Although infrequently finding itself front and center in case law and legal developments, the Robinson-Patman Act, 15 U.S.C. § 13 (the “Act”) from time to time resurfaces. The Act prohibits discrimination in prices charged, promotional allowances paid and/or promotional services or facilities furnished in connection with the sale of commodities of like grade and quality to customers that compete against each other, although there are certain defenses. Almost since its inception, the Act has been met with scorn, and frequent calls for its repeal or substantial modification. The Act, which some contend runs counter to the principles of the antitrust laws of protecting competition rather than protecting smaller companies against their larger competitors, continues to defy these challenges. But this flawed statute faces the additional challenge of adjusting to an ever changing marketplace. When the Act was enacted in 1936, there was no internet, no online retailers and no big box stores. Today, companies, their counsel, the Federal Trade Commission and the courts are left to try to apply the Act in this new dynamic. As one commentator noted, “compliance with the Act continues to absorb more of the time and attention of corporate counsel in most companies than any other aspect of the antitrust laws.” “Crossing the Streams of Price and Promotion Under the Robinson-Patman Act,” Richard M. Steuer, Antitrust, Fall 2012.
In 1969, the FTC issued its ”Guides for Advertising Allowances and Other Merchandising Payments and Services” following the Supreme Court’s decision in F.T.C. v. Fred Meyer, Inc., 390 U.S. 341 (1968), which has been referred to as the “Fred Meyer Guides.” 16 C.F.R. Part 240. The Guides which deal with Sections 2(d) and 2(e) of the Act are non-binding on the FTC and the courts but offer guidance to businesses when dealing with discounts and promotional allowances under the Act, an area that is even today only vaguely defined and in constant evaluation as the commercial marketplace changes. Now, for the second time since its inception, the FTC has revised the Fred Meyer Guides, with the first time being in 1990.
In late 2012, the FTC requested public comments on the Fred Meyer Guides, noting that “[d]evelopments in technology, methods of commerce, and the law since the last revision of the Guides suggest that certain provisions of the Guides might usefully be revised.” Among others, the FTC noted “the emergence of the Internet as an important retail sales and communications channel” as a development for which comment was predicated. In response to this request, the FTC received a number of submissions, with varied perspectives, and then issued the updated Fred Meyer Guides. The revised Fred Meyer Guides reflect certain changes which do provide additional guidance to businesses regarding compliance. Significantly, though, the FTC declined to make a number of changes suggested by a number of contributors, including the American Bar Association Section of Antitrust Law, holding firm to its decade long positions and missing an opportunity to lead.
First, the FTC declined invitations of several commentators to revise the Guides to include a requirement of “injury to competition” under Section 2(d) and 2(e). These requests were motivated by the comments of the United States Supreme Court in the Volvo Trucks North America v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006), and subsequent cases, that the Act is to be interpreted in a manner consistent with antitrust principles of protecting competition, not existing competitors. The FTC rejected this call, however, noting several times the difference between Sections 2(d) and 2(e) — the subject of the Guides — and Section 2(a) which prohibits direct and indirect price discrimination when competitive injury might result. Section 2(a) contains an “injury to competition” element, whereas Sections 2(d) and 2(e) do not. And significantly, Sections 2(d) and 2(e) are per se offenses, unlike Section 2(a). The reason for the difference, as noted by the FTC, is that Sections 2(d) and 2(e) were intended to prevent evasions of Section 2(a) and, for that reason, do not require proof of competitive injury, often a weighty issue in antitrust cases. The FTC noted that no commentator submitted any case law to challenge this basic understanding and expressly distinguished the Volvo Trucks case as one that addressed liability under Section 2(a), not 2(d) or 2(e). Yet, while declining to revise the Guides, the FTC acknowledged that while case law did not dictate that this change be made, the requested change was one that was consistent with agency application.
“Revising the Guides to suggest that sections 2(d) and 2(e) plaintiffs must prove likely injury to competition therefore would not be supportable in the case law, even though requiring proof of likely injury to competition is sound enforcement policy. . . . However, consistent with the Supreme Court’s expressed view in Volvo Trucks, 546 U.S. at 181, that the Robinson-Patman Act should be construed to be consistent with the antitrust laws generally, the Commission has modified section 240.13 of the Guides, which relates to Section 5 of the FTC Act, to reflect its own view that Section 5 should be used only in cases of likely harm to competition.”
So, does this mean that promotional allowances are subject to proof of injury to competition and does this mark a shift by the FTC? No and no. But the Guides reveal that the FTC itself will consider the injury to competition in certain situations involving customer liability for knowingly receiving discriminatory pricing through services or allowances not made on proportionally equal terms to its competitors under Section 5 of the FTC Act.
Second, the FTC, while acknowledging that there is an issue of how to address sales over the internet, left the resolution of that issue for another day. Largely stating the obvious, the FTC noted that the question of whether retailers, through brick-and-mortar stores or on the internet, are competing customers of a seller depends upon the “particular characteristics of the retailers’ formats, the location and characteristics of the retailers’ targets and actual customers.” And the FTC concluded that if found to be competing customers, then these customers may be entitled to equal promotional allowances and services. Yet, the FTC provided no guidance of just how that is to be done in these different environments.
“Neither the developed law nor commenters on the Guides have provided any detailed guidance as to how sellers should, or currently do, make their promotional allowances and services available on proportionally equal terms across reseller formats, such as brick-and-mortar and online sales. No single means of doing so is required, and a seller’s application of common sense and good faith will be relevant in assaying efforts to proportionalize promotional allowances and services across different formats.”
One of the significant motivators for seeking comment on the Guides simply is left outstanding. This is unfortunate and clearly a missed opportunity.
Other highlights of the revised Guides includes:
- Section 240.8, which previously stated that ”[a]lternative terms and conditions should be made available to customers who cannot, in a practical sense, take advantage of some of the plan’s offerings,” has been found too restrictive, and now applies to those customers who ”cannot, in a practical sense, take advantage of any of the plan’s offerings.” The FTC rejected, though, the further suggestion of the Antitrust Section that the customer who cannot take advantage of any of the offerings should contact the seller for usable terms, finding it impermissible burden shifting under the Act.
- Section 240.10(a) discusses offering promotional services and facilities that are “useable in a practical sense” by competing customers. Customers that vary in size, may have limitations in availing themselves of cooperative radio or television advertising. Giving a nod to the internet, the FTC provides some guidance that “proprotionally equal alternatives, such as online advertising,” should be offered to these customers.
- In Section 240.10(b), the FTC rejected the call for posting the details of the offer on the website for the customer to find as insufficient to meet the seller’s burden. The FTC found more is required, as the seller’s efforts must be ”reasonably designed to provide notice to competing customers of the availability of promotional services and allowances.”
- The FTC has provided guidance to claims against customers receiving benefits of promotional services by noting that Section 240.13 that Sections 2(a) (applying to price discrimination) and 2(f) (prohibiting the knowing inducement or receipt of a price discrimination by Section 2(a)) would apply only in limited circumstances “where no promotional services are performed in return for the payments, or where the payments are not reasonably related to the customer’s cost of providing the promotional services.” These two sections can be enforced by disfavored customers.
In a number of limited ways, the revised Guides mark an improvement in the manner in which Sections 2(d) and 2(e) are viewed. However, what is most notable about the revisions is what did not happen. An opportunity existed to embrace significant changes that would provide better policy, consistent with antitrust principles, and address the Act in the context of our modern economy. This opportunity was missed, and the question once again is raised as to who will actually take on that task and fix it?