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Sales Promotions, Contests, and Sweepstakes: Laws and Regulations Your Business Clients Must Know

Sharon E Kohn


  • This overview of the laws and regulations governing consumer sales promotions will help you advise clients on issues such as price discounts, free offers, contests, and sweepstakes.
  • There are various penalties for violations of the rules governing consumer sales promotions and many places for consumers to file complaints.
  • Trade sales promotions must not violate the federal Robinson-Patman Act, which prohibits manufacturers and suppliers from providing preferential treatment to some buyers and not to others.
Sales Promotions, Contests, and Sweepstakes: Laws and Regulations Your Business Clients Must Know
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Sales promotions are an essential marketing tool for most businesses. They can boost sales by building brand awareness and providing incentives for consumers to buy products and services. Sales promotions come in many forms and can be directed at the consumer (consumer sales promotions) or at retailers and wholesalers (trade sales promotions).

Retailers, manufacturers, and other advertisers must navigate a regulatory maze of federal and state laws to conduct and advertise a sales promotion. This Note provides an overview of the legal issues surrounding sales promotions and considers, in particular:

  • Consumer sales promotions.
  • Contests and sweepstakes.
  • Trade sales promotions.

Regulatory Framework for Consumer Promotions

Consumer sales promotions are governed by the laws of each of the 50 states, as well as by federal laws and regulations. Sales promotions also must comply with general advertising principles and not be unfair or deceptive. There are various penalties for violations of the rules governing consumer sales promotions and many places for consumers to file complaints.

Federal and State Laws

The Federal Trade Commission (FTC) is the primary federal agency responsible for regulating sales promotions and advertising generally. It does so by prescribing rules under the Federal Trade Commission Act, 15 U.S.C. § 41 (FTC Act), investigating suspected violations of the Act, and bringing lawsuits against those companies conducting illegal activity.

Only the FTC has the right to prosecute an action under the FTC Act. The US Postal Service (USPS) and the Federal Communications Commission (FCC) also have authority to enforce certain federal laws governing contests, sweepstakes, and other prize promotions.

All states have unfair and deceptive trade practices laws, many of which resemble the FTC Act (so they are sometimes referred to as “Little FTC Acts”). These laws prohibit false, misleading, and unfair trade practices and often include a list of examples of the types of practices they prohibit. Claims under these state laws are either private causes of action brought by consumers or actions brought by the state attorneys general. Many states have issued regulations under these laws that govern price promotions. Most states also have gambling, lottery, and promotion laws which govern the conduct of contests and sweepstakes.

A company also can sue its competitors under Section 43(a) of the federal Lanham Act if any false or misleading statement is used in a sales promotion and creates a likelihood of harm to the company (15 U.S.C. § 1125(a)).

Advertising Principles

The FTC Act prohibits unfair and deceptive advertising. Like all advertising, promotions must not contain false or misleading statements. Clear and conspicuous disclosures are required when the average consumer is likely to misinterpret a message. Companies advertising promotions must also substantiate their claims before disseminating them. According to the FTC’s Policy Statement on Deception, an advertisement is deceptive if it contains a statement or omits information that is likely to mislead consumers acting reasonably under the circumstances and is important to a consumer’s decision to buy or use the product or service.


FTC penalties related to unfair and deceptive trade practices vary, as they are usually determined based on the details of the practice, the nature of the violation, and even the tone of the investigation. The FTC may pursue the following remedies:

  • Equitable remedies, including cease and desist orders, consent orders, and injunctions. These penalties are used to stop parties from continuing unfair and deceptive trade practices. Orders also include steps to remedy unfair and deceptive practices and to require record-keeping and reporting procedures.
  • Redress. Redress penalties are for dishonest and fraudulent advertising practices which cause consumer harm. Redress amounts are not statutorily determined but are based in part on the revenue generated by the fraudulent practice. Redress includes disgorgement of profits and can take the form of refunds to harmed consumers.
  • Civil penalties. The FTC may impose civil penalties for violation of both its rules regarding unfair or deceptive acts or practices and its orders. For continuing violations, each day is a separate violation.

Penalties for violation for state laws vary on a state-by-state basis, but also may include injunctions, restitution, and civil penalties.

Remedies available to competitors filing suit under Section 43(a) of the Lanham Act include injunctions, damages that result from the false advertising, and the defendant’s profits.

Consumer Complaints

Consumers can file complaints against a sales promotion with any of the following:

  • FTC.
  • National Advertising Division.
  • Local Better Business Bureau offices.
  • Office of the state attorney general or department of consumer affairs of the consumer’s state.

Under state unfair and deceptive trade practices laws, consumers may also bring civil lawsuits for deceptive practices, fraud, and other unfair competition in promotional activities.

Consumer Sales Promotions

Companies use a variety of sales methods to target consumers. Common techniques include discounts, free offers, coupons, and rebates. A company must consider many rules when structuring a consumer sales promotion, particularly those relating to pricing practices and advertising.

Price Promotions Generally

The Federal Trade Commission’s (FTC) Guides Against Deceptive Pricing generally require that a seller offer an item at a price for a reasonably substantial period of time in good faith and in the regular course of business before advertising that price as the former or regular price (Pricing Guides) (16 C.F.R. § 233.1).

Many states also regulate promotional pricing. These state laws and regulations typically:

  • Define how a seller establishes a regular price.
  • Prescribe the length of time an item must be sold at regular price before advertising a promotional price.
  • Limit how a seller may advertise price comparisons.

“Up To” Pricing and Savings

“Up to” pricing or savings offers are a specific type of promotional pricing where consumers may have a range of savings with the highest discount or savings highlighted (such as “save up to 25% off”). In addition to adhering to the Pricing Guides, companies should consider the number of consumers likely to receive the highest indicated discount or savings.

The FTC has not issued formal guidance on the number of consumers it prefers to receive the highest savings in an “up to” offer. However, it has indicated in some of its recent orders that to avoid deceptive pricing when a company offers an unqualified “up to” pricing or savings, the majority of consumers should be receiving the highest indicated savings.

Several states have specific laws governing “up to” pricing and savings claims. The laws create standards for disclosing:

  • The discounted price range for the advertised items (meaning the highest and lowest prices or the greatest and least reduction in prices).
  • The basis for the advertised percent reduction, such as compared to the regular price or the manufacturer’s suggested retail price.
  • The percent of the items offered at the maximum savings.

Free Offers

The FTC provides detailed guidance on using the word free in advertising in its Guide Concerning Use of the Word “Free” and Similar Representations (Free Guides) (16 C.F.R. § 251.1). The Free Guides emphasize that free must mean free. A free offer must not try to recoup the cost of the free item in hidden ways, like marking up shipping costs or substituting an inferior product for the advertised free product.

Companies should clearly and conspicuously disclose any conditions or limitations on a free offer in close proximity to the word “free,” such as:

  • A required purchase of an item to get the free item.
  • Payment of shipping and handling.

The Free Guides place limits on introductory offers, bundled offers, and the frequency of free offers to ensure that consumers truly receive the benefit of a free offer. For example, a company should only make a free offer with the introduction of a new product offered at a specified price if:

  • The company plans, in good faith, to end the offer after a limited time (six months or less).
  • After that limited time, the company expects to sell the new product separately at the price at which it was promoted during the free offer.

Companies should not use “free” to describe a continuously offered bundle or combination of products or services. If the combination is never broken apart and the components sold individually, the bundle itself becomes the product and no portion of it really is free.

The Free Guides apply to synonyms of the word free, such as bonus and gift, so a company should not try to circumvent the guidance by using a synonym.

Some states also have regulations on using the word “free” to advertise a price promotion. These regulations typically borrow principles from the Free Guides, but are not completely identical. For example, they may rely on the state’s definition of regular price.


A coupon entitles the bearer to a stated price reduction or special value on a specific product, generally for a specified period of time. A coupon gives rise to legal obligations based on its terms and creates obligations that may be enforceable by contract law as well as by criminal penalties. Coupons are also a form of advertising so should be truthful and not misleading. Federal and state laws do not generally require specific language on coupons, but a coupon typically specifies:

  • The brand, item, and size.
  • An expiration date.
  • The discount, whether cents or dollars off, buy one get one free, or other offer.
  • It may not be combined with another coupon or offers.
  • It has no cash value.
  • It is non-transferable and may not be reproduced.
  • A limitation of one coupon per customer.
  • The geographic locations where the coupon is valid and any exclusions.

A cross coupon (or cross-ruff coupon) is an offer delivered on one product that is redeemable for the purchase of another product. The other product is usually one made by the same company but may involve a tie-in with another manufacturer. These coupons may link consumer purchases across different brands as well as shopping trips.

No federal or state laws prohibit couponing or cross-couponing, but many states have laws for specific industries that limit discounts. For example, to protect their farmers, several states (such as Louisiana and Colorado) have dairy laws that restrict how much dairy products can be discounted. These laws typically set a price floor on dairy products to prevent retailers from selling them below cost.


Most companies offer rebates in a mail-in format. Rebates require consumers to pay the full cost of an item at the time of purchase, then send documentation to the manufacturer or retailer to receive money back by mail. The documentation required generally includes the original sales receipt, UPC code, and rebate slip with the customer’s contact information. A company must clearly state all conditions on a money-back offer. The offer must specify a reasonable period of time for:

  • The consumer to seek the refund (usually within 30 days from purchase).
  • The company to make the refund payment (usually within 8 to 12 weeks).

If the rebate offer does not specify the time period for the company to make the refund payment, the FTC generally interprets the reasonable time period to be within 30 days. Some states prescribe the allowable timeframes. For example, under New York law, a company must allow consumers a minimum of 14 days from purchase to request a rebate and must return a rebate to a consumer within 60 days of receipt of the request (N.Y. Gen. Bus. Law § 391-q).

The terms must specify the expiration date and whether the payment is to be made by the retailer or the manufacturer. The company also must prominently state the before-rebate cost and the amount of the rebate so that consumers can calculate the final actual out-of-pocket cost of the product.

Many states have laws that specifically regulate rebates and some of these laws have more stringent requirements for how to advertise rebates. For example, Connecticut and Rhode Island both prohibit retailers from advertising a post-rebate price (the store price less the amount of the rebate) unless the rebate is given to consumers at the time of purchase.

Loss Leaders and Predatory Pricing

A loss leader is a product sold below cost to attract consumers to a store and stimulate profitable sales on other products. No federal law specifically regulates this practice, but businesses may run into antitrust issues if their loss leader practices escalate to the level of predatory pricing. The FTC’s guidance notes that low-cost pricing benefits consumers and the use of below-cost pricing to drive out competitors (predatory pricing) violates the law but is rare. (See the FTC’s Guide to Antitrust Laws: Single Firm Conduct: Predatory or Below-Cost Pricing.) Predatory pricing may result in antitrust claims if it affects competition in the market as a whole, though the FTC and most courts uphold a high standard for proving predatory pricing violations and remain skeptical of those claims.

However, some states either ban loss leading completely or on specific items. For example, California prohibits businesses within the state to use loss leaders. California law defines a loss leader as any article or product sold at less than cost where the purpose or effect is any of the following:

  • To induce, promote, or encourage the purchase of other merchandise.
  • A tendency or capacity to mislead or deceive purchasers or prospective purchasers.
  • To divert trade from or otherwise injure competitors.

(Cal. Bus. and Prof. Code Section 17030.)

Money Illustrations

Companies often like to use illustrations of money to advertise sales promotions. The US regulates the use of currency likenesses under its anti-counterfeiting laws and regulations. Federal law permits color images of US currency only under the following conditions:

  • The image is less than three-fourths or more than one and one-half times the size of the currency.
  • The image is one-sided.
  • All negatives, plates, positives, digitized storage medium, graphic files, magnetic medium, optical storage devices, and all other items used that contain all or part of the currency image are destroyed, deleted, or erased after their final use.

(See 18 U.S.C. § 504(1) and 31 C.F.R. § 411.1.)

Contests and Sweepstakes

A complex web of federal and state consumer fraud and consumer protection laws governs contests and sweepstakes. No single federal law governs contests and sweepstakes in their entirety. Instead, a few federal laws cover aspects of contests and sweepstakes depending on the medium used to advertise them. The FTC, FCC, and USPS enforce these federal laws.

Both federal and state law ban the use of lotteries for marketing purposes. Companies need to design their promotions to avoid being classified as a lottery. Most states also heavily regulate contests and sweepstakes, though rules vary from state to state. Contests and sweepstakes also can give rise to certain contractual issues and tax obligations.

Federal Laws

Like all sales promotions, contests and sweepstakes must comply with the FTC’s general advertising guidelines (see Advertising Principles, above). Other applicable rules and laws also may apply depending on the medium used to communicate or conduct the promotion, such as:

  • The Telemarketing Sales Rule (TSR) (16 C.F.R. §§ 310.1 to 310.9) and the Telephone Consumer Protection Act (TCPA) (47 U.S.C. § 227).
  • The 900-Number Rule (16 C.F.R. §§ 308.1 to 308.9).
  • The Communications Act of 1934 (47 U.S.C. § 151).
  • The Deceptive Mail Prevention and Enforcement Act (DMPEA) (39 U.S.C. §§ 3001 to 3018).


If a contest or sweepstakes is communicated using telemarketing calls, the FTC’s TSR requires specific disclosures, including:

  • That no purchase or payment is required to win or participate.
  • A purchase or payment does not increase a person’s odds of winning a prize.
  • The odds of winning a prize.

(16 C.F.R. § 310.3(a)(1)(iv).)

Telemarketing calls and texts, which include the offer of a contest or sweepstakes, must also comply with the prior consent requirements of the TCPA. The TCPA requires prior express written consent for:

  • Telephone calls and text messages that use an automatic telephone dialing system or a prerecorded voice to deliver a telemarketing message to wireless numbers.
  • Prerecorded telemarketing calls to residential lines.

The TSR and TCPA prohibit telemarketing calls to numbers on the federal do-not-call registry and to numbers on a company’s internal do-not-call list.

900-Number Rule

The FTC’s 900-Number Rule covers the advertising and operation of pay-per-call services. The 900-Number Rule requires certain disclosures when advertising a pay-per-call service generally, including information about the cost of the call.

If pay-per-call service advertisements promote sweepstakes or games of chance, the 900-Number Rule requires additional disclosures, such as:

  • The odds of winning.
  • A statement that consumers do not have to call the pay-per-call number to enter the sweepstakes or game. A free alternative means of entry must be provided and disclosed.

(16 C.F.R. § 308.3(c).)

The 900-Number Rule provides detailed descriptions on how to make all required disclosures in various media clearly and conspicuously.

Communications Act of 1934

The Communications Act of 1934 prohibits influencing, prearranging, or predetermining the outcome of contests of knowledge, skill, or chance broadcast by a radio or television station. Specifically, it is unlawful for any person, with intent to deceive the public:

  • To supply to any contestant any special and secret assistance where the outcome of the contest is to be in whole or in part prearranged or predetermined.
  • By means of persuasion, bribery, intimidation or otherwise, to induce or cause any contestant to refrain in any manner from using or displaying that person’s knowledge or skill in the contest, where the outcome is to be in whole or in part prearranged or predetermined.
  • To engage in any artifice or scheme for the purpose of prearranging or predetermining in whole or in part the outcome of the contest.
  • To participate in the production or broadcasting of any radio program relating to a contest while knowing or having reasonable ground for believing that any person has done or is doing anything referred to in the above prohibitions.
  • To conspire with any other person to do anything referred to in the above prohibitions, if any of these persons does anything to achieve the object of the conspiracy.

Violating these prohibitions can result in fines of up to $10,000 or imprisonment of up to one year, or both (47 U.S.C. § 509).

Under the FCC’s rules for broadcasting prize promotions, radio and television broadcast licensees must disclose the material terms of any prize promotions that they broadcast. Broadcast licensees may comply with their obligation to disclose material contest terms by either:

  • Making the terms available in writing on a publicly accessible website, which can be:
    • the station’s website;
    • the licensee’s website; or
    • if neither the individual station nor the licensee has its own website, any website that is readily accessible to the public.
  • Broadcasting the terms on the air.

Although the rules note that material terms vary depending on the nature of the prize promotion, they provide examples of which terms the FCC considers to be material, such as:

  • How to enter or participate.
  • Eligibility restrictions.
  • Entry deadline dates.
  • The extent, nature, and value of prizes.

(47 C.F.R. § 73.1216.)


The DMPEA gives considerable authority to the USPS to prevent deceptive practices in skill contest and sweepstakes mailings. It grants the USPS subpoena power, nationwide stop-mail authority, and the ability to impose significant civil penalties.

The DMPEA requires certain disclosures in all mailings that contain contest or sweepstakes entry materials including:

  • Statements that no purchase is necessary and a purchase does not enhance the participant’s chances of winning.
  • The sponsor’s name and street address.
  • The complete official rules and entry procedures, which must disclose:
    • all the material terms and conditions of the contest or sweepstakes;
    • the quantity, estimated retail value, and the nature of the prize; and
    • the odds of winning.

For skill contests, the DMPEA requires some additional disclosures, such as:

  • The number of rounds or levels of the contest and the cost to enter each round or level.
  • The maximum cost to enter all rounds or levels.
  • The identity or description of the qualifications of the judges if the contest is judged by other than the sponsor.
  • The method used in judging.

(39 U.S.C. § 3001.)

Companies that mail contest or sweepstakes entry materials must also maintain a free name removal system which allows recipients to opt out of receiving future contest or sweepstakes mailings. The mailing must disclose the name removal system to recipients and a toll-free number or address for contacting the system. Companies must honor a name removal request within 60 days of receipt. Consumers also have a private right of action for a company’s failure to comply with the requirements of establishing and implementing a name removal system. (39 U.S.C. § 3017.)

Mail solicitations that are not in compliance with the DMPEA are deemed non-mailable matter and are subject to mail detention and prosecution by the USPS. Civil penalties of up to $3 million can be imposed.

Lottery and Gambling Laws

The use of lotteries, other than those sponsored by state governments, is illegal under both federal and state laws and may not be used as a marketing tool. Lotteries are defined as promotions that contain all three of the following elements:

  • Chance. The outcome of the promotion depends on factors outside the control of the participants. States have different thresholds for determining what constitutes chance (see Skill Versus Chance, below).
  • Prize. A prize may be anything of value offered to participants.
  • Consideration. The requirement to pay money or purchase a product or service to enter a promotion constitutes consideration. In some states, consideration also may exist if a participant must expend substantial time or effort that somehow benefits the sponsor in a material way (such as completing a detailed questionnaire or making a mandatory store visit). (See Negating Consideration, below.)

To conduct a legal contest or sweepstakes, a company must eliminate at least one of these elements.

State Laws

Detailed restrictions and conditions on contests and sweepstakes are found at the state level. For contests, some states require prizes to be awarded only on the basis of skill and others have adopted a predominance test (see Skill Versus Chance, below). Because sweepstakes have the elements of prize and chance, sponsors must eliminate consideration. If a sweepstakes has a method of entry that involves consideration, sponsors must also provide consumers a free means of entry (see Negating Consideration, below). The laws of the 50 states vary considerably, but many have similar requirements regarding a prize promotion’s official rules.

Skill Versus Chance

If participation in a contest is conditioned on a purchase or payment, winners of a contest must be selected based on skill, rather than chance. However, certain states, such as Colorado, Connecticut, and Illinois, may prohibit or restrict companies from requiring consumers to purchase a product in connection with a contest in certain circumstances, whether or not winners are selected based on skill.

Most states have adopted a predominance test to differentiate skill games from chance games. Under this test, a court determines whether skill or chance plays a greater role in determining the outcome of a game. Some states have more restrictive requirements for determining whether a promotion is skill or chance-based and a promotion may be deemed to be chance-based even if skill predominates. A tie-breaker procedure based on chance, such as a random drawing, can also turn a skill contest into a chance-based promotion.

It is also important to ensure that a contest involves some legitimate skill and objective judging criteria. For example, awarding a prize to the first caller to guess the answer to “what is two plus two” is deemed a chance drawing as no appreciable skill is needed to know the answer to the question.

Negating Consideration

If consumers can enter a chance-based promotion by using a method that involves consideration, such as by purchasing a product, sponsors must eliminate the consideration requirement by offering a free alternate method of entry (AMOE). For example, consumers may be permitted to enter by mail or online.

The equal dignity rule holds that for an AMOE to negate a consideration requirement, entries submitted using a free method must be treated the same as entries submitted using a paid method. For example:

  • The AMOE must be clearly and conspicuously disclosed.
  • Consumers must be able to enter the same number of times for free as they can by making a purchase or payment.
  • Consumers must have the same amount of time to enter for free as they do by making a purchase or payment.

Sponsors must not create separate prize pools for purchase entries and non-purchase entries.

Official Rules

Most states require that every contest and sweepstakes be governed by official rules that are readily available to entrants. The details in official rules vary depending on the nature of the promotion, but most states generally require both contest and sweepstakes rules to include:

  • Eligibility requirements (like age) and exclusions (like family members of sponsor employees).
  • Clear entry instructions for all methods of entry. For contests, entry instructions should include detailed directions about what an entrant must submit and in what format.
  • The start and end dates (and times and time zone if applicable) of the entry period.
  • A complete description of the nature and number of prizes that are to be awarded and their approximate retail value.
  • How and when a list of winners may be obtained.
  • The corporate name and physical address of the sponsor.

For contests, the states generally also require in the rules:

  • The criteria by which the winner is to be selected.
  • The method for determining prize winners if a tie occurs. Otherwise, some states require that both winners receive the same value of prize.

For all sweepstakes and for contests in states that prohibit consideration for entering a contest, the official rules must prominently state that no purchase is necessary to enter or win the promotion.

Registration and Bonding

New York and Florida require sponsors to bond and register games of chance where the total value of prizes offered exceeds $5,000.

New York regulations require that sponsors register and post the bond at least 30 days before the start of the sweepstakes. A list of winners must be filed with the state within 90 days of the promotion’s conclusion. (N.Y. Gen. Bus. Law § 369-e.)

Florida regulations require that sponsors register and post the bond at least seven days before the start of the sweepstakes. A list of winners must be filed with the state within 60 days of final determination of the winners. (Fla. Stat. § 849.094.)

Rhode Island requires sponsors of promotions offered by retail establishments that have a prize pool of more than $500 to register (R.I. Gen. Laws § 11-50-1). No bond is required.

Contractual Issues

The law of contracts governs the relationship between a sponsor and an entrant in a prize promotion. By making public the conditions and rules of a contest or sweepstakes, a sponsor makes an offer to potential participant. If a participant performs all the requirements of the offer under the published rules, a legally binding contract results. Contracts entered into with minors, however, are voidable at the option of the minor.

Many contests and sweepstakes involve the efforts of parties in addition to the sponsor. For example, a sponsor may hire an agency to administer the promotion or partner with other companies that provide prizes. Before working on the rules or the advertisements for a promotion, companies should have contracts in place with these third parties.

Tax Issues

Certain tax issues occur in connection with prize promotions. Under the Internal Revenue Code (IRC), promotional prize recipients must include in their gross income all amounts received as prizes and awards (26 U.S.C. § 74(a)).

If a prize or award is not made in money but in goods or services, the fair market value of the goods or services is included in the recipient’s gross income (26 C.F.R. § 1.74-1).

A company making payment in the course of its trade or business to another person of $600 or more in any taxable year must file an information return for the payment with the Internal Revenue Service (26 C.F.R. § 1.6041-1). This filing requirement applies to any amount paid in excess of $600 as a prize or award that must be included in gross income of the recipient under Section 74(a) of the IRC. When a prize is valued at $600 or more, the IRS also requires the company awarding the prize to issue the winner an IRS Form 1099-MISC.

Trade Sales Promotions

Trade sales promotions are directed to intermediaries, such as wholesalers and retailers. Trade promotions generally are subject to the same rules that apply to consumer promotions. They also must not violate the federal Robinson-Patman Act, which prohibits manufacturers and suppliers from providing preferential treatment to some buyers and not to others (15 U.S.C. § 13). The prohibited preferential treatment may be in the form of:

  • Price discrimination.
  • Discriminatory promotional allowances and services.

Price Discrimination

The Robinson-Patman Act prohibits manufacturers and suppliers from directly or indirectly charging competing customers (intermediaries like wholesalers and retailers) different prices for the same commodity if the effect is to lessen competition (15 U.S.C. § 13(a)). Price discrimination issues involve incentives primarily to increase the initial sale to an intermediary rather than to the ultimate consumer.

Price Discounts

It is unlawful for a seller to offer different price discounts to competing customers unless the price discrimination is justified by differences in the costs of manufacture, sale, or delivery of products or by the need to meet the pricing of the competition.

Volume Discounts

Volume discounts are allowed only if they are functionally available to competing customers and reflect actual differences in the costs of manufacture, sale, or delivery of products.

Discriminatory Promotional Allowances and Services

Issues with discriminatory allowances and services involve incentives provided by suppliers (including manufacturers) primarily used to promote resale by the retailer to the consumer. Promotional allowances and services may include:

  • Funding a portion of a retailer’s local advertising.
  • Providing sales displays, such as endcaps and counter racks.
  • Providing in-store product demonstrations.
  • Participating in cooperative advertising.

The Robinson-Patman Act requires suppliers to provide promotional allowances and services to all competing customers on proportionally equal terms (15 U.S.C. § 13(d) and (e)). The supplier also must take steps reasonably designed to provide notice to competing customers of the availability of promotional allowances and services. These provisions are designed to prevent a supplier from causing a retailer to be at a competitive disadvantage to another retailer in the resale of the supplier’s products.

The FTC’s Guides for Advertising Allowances and Other Merchandising Payments and Services (known more familiarly as the Fred Meyer Guides) provide detailed guidance for businesses trying to comply with these sections of the Robinson-Patman Act (16 C.F.R. §§ 240.1 to 240.15). The Fred Meyer Guides give instructive examples of proportionally equal terms noting there is no single way to achieve that end. For example, if a manufacturer provides promotional endcap displays to large retailers, but also offers the display in different shapes and sizes to accommodate smaller retailers, it has made the promotion available on proportionally equal terms. When offering advertising allowances and promotions at the retail level, suppliers should consult the Fred Meyer Guides to help avoid discriminating against competitive retailers.

Reprinted with permission from; Thomson Reuters Practical Law. © 2022 by Thomson Reuters. All rights reserved. Thomson Reuters is a Sponsor of the GPSolo Division, and this article appears pursuant to the Division’s agreement with them. This article is not an endorsement by the ABA or the Division of any Thomson Reuters product or service.