Robinson-Patman Act 101
The RPA prohibits suppliers from selling goods of like grade and quality at different prices to competing resellers. Ms. Brockmeyer provided a history of the RPA, explaining that it was passed in 1936 in response to small retailers going out of business due to the growth of large chains. Congress was concerned that this phenomenon was the result of discounts and promotional funding that was being offered to larger retailers but not the smaller shops, so Congress passed the RPA to prohibit various forms of price discrimination. Price includes discounts, rebates, credit terms, or other factors affecting the net price a reseller pays for goods.
Ms. Brockmeyer explained that the RPA is a per se law, because there is no opportunity for defendants to offer pro-competitive effects or justifications for any discounts or promotional funding if the elements of a claim are established. The statute can be enforced by the federal government as well as private plaintiffs. In addition, some states have their own mini-Robinson-Patman Acts that can be enforced by state attorneys general.
Ms. Brockmeyer highlighted several of the elements for an RPA claim. For the price discrimination element, the term “price” encompasses all elements of price. She explained that this should be thought of as the net price and the extent to which there would be a difference in the net price. Section 2(a) also has a competitive harm element that be difficult for plaintiffs in the pleading stage. Ms. Brockmeyer explained that there is no harm if the favored buyer and the disfavored buyer do not compete. Further, the plaintiff has to show antitrust injury in addition to establishing competitive harm. Ms. Brockmeyer also noted differences between Section 2(a) claims and Sections 2(d) and 2(e) claims. First, Sections 2(d) and (e) do not require that a seller provide equal promotional funding or services to customers, only proportionately equal funding or services, which is not defined by the courts. The other key difference is that Sections 2(d) and (e) do not have a competitive harm element, so getting through the pleading stage can be easier for claims under these sections.
Next, Ms. Brockmeyer provided an overview of defenses to an RPA claim. The first defense is functional availability, under which there is no liability if the discount or funding or services are functionally available to all competing buyers. Functional availability requires two things: it must be known to all competing buyers and must be practically available to them. Other often used defenses are the cost justification defense, which may allow a seller to offer a discount to a buyer if it costs the seller less to serve that buyer, and the meeting competition defense, which permits a seller to lower its price to a buyer if done in good faith to meet an equally low price of a competitor.
Recent Private Robinson-Patman Act Cases
Mr. Graulich reviewed two recent private RPA lawsuits: U.S. Wholesale Outlet & Dist., Inc. v. Innovation Ventures and L.A. International Corp. v. Prestige Brands Holdings, Inc. In U.S. Wholesale, a group of plaintiff wholesalers that compete with Costco alleged that the maker of 5-Hour Energy was giving favorable pricing to Costco. The district court held that wholesalers do not compete with Costco, but the Ninth Circuit reversed, finding that because Costco has retail and wholesale operations it does compete with the wholesaler plaintiffs. Defendants’ petition for a writ of certiorari to the Supreme Court was denied.
In Prestige Brands, wholesalers alleged that the maker of the medicated eye drops brand Clear Eyes was making payments to Costco in exchange for Costco performing various advertising and promotional services and similar payment were never offered to the plaintiffs. A jury found defendants’ participation in Costco’s payment program violated Sections 2(a) and 2(d) of the RPA even though Costco set up the program. The judgment upheld the verdict.
Practical Guidance on Implementing an Effective RPA Compliance Program
Mr. Pet provided insight as to what could happed regarding RPA enforcement in the second Trump administration. Antitrust attorneys predict that the new FTC chair will not support RPA enforcement, because there was no RPA enforcement at the FTC during Trump’s first term and Trump had signaled that he will be a less aggressive antitrust enforcer than Biden. However, Mr. Pet noted that there has been an emergence of a wing of the Republican Party that favors more aggressive antitrust enforcement, including Vice President Vance, so RPA enforcement may continue into the new administration.
In light of the potential continued enforcement of the RPA, Mr. Graulich reviewed how to determine whether the RPA applies to a business. The first consideration is whether there is an actual sale, because the RPA does not apply to non-sales transactions such as a lease or license. The next thing to consider is the commodities requirement. The RPA is unique in that it only applies to actual, physical commodities; it does not apply to services. Mr. Graulich also explained that pricing differences based on objective criteria, such as creditworthiness, are not considered price discrimination under the RPA. Mr. Graulich next provided guidance on how an entity’s position in the supply chain affects the application of the RPA. Characteristics to consider are physical location, types of sales channels, and the type of purchaser (business versus end customer).
With respect to how to build an RPA compliance program, Ms. Brockmeyer noted the most important thing is understanding what the business is trying to achieve with the discount or the promotion. Thus, a compliance program that is focused on the business objective and then determines how to achieve that objective is going to be the most successful. Ms. Brockmeyer offered questions in-house counsel can consider when a pricing discount or promotion is raised by the business to determine if the RPA applies: First. do the buyers who will be offered discounts compete with each other? If they do compete with each other, the next questions to ask concern whether the program is functionally available to all of the competing buyers: Will all buyers be made aware of the discount program? Is it economically possible for smaller customers to get the discount? If the answer to both questions is “yes,” then there is unlikely to be RPA liability. Ms. Brockmeyer explained that a key to ensuring a discounting or promotion funding program complies with RPA is that it is the same or achievable for all of the competing customers.
Ms. Brockmeyer noted that there is less guidance for buyers on how to comply with the RPA, but the rhetoric from the FTC over the last couple of years has been focused on the idea of a large buyer using its muscle to extract a lower price or more funding from a seller knowing that smaller retailers are not going to receive the same advantages. A compliance program for larger buyers should focus on the negotiation with sellers and understanding how to go about it in a way that does not expose the buyer to potential liability because it will be getting better pricing than others.
Mr. Pet commented on balancing the risk and cost of compliance with the RPA. He noted that the best practice is to establish a baseline RPA compliance program. What a company does in addition to that will depend on the company’s particular needs and circumstances. Factors to consider are where the company is on the supply chain, whether the company operates in industries that are front of mind for government enforcers, litigious customers or competitors, and the cost of risk mitigation measures.
Mr. Pet also provided guidance on when companies should call outside counsel about RPA issues. The scenarios include when the government calls or issues a subpoena, when a customer or competitor complains that pricing practices are unfair or discriminatory, when a customer starts asking suspicious questions about pricing or promotional or rebate practices, and a supplier or a large purchaser that does not currently have some an RPA compliance program.
Providing Useful Guidance to Clients
Ms. Armour commented from the client’s perspective on how outside counsel can provide useful guidance on RPA compliance issues to in-house counsel and the business. She advised that outside counsel should provide practical tools rather than complex, treatise-like memorandums. Meaningful guidance will not just analyze the relevant law but also take the critical next step of applying the law to the facts at issue in a way that is going to be helpful for the specific organization. This will depend on the facts, the individuals, the sophistication of those individuals in the organization, and who will be tasked with compliance. Ms. Armour recommended using practical tools, such as guardrails of when to call outside counsel and checklists for identifying and documenting the goals of a pricing program. She also recommended crafting guidance in a reference document that the client can easily refer to as questions arise. Finally, staff training can be helpful to effectuate a compliance program internally.
