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The FTC to Vigorously Enforce The Robinson-Patman Act
The Federal Trade Commission (FTC) has announced its intention to ramp up enforcement of the Robinson-Patman Act (RPA), a Great Depression era anti-price discrimination law. Neither the FTC nor the DOJ has significantly enforced the RPA for several decades. This announcement marks a major shift in the enforcement landscape. Companies should work with counsel to take stock of pricing activities and to review potentially impacted practices as appropriate.
The RPA, at its heart, is a price-discrimination statute. It broadly forbids a seller of goods from engaging in price discrimination between two or more different purchasers. The rationale for the RPA was that preventing such price discrimination would enable smaller companies to compete with larger businesses.ย However, the RPA applies only in particular circumstances. First, the RPA applies only to sales of tangible commodities, not services. Second, it applies only to purchase by different purchasers of commodities of like grade and quality. Third, RPA requires that at least one sale take place across state lines, and that both sales occur within the United States. Finally, the price discrimination must be such that it has the potential to substantially injure competition at the sellerโs level or the buyerโs level. Primary-line discrimination occurs when one seller reduces its prices in a specific geographic market and causes injury to its competitors in the same or in a different geographic market. Secondary-line violations occurs when favored customers of a seller are given a price advantage over competing purchasers. Almost all RPA cases are secondary-line claims.
Conduct that would otherwise fall within the scope of these RPA provisions may nevertheless be subject to certain defenses.ย Defenses include, for example, the following:ย 1) the price difference was justified by different demonstrably provable costs; and 2) the price difference was a concession to meet a competing sellerโs price.ย While not technically a defense, the U.S. Supreme Court has also recognized the existence of a โfunctional discountโ when one competing purchaser performs functions that would otherwise be performed by the seller, e.g., warehousing, etc., and as a consequence, the favored purchaser in essence is saving the seller some quantifiable amount of money it would otherwise expend itself.
The RPA also separately forbids certain discriminatory allowances (such as rebates and fees) or services furnished or paid to purchasers, requiring that a seller treat all competing purchasers in a proportionately equal manner. A seller must also allow all types of competing purchasers to receive the services and allowances or provide some other reasonable means of participation. Further, the cost justification defense does not apply in this situation.
The FTCโs recent announcement follows President Bidenโs Executive Order โPromoting Competition in the American Economy,โ which, among other things, urged the FTC to enforce antitrust laws vigorously. It also comes on the heels of a bipartisan push from lawmakers urging the FTC to use the RPA against discriminatory conduct. A majority of the current FTC commissioners have voiced support for using the RPA to take action against unfair competition. Indeed, the FTC recently cited the RPA in a separate announcement urging action against certain rebating practices paid by drug manufactures to intermediaries in certain circumstances.[1] Perhaps the clearest indication of the FTCโs commitment to ramp up RPA enforcement so far has been the FTC opening a preliminary investigation against Coca-Cola Co. and PepsiCo Inc. regarding potential price discrimination under the RPA.
Finally, as a cautionary note, in light of the reemergence of the FTC as an enforcer of RPA, we anticipate that some state attorneys general, and perhaps private litigants, may attempt to enforce the state antitrust act analogues to RPA, particularly when the jurisdictional prerequisites of the RPA cannot be met.
Wiggin and Dana has extensive experience counselling in the area of RPA.ย Despite the absence of federal government enforcement for decades, RPA has continued to be enforced by private litigants. Because RPA issues often involve complex legal and factual questions, it may be appropriate to engage counsel to review current practices for compliance with the RPA.
