As part of the Biden Administration’s enhanced antitrust enforcement efforts, the Federal Trade Commission (FTC) is taking a new look at the Robinson-Patman Act (RPA). Several investigations are already underway, with calls for more to follow. Businesses should take note.
There was a time, long, long ago, when the federal antitrust agencies sought to enforce the RPA – a 1936 law that, at its most basic, was designed to address price discrimination in the sale of like products or goods. That effort ceased many years ago, with the Department of Justice announcing in 1977 that it would no longer enforce the law, in part because it saw the RPA as inconsistent with the goals of other antitrust laws. The FTC took a quieter path and simply allowed its RPA enforcement efforts to trickle away such that its last RPA litigation occurred some twenty years ago.
Well, a new day may be dawning. Following the directive in President Biden’s July 2021 Executive Order on Promoting Competition in the American Economy, the FTC, under the leadership of Chairperson Lina Khan, has resurrected its belief in the RPA’s ability to serve as a mechanism to right the wrongs it sees stemming from discriminatory supplier pricing practices and what the FTC perceives as an over-emphasis on market “efficiency” versus “fairness.” At least one new RPA investigation by the FTC involving leading players in the food and beverage industry already has been initiated with rumors of others underway. In 2022, the FTC also publicly announced that it has the pharmaceutical industry in its cross-hairs for potential enforcement action, citing as a prime example the rising costs of generic drugs due to an alleged unfair system of rebates and other financial incentives paid to drug distribution intermediaries. Meanwhile, FTC Commissioner Alvaro Bedoya has publicly stated that he believes that there is a direct link between the lack of governmental RPA enforcement and higher prices in rural areas and to lower-income consumers. In short, the FTC is thinking high and low and far and wide when it comes to RPA enforcement with a stated intention to bring more cases under the law. Manufacturers and suppliers need to be prepared.
A RPA Refresher
Before delving into the steps manufacturers and suppliers can take now to help thwart the threat of governmental scrutiny, a quick refresher on what the RPA prohibits may be useful.
- A product of the Great Depression, Congress passed the RPA to prohibit suppliers from giving large scale purchasers more favorable pricing compared to “Mom and Pop” type stores. The ultimate goal was to protect and preserve the Mom and Pops from the larger retailers’ superior buying and negotiating power and the suppliers’ willingness to favor those large-scale – and higher volume – buyers.
- The RPA thus prohibits sellers of goods in interstate commerce from contemporaneously charging different prices for goods of like grade and quality to competing customers if the effect may be to substantially lessen competition or tend to create a monopoly. Likewise, the suppliers cannot discriminate between buyers in terms of advertising, promotional or merchandising services they pay for or provide. The concept of “prices” charged can include rebates, loyalty discounts, and other types of “rewards” offered to a seller’s customer without offering the same to that customer’s competitor.
- To prevail, a RPA plaintiff must show that either sales or profits (in sufficient volume) were diverted to the competing “favored” seller or that the conduct went on for a sufficiently long enough period of time such that a harm to competition can be inferred. Marshalling sufficient evidence to satisfy these requirements can be arduous, and even if successful, the amount of damages for the lost sales or profits may not be particularly high.
- A RPA defendant can argue, in turn, that the plaintiff does not compete with the customer that received the more favorable pricing, that the RPA defendant charged the different prices in order to “meet or beat” the prices charged by its competitors; that the costs associated with supplying to buyer X were higher than to buyer Y, due to, for example, higher delivery or transportation costs; that changing conditions in the market place justify a lowered price to one buyer (a defense usually associated with perishable goods); and that programs providing lower prices or favorable sales terms were practically available to the competing customer – that is, known and attainable – and the competing customer chose not to take advantage of the programs. Proof of these various defenses is often quite fact intensive.
Key Takeaways
Given the FTC’s renewed interest in enforcement of the RPA, now is the time to assess compliance with the RPA, particularly in an industry of interest to the antitrust enforcement agencies.
At a minimum, a company’s antitrust compliance training should include RPA topics to ensure employees understand the potential risk in this area.
Companies also should review pricing policies and marketing strategies to assess the potential risk of RPA claims. A company should determine whether it offers different prices to competing resellers for the purchase and resale of the same products. If so, a company should evaluate why those price differentials exist. For example, if the company offered the lower price to meet (but not beat) a competitive offer, that discount may be acceptable under the RPA. The same may be true if the lower price is practically available to the company’s competing resellers – do those competing resellers know about the favorable pricing and are able to achieve the thresholds required to obtain that favorable pricing? Companies should look beyond sticker price, and evaluate other pricing related programs such as rebates, volume discounts, and distribution incentive programs to assess RPA compliance. While defenses may exist to permit disproportionate treatment of competing resellers, that analysis can be nuanced and must be justified to pass muster under the RPA.
A seller should undertake a similar assessment for the promotional support and services the company pays for or provides to competing resellers to assist in the resale of its products. If promotional support differs between competing resellers, further assessment is needed to determine if that support is made on proportionally equal terms. In light of the anticipated RPA enforcement revival, it is certainly possible that some state attorneys general may attempt to enforce the state antitrust act analogues to the RPA which cover intrastate sales, and in some cases, apply to services as well as goods. Any renewed RPA enforcement activity could certainly spur private litigation as well.
Businesses should monitor these developments as the FTC searches for its RPA test case and the landscape for RPA enforcement evolves.
