On December 12th, the Federal Trade Commission (FTC) brought its first enforcement action under the Robinson-Patman Act (RPA) in more than 20 years and appears poised to litigate one for the first time in more than 35 years. The FTC’s suit against Southern Glazer’s Wine and Spirits, LLC (Southern) alleges that Southern charged independent retailers higher prices than regional and national chain stores in violation of the RPA. FTC Commissioners voted along party lines to issue the complaint with Commissioner Alvaro Bedoya authoring a statement on behalf of the majority. Republican Commissioners Andrew Ferguson and Melissa Holyoak issued separate dissenting statements totaling more than 100 pages.
Key Takeaways
- The FTC’s suit against Southern is its first RPA case in more than 20 years.
- The incoming Republican-led FTC is unlikely to make RPA enforcement a priority but also will not revert to the practice of complete non-enforcement that has been in place for more than 20 years.
- Future FTC enforcement is most likely to focus on circumstances where large retailers exert their power to obtain lower prices that are not justified based on cost efficiencies.
- Volume-based discounts remain a valid justification for differential pricing practices by suppliers, although companies should take care to document the cost efficiencies.
Robinson-Patman Act Background
The RPA is a federal law that prohibits anti-competitive price discrimination. Under the RPA, competitive injury can occur at different levels in the supply chain. “Primary line” injury may occur when a firm sells a product at a lower price than its rivals (e.g., when a larger retailer sells a product below cost). The Supreme Court has significantly narrowed the circumstances under which primary line injury can occur. “Secondary line” injury may occur when a supplier gives a price advantage to one retailer but not to that retailer’s rival (e.g., when a supplier sells a product at a lower wholesale price to a large retailer than to its mom-and-pop rival). The RPA only applies to commodities or tangible goods of “like grade and quality” sold in interstate commerce, so the lease of products, provision of services, or wholly intrastate sales cannot run afoul of the statute.
Congress passed the RPA in 1936 to address the perceived threat larger retailers posed to their smaller rivals and a competitive marketplace. As large chain stores allegedly used their size to extract lower prices from suppliers, lawmakers sought to prevent sellers from charging retailers different prices for the same goods without a cost-based justification. The Department of Justice (DOJ) and the FTC both can bring RPA cases, but, historically, enforcement has fallen to the FTC.
Following criticism about the RPA’s potential to benefit smaller retailers at the expense of increasing prices to consumers, the number of RPA cases brought by the government declined with its last enforcement action occurring in 2000 and last litigated case in 1988.
Private plaintiffs can also bring cases under the RPA. In the mid-1990s, the FTC withdrew RPA complaints in the book industry citing both changed industry conditions and the “initiation of private litigation addressing many of the same issues.” The FTC’s case against Southern marks a departure from the antitrust authorities’ enforcement priorities of the past quarter of a century, but with both sitting Republican Commissioners dissenting, it seems unlikely that the incoming Republican-led FTC under the Trump administration will make RPA enforcement a priority.
Common Defenses to the RPA
There are four common defenses to a RPA price discrimination claim: (1) charging a lower price to meet, but not beat, a competing offer; (2) charging a different price based on actual differences in the cost to manufacture, sell, or distribute to different buyers; (3) charging different prices for non-contemporaneous sales due to changing market conditions such as decreased input costs; and (4) making purchasers aware of the lower price and ensuring it is functionally available to them.
Volume-based discounts historically have been a valid cost justification defense. The FTC’s press release announcing the lawsuit against Southern acknowledges that “volume discounts are permitted so long as a seller can demonstrate real cost efficiencies achieved from selling goods at different quantities to purchasers.”
The FTC’s Allegations Against Southern
The FTC alleges that Southern’s differential pricing practices disadvantaged its independent retail customers relative to their larger rivals, thereby harming competition under the RPA. The FTC claims that higher prices charged by Southern to disfavored retailers located in the vicinity of competing chain stores hampered competition to provide identical products to the same customers. Anticipating that Southern will evoke the common cost justification defense, the FTC further alleges that the volume and cumulative discounts Southern provides to its retailers do not align with its own cost reductions. As a remedy, the FTC seeks that Southern cease its differential pricing practices and any “further relief as the Court deems just and proper.”
In a statement on behalf of the majority, Commissioner Bedoya explains that the FTC’s decision to resurrect the RPA is motivated at least in part by the “deep inequality” in the economy and popular sentiment that the system is “rigged.” He goes on to challenge the most common critique of RPA enforcement, which is that it protects competitors (rather than competition) by raising prices and harming consumers. According to Commissioner Bedoya, there is no empirical evidence to support this claim. He also argues that under the RPA showing harm to a competitor is sufficient.
Is Harm to Competitors Sufficient to Show Competitive Injury Under the RPA?
There is consensus that a successful RPA claim must demonstrate competitive injury, but there is significant disagreement as to how such an injury can be shown. The statute requires that the effect of the price discrimination “may be substantially to lessen competition or tend to create a monopoly [] 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.”
The majority contends that showing an injury to a competitor is sufficient to establish competitive harm under Morton Salt, a 1950 case in which the Supreme Court concluded that it was appropriate to infer competitive injury under the RPA from a showing of harm to a competitor. But in 1993, the Supreme Court in Brooke Group evolved the Morton Salt inference to require a showing of market power in addition to discriminatory pricing in the context of primary line cases between sellers. However, the FTC’s case against Southern involves secondary line injury between buyers, which the Supreme Court has not explicitly addressed since Morton Salt.
Both Commissioners Ferguson and Holyoak emphasize the evolution of antitrust law to protect consumers, noting the oft quoted principle that “[i]it is axiomatic that the antitrust laws were passed for ‘the protection of competition, not competitors.’” Further, the Republican Commissioners point to the Supreme Court’s instruction in Brooke Group that the RPA “should be construed consistently with broader policies of the antitrust laws.” It remains to be seen whether the court in the FTC’s case against Southern will consider the arguments raised by Commissioners Ferguson and Holyoak against applying the Morton Salt inference to secondary line cases in light of Brooke Group.
Republican Dissents Provide a Roadmap for Future RPA Enforcement
The Republican dissents shed some light on how the FTC may enforce the RPA during the second Trump administration. Both Commissioner Ferguson’s and Commissioner Holyoak’s statements denounce the prior policy of tacit non-enforcement and grapple with the potential for RPA cases to increase prices – a result seemingly at odds with the goal of promoting consumer welfare.
Commissioner Holyoak argues that the FTC should refrain from applying Morton Salt to secondary line cases in light of the agency’s own economists questioning the efficacy of the decision’s ability to protect consumers. Her dissent provides a framework for aligning treatment of primary and secondary line injuries under the RPA in requiring plaintiffs to show harm to competition to prevail. Commissioner Ferguson’s dissent notes the discrepancy between primary and secondary line cases but reserves judgment as to which approach best benefits competition. Both Republican Commissioners warn against the perils of overenforcement citing Morton Salt’s decision to cease supplying disfavored customers altogether to avoid future RPA claims.
Commissioner Ferguson (who will become Chair under the Trump Administration) signaled the possibility of future enforcement of the RPA albeit only in instances in which the FTC is likely to win in court and the use of public resources is justified. His statement indicates potential support for RPA claims when a favored purchaser has market power.
Looking Ahead to a New Administration
The complaint against Southern was issued along party lines, and the Republican Commissioners will soon be in the majority with the incoming Trump administration. Both Republican Commissioners agree on weighing litigation risk in bringing cases and highlight the potential for unintended consequences, such as a supplier refusing to supply certain customers altogether. Mark Meador – President-elect Donald Trump’s selection to be the third Republican Commissioner at the FTC – has signaled openness to enforcing the RPA noting its tacit non-enforcement harms consumers and is “lawless.” Meador also has criticized the view that RPA enforcement leads to higher consumer prices as “lack[ing in] empirical support.” Meador raised the grocery sector – and other areas with similar cost and pricing dynamics – as an area in which RPA enforcement may be viable. While a Republican-led FTC is unlikely to make RPA enforcement a top agency priority, it also will be more open to considering RPA investigations and bringing cases where there is clear harm not only to competitors but also to consumers. Corporations whose activity may fall within the scope of the RPA should understand the common defenses and take care to accurately document their rationale for any differential pricing practices.
