1. History and applicability of the Robinson-Patman Act
In the first webinar, Jonathan Jacobson began the discussion by providing a history of the RPA. The Robinson-Patman Act was passed in 1936 to amend Section 2 of the Clayton Act. It was passed during the Great Depression, when deflation was seen as a major problem, and it intended to stop large chain stores from offering lower prices than those offered by small businesses. RPA did this by banning secondary-line price discrimination, a situation in which a seller offers different prices to two competing buyers.
Mr. Jacobson noted that while the Clayton Act originally focused on predatory pricing, RPA applied to price differences that could disadvantage certain customers. Language of the RPA implies that lessening of competition comes from harm to individual competitors rather than to competition in the market as a whole. Importantly, RPA also covers only commodity products (i.e., services are not subject to RPA) and prohibits volume discounts.
Mark Poe explained that an RPA violation entails the following elements: (i) a supplier selling to at least two competing customers at different prices; (ii) the products being sold to each competitor are identical; (iii) sales must be reasonably contemporaneous; (iv) there is a reasonable possibility of harm to competition (though actual harm is needed for damages). In the second webinar, Katherine Brockmeyer clarified that RPA is effectively a per se law, meaning that there is no opportunity for Defendants to offer a pro-competitive justification for their price differences.
Mr. Poe noted that there are two statutory defenses against an RPA claim: (i) cost justification, and (ii) meeting competition. For cost justification, a seller must show that it is less costly to sell to the buyer who obtains the product at a lower price. He opined that this may be difficult to establish, for example, if the unit of supply (e.g., a truckload) is the same for both buyers. For meeting competition, a supplier must demonstrate that a price reduction was given in good faith to meet the price charged by a competing seller. In the second webinar, Katherine Brockmeyer also noted that a Defendant can show that the discount or promotional funding were functionally available to all competing buyers.
Mr. Jacobson explained that from the Supreme Court’s decision in Trans-Missouri in 1897 through the mid-1970s, the protection of small businesses was seen as a key goal of antitrust policy. This changed in 1977 with the Sylvania and Brunswick decisions, which caused antitrust policy to instead focus on preserving market competition rather than protecting individual competitors.
Mr. Jacobson observed that these shifts in the courts’ views on antitrust jurisprudence caused RPA cases to dry up. For example, the FTC went from dozens of RPA filings in the 1960s to hardly any by the 1990s. RPA was therefore enforced only in private litigation and was successful only in a few circumstances. The statute had thus been generally seen as inapplicable until its enforcement was recently revived by the FTC.
In the second webinar, Daniel Graulich provided two examples of recent RPA cases to show how the act has been litigated when brought by private parties. In the first case, wholesalers competing with Costco alleged that the makers of 5-Hour Energy had unfairly given Costco favorable pricing terms. In district court, the jury ruled in favor of the Defendants, deciding that there was no competitive injury under Section 2(a) of RPA, and Plaintiffs therefore had insufficient standing for a Section 2(d) claim. The Defendants argued that since Costco engaged mostly in retail sales, it should not be viewed as a wholesaler. The Ninth Circuit, however, reversed the decision after concluding that competition existed between Costco and the wholesalers based on a three-part test:
- Did Costco and the wholesalers have physical outlets in the same geography?
- Were they purchasing the same product?
- Did they operate at the same functional level?
Since Costco met these criteria, the judge determined that Section 2(d) of the RPA applied.
In the second case, Prestige Brand, wholesalers purchasing eye care products alleged that they were disadvantaged relative to Costco who had more favorable terms. In this case, the jury ruled against the Defendants and the judge issued an injunction. The court relied on the 5-Hour Energy framework, whereby Costco was put into the chain store paradigm. Costco was liable because they had set up the program without making other wholesalers aware. The case was decided differently from the 5-Hour Energy case because of the facts: in 5-Hour-Energy, the discounts depended on functions that were unique to Costco and not applicable to the other retailers. This was not the case in Prestige Discounts, where the program could have been made available to all buyers.
2. Economics of secondary-line price discrimination
In the first, webinar, Jee-Yeon Lehmann explained that the main economic concern motivating the secondary-line injury provision in the RPA was potential harm to small buyers that may result from larger buyers using their stronger bargaining power to obtain more favorable prices from suppliers. For example, a large retailer that is able to obtain a lower price from the manufacturer may be able to gain a competitive advantage over smaller retailers in the downstream market.
Dr. Lehmann highlighted that RPA enforcement does not require the following elements, which contrast with modern views on antitrust inquiries: (i) injury to the level of competition within a relevant market (i.e., injury to the so-called “disfavored buyer” is sufficient and courts have ruled that only the existence of substantial price differences between two buyers is sufficient to infer injury to one buyer); (ii) existence of market power, either at the seller- or buyer-level ; (iii) consideration of consumer welfare or total welfare.
Despite RPA’s lack of explicit consideration of welfare effects, Dr. Lehmann noted that there is some economic basis for the argument that price discrimination is welfare reducing if it arises solely due to differences in buyer bargaining power. Although price differences arising from differences in bargaining power by themselves may not decrease overall welfare, if economic resources are used inefficiently to obtain that bargaining power (i.e., rent seeking), such behavior can decrease welfare. However, this reasoning assumes that there are no underlying differences in costs associated with certain buyer-seller arrangements, for example, arising from economies of scale or scope. In these cases, price differences across buyers can expand output and allow the seller to sell to customers that it might not serve if uniform pricing was required.
Dr. Lehmann noted that although RPA does not require demonstration of market seller or buyer market power, the FTC itself recognizes that lasting competitive harm is “unlikely if there are alternative sources of supply that are available.” She observed that, from an economic perspective, short-term price differences are frequently a sign of healthy competition.
3. RPA: past, present, and future
3.1. 2007 Antitrust Modernization Commission
In the first webinar, Mr. Jacobson discussed the Antitrust Modernization Commission’s recommendation to repeal the RPA in 2007. The recommendation was based on the following reasons:
- The commission saw RPA as being inconsistent with the consumer welfare standard. Commissioners believed that it protected competitors rather than competition.
- Having to demonstrate that prices were lowered only to meet competition was a burdensome process for firms.
- The statute could inhibit new entrants who would otherwise offer lower prices to gain a foothold in the market.
- Small businesses may have been hurt in instances where sellers did not contract with them over fear of RPA liability.
- Competition is protected by the Sherman and Clayton Acts, making RPA unnecessary.
Mr. Poe noted that proponents of the RPA, however, argue that it can improve consumer surplus by guaranteeing low prices that would otherwise only be available to customers of large retailers. Proponents of the RPA argue that there is no empirical support that the RPA leads to higher consumer prices for this reason. Dr. Lehmann noted that a firm’s pricing decisions are based on a variety of economic factors, including real cost differences in serving different customers. If this were the case, then requiring uniform pricing would not necessarily lead to the lowest price being charged to all buyers.
3.2. What explains the renewed interest today?
Dr. Lehmann opined that the renewed interest in the RPA has not been due to any significant changes in the economic understanding of the effects of price discrimination. Overall, the economic effects depend on why price differences exist in the first place: whether they are forced by powerful buyers, or whether they reflect sellers’ unilateral, profit-maximizing decisions. She explained that theoretical economic models predict ambiguous welfare effects of third-degree price discrimination (i.e., charging different prices based on buyers’ demand elasticities). Empirically, economic studies have also found positive, neutral, and negative effects of price discrimination on consumer and total welfare. Competitive implications of price discrimination cannot be generalized and depend on market characteristics, including the nature and extent of competition.
Rather than any changes in economic thinking, the panelist in the first webinar agreed that the renewed interest in RPA enforcement is likely due to the new makeup of the commissioners at the FTC.
3.3. Looking forward
3.3.1. Perspectives from the first webinar
In the first webinar, Jon Jacobson and Mark Poe perceived that there could be major changes in how courts adjudicate RPA cases, but it remains to be seen how courts will react to new enforcement actions and litigation. Like many areas of the law, the business community waits for the Supreme Court to weigh in. Mr. Jacobson noted that the decision in Volvo was vague and did not offer a clear roadmap for the lower courts in deciding secondary-line RPA cases. Looking forward, even if there is renewed RPA enforcement against secondary-line price discrimination, firms may still engage in the practice because bringing a case is expensive and Plaintiffs are unlikely to prevail.
Finally, Dr. Lehmann expressed concerns about potential unintended consequences of renewed RPA enforcement. Overzealous enforcement, for example, could lead firms to set high uniform prices, exit some markets, or choose not to sell to certain buyers at all since the statute applies to price differences only in the actual sales made. To avoid RPA violations, firms may differentiate their products slightly to avoid selling “commodities of like grade and quality” to different buyers at different prices, which may have the effect of increasing prices overall. In addition, if aggressive RPA enforcement prevents efficient large retailers from passing on their savings to their consumers, then certain consumer groups (e.g., low-income households) that disproportionately rely on these large retailers may be harmed.
3.3.2. Anticipated impact of the new administration
Because the second webinar took place after the 2024 presidential election, the panelists shared their thoughts about the likelihood of RPA enforcement by the incoming administration. At the time of the webinar, President-elect Trump had not named a successor to Lina Kahn, but as Steve Pet explained, most expected him to appoint a traditionalist who would not enforce the RPA. Since there was no RPA enforcement in Trump’s first term, few expect to see enforcement in his second term. However, Mr. Pet noted that a populist attitude towards antitrust has emerged on the right, supported by JD Vance who has said that Lina Kahn has been “doing a pretty good job.” It remains to be seen if the RPA revival will continue into the new administration.
Daniel Graulich added that conservative outlets have also recently discussed the importance of RPA enforcement. For example, a recent piece by the Federalist Society emphasized the need for enforcement and suggested enforcement may benefit consumers. Courtney Armour noted that since Republicans will control both houses of congress, it is also possible that they change or repeal the law.
4. Practical considerations for an RPA compliance program
4.1. How to determine if RPA applies to your business
In the second webinar, Daniel Graulich highlighted several factors that affect whether a company may have RPA liability:
- The company must have two or more sales for comparison. The RPA does not apply to non-sales, such as leases or licenses, and does not apply to refusal to deal. RPA also does not apply to competitive bidding, where there is only one sale.
- RPA applies only to physical commodities, not services. This can lead to a question of what exactly constitutes a physical commodity, e.g., a CD is a physical product but the software on it is not. To resolve this, courts look at the buyer’s “dominant purpose” for purchasing the item.
- If the product is customizable, the company can tailor it to be distinguishable from competitor products and avoid RPA liability.
- The company needs objective criteria to explain the differences in prices. For example, if a customer buying at a higher volume and lower price is more creditworthy, or if one customer is geographically further than another.
- Sales of the same product occurring contemporaneously must have similar prices. There are some exceptions, however. For example, spot prices may be different from prices determined in a long-term contract at the same point in time, but this is allowed under the RPA provided that customers have the ability to buy at either price.
Mr. Graulich also discussed how a firm’s position in the supply chain affects the application of RPA. For instance, a business may avoid RPA liability if purchasers are across different geographies, channels (e.g., e-commerce vs. in-store), or operate at different functional levels (e.g., business-to-business or direct-to-consumer). Additionally, there would not be RPA liability if different prices were offered to non-integrated retailers and non-integrated wholesalers, since they operate under different parts of the supply chain and thus do not compete.
4.2. How to build an RPA compliance program
Katherine Brockmeyer offered advice aimed at in-house counsel for building an RPA compliance program. She noted that it is helpful to first think about business objectives and then reverse-engineer the sales strategy so that it fits the objective while complying with RPA. For example, if the business objective is to fill shelf space and the smallest customers are not able to purchase enough volume under the proposed sales strategy, then discounts should instead be tied to the percentage of shelf space rather than target a specific volume.
Ms. Brockmeyer noted that questions about promotional funding are harder because they do not always distinguish easily from price discounts. To avoid liability under Section 2(a), which is stricter than Sections 2(d) and 2(e) since it requires sellers offer similar terms rather than proportionally similar terms, it can be helpful think about the purpose of the payment. For example, if the purpose is to promote resale, then it is more likely to fall under 2(d). Finally, Ms. Brockmeyer noted that there is less guidance for buyers. When they are large enough, buyers may be able to negotiate lower prices (or more funding) that smaller retailers would not be able to achieve. Thus, compliance for large buyers should focus on ensuring such negotiations do not disfavor smaller buyers.
Steve Pet explained that when it comes to RPA compliance, what is ideal may be different from what is feasible. It is therefore important for outside counsel to understand the business consequences of an RPA compliance program that is followed too closely. A company may in some instances prefer to take on RPA risk rather than comply with an overly burdensome program. For example, if a large buyer tries to negotiate a discount with a supplier and the supplier cannot offer the same discount to all buyers (i.e., the meeting competition defense is unavailable), it may be in its interest to give the discount and accept risking RPA liability.
Mr. Pet suggested that a company should call outside counsel about a potential RPA issue when the following occur: (i) a call from the government, or an RPA-related subpoena; (ii) when a customer or competitor complains about discriminatory prices; (iii) when customers suspiciously ask the sales department about promotional and rebate practices; (iv) if the company is a supplier or large retailer and does not have a modern RPA compliance program in place.
Courtney Armour concluded by giving practical advice on how to craft guidance in an RPA compliance program. She explained that while outside counsel tends to give a thorough analysis, complex guidance makes it harder for a lay audience to implement the program. She recommended that the compliance program apply the company’s specific facts and rely on practical tools such as clearly defined guardrails or checklists. It can also be helpful to provide staff training, especially to members of the sales department.
