York plaintiffs and Random House.
The remainder of the Borders defendants' motion for partial
summary judgment, joined in by the Barnes & Noble defendants, is
Plaintiffs move for summary judgment on two of defendants'
affirmative defenses. First, plaintiffs contend that defendants
cannot prevail by showing that the discounts defendants receive
do not actually harm competition, because that defense is
unavailable to defendants, as a matter of law. The Court will
refer to this defense as the "no harm to competition" defense.
Second, plaintiffs contend that defendants cannot claim a
functional discount defense because the defense is available
only to wholesalers, not to retailers.
The Court begins with plaintiffs' motion for summary judgment
on the "no harm to competition" defense. The Robinson-Patman Act
makes price discrimination unlawful "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[.]"
15 U.S.C. § 13(a) (emphasis added). The Ninth Circuit has found
that the underlined language "expresses Congressional intent to
protect individual competitors, not just market competition,
from the effects of price discrimination." Chroma Lighting v.
GTE Prods. Corp., 111 F.3d 653, 657 (9th Cir. 1997). The
purpose of the underlined passage "`was to relieve
secondary-line plaintiffs — small retailers who are disfavored
by discriminating suppliers — from having to prove harm to
competition marketwide, allowing them instead to impose
liability simply by proving effects to individual competitors.'"
Id. (quoting Rebel Oil Co. v. Atlantic Richfield Co.,
51 F.3d 1421, 1446 n. 18 (9th Cir. 1995)).
The requisite injury can be inferred from evidence of a
difference between competing purchasers over time, because such
a price difference may harm the competitive opportunities of
individual merchants and, thus, create a reasonable possibility
that competition itself may be harmed. Id. at 654 (citing FTC
v. Morton Salt Co., 334 U.S. 37, 46-47, 68 S.Ct. 822, 92 L.Ed.
1196 (1948)); id. at 657 (citing Falls City, 460 U.S. at
435, 103 S.Ct. 1282). See also Hasbrouck, 496 U.S. at 559, 110
S.Ct. 2535 ("[A]n injury to competition may be inferred from
evidence that some purchasers had to pay their supplier
`substantially more for their goods than their competitors had
to pay.'") In a secondary-line Robinson-Patman Act case — i.e.,
a case between competing buyers — this inference may not be
overcome by proof of no harm to competition. Chroma Lighting,
111 F.3d at 658.
Plaintiffs are, thus, correct that if they are able to prove
at trial that the Morton Salt inference applies, defendants
cannot rebut it by showing that any discounts they receive do
not actually have any likelihood of harming competition.
Plaintiffs' motion for summary judgment must be denied, however,
because they have not moved for summary judgment on the issue of
whether the Morton Salt inference applies to the facts of this
case. Unless and until the Morton Salt inference is proven to
exist, any ruling on the applicability of defenses to that
inference would be premature. Thus, although the Court agrees
with plaintiffs' argument, it must deny plaintiffs' motion for
summary judgment on defendants' "no harm to competition"
The Court turns to plaintiffs' motion for summary judgment on
the functional discount defense. In a nutshell, plaintiffs'
argument is that defendants cannot claim that the RDC discounts
they receive from publishers are functional discounts because
defendants are not wholesalers, but merely use their RDCs to
warehouse books for sale in their own retail outlets. Plaintiffs
contend that only true wholesalers — those who sell books only
to third-party retailers — can claim functional discounts.
"A functional discount is one given to a purchaser based on
its role in the supplier's distributive system, reflecting, at
least in a generalized sense, the services performed by the
purchaser for the supplier." Hasbrouck, 496 U.S. at 554 n. 11,
110 S.Ct. 2535. A price differential that is reasonably related
to the purchaser's costs in performing marketing functions for
the supplier, or to the supplier's savings in having those
functions performed by the purchaser, is not illegal under the
Robinson-Patman Act. Id. at 562-63, 110 S.Ct. 2535. "A
supplier need not satisfy the rigorous requirements of the cost
justification defense in order to prove that a particular
functional discount is reasonable and accordingly did not cause
any substantial lessening of competition between a wholesaler's
customers and the supplier's direct customers." Id. at 561,
110 S.Ct. 2535 (footnote omitted).
Although the burden of proving a cost-justification defense
lies with the supplier, "the burden of proof remains with the
enforcement agency or plaintiff in circumstances involving
functional discounts since functional pricing negates the
probability of competitive injury, an element of a prima facie
case of violation" of the Robinson-Patman Act. Id. at 561 n.
18, 110 S.Ct. 2535 (quoting Rill, Availability and Functional
Discounts Justifying Discriminatory Pricing, 53 Antitrust L.J.
929, 935 (1985)). See also id. at 571, 110 S.Ct. 2535 ("When a
functional discount is legitimate, the inference of injury to
competition recognized in the Morton Salt case will simply not
arise.") Thus, a defendant who shows that
the discounts that it receives are lawful functional discounts
negates the causation element of the plaintiffs' prima facie
In Hasbrouck, the plaintiffs were a number of retail gas
stations ("retailers") who sued Texaco for selling gasoline to
two distributors, Gull Oil Company ("Gull") and Dompier Oil
Company ("Dompier"), at a lower price than it sold gasoline to
the retailers. Id. at 548-49, 110 S.Ct. 2535. Both Gull and
Dompier picked up Texaco's gasoline from the Texaco plant and
delivered it directly to retail outlets. Id. at 550, 110 S.Ct.
2535. Gull sold the gasoline under its own name at its own
retail outlets. Id. at 549, 110 S.Ct. 2535. Dompier sold the
gasoline under the Texaco name to retail stations. Id. Some of
the stations serviced by Dompier were independently owned, and
some were owned by Dompier. Id. at 549-50, 110 S.Ct. 2535.
Thus, Dompier acted as both a true wholesaler, by selling
gasoline to retailers in which it had no ownership interest, and
as a vertically integrated retailer that performed its own
wholesaling functions by delivering gasoline from Texaco to
Dompier's own gas stations. Here, it is undisputed that the
Barnes & Noble and Borders defendants sell all of the books that
move through their RDCs to their own retail stores and, thus,
act as vertically integrated retailers.
The district court in Hasbrouck recognized this distinction.
It noted that "[w]hile there is a serious question as to whether
Dompier was entitled to a `functional discount' on the gas it
sold at retail, the court assumes, arguendo, that the mere fact
that Dompier retailed the gas does not preclude a functional
discount." Hasbrouck v. Texaco, Inc., 634 F. Supp. 34, 37 n. 4
(E.D.Wash. 1985) (citing In re Mueller Co., 60 F.T.C. 120,
1962 WL 8493 (1962) and In re Doubleday & Co., 52 F.T.C. 169
(1955)). The court also used a definition of functional discount
that would apply regardless of whether the defendant sold the
discounted gasoline at its own retail stations or to
nonaffiliated retailers: "Technically, a `functional discount'
disregards the buyer's level in the distribution scheme and
rewards the buyer for actually performing functions which
otherwise would be performed by the seller." Id. at 36 n. 2.
"[A] `functional discount' should be available to any buyer —
regardless of its trade level — who performs functions for the
seller." Id. at 36.
Generally, functional discounts do not trigger
Robinson-Patman liability either because the buyer
who receives the discount and the buyer who does not
are on different trade levels (and therefore are not
competitors) or because the discount merely offsets
the competing buyer's additional costs incurred in
performing the seller's functions.
Id. at 37 (emphasis added). The district court found that
Texaco's discounts to Gull and Dompier were not lawful
functional discounts because the lower retail prices offered by
Gull, Dompier, and their customers demonstrated that the
discounts Gull and Dompier received from Texaco more than offset
their costs in performing functions for Texaco. Id. at 37-38.
Moreover, the lower retail prices attracted customers away from
the plaintiffs. Id. Thus, the district court found that the
discounts Texaco gave to Gull and Dompier injured competition.
The Ninth Circuit affirmed, but did not directly address the
distinction between functional discounts granted to wholesalers
and functional discounts granted to vertically integrated
retailers. Hasbrouck v. Texaco, Inc., 842 F.2d 1034 (9th Cir.
1987). It affirmed the district court on the ground that
there was sufficient evidence to permit the jury to
find that the price
differential did not represent a legitimate
functional discount and that all or a portion of the
discount received by Dompier and Gull was passed on
to Hasbrouck's competitors. . . . Thus, there was
sufficient evidence to permit the jury to conclude
that competition may have been harmed, i.e., that
there was `a reasonable possibility' that a
competitive injury had occurred.
Id. at 1041 (citing Falls City, 460 U.S. at 434-35, 103
S.Ct. 1282) (footnote omitted).