The Robinson-Patman Act: Background & Jurisdictional Requirements
By: RICHARD J. WEGENER
August 2009
Background
The Robinson-Patman Act1 (the Act) was enacted in 1936 during the depths of the Great Depression to protect independent retailers against the large chain stores (particularly in the drug and grocery industries) which were able to extract more favorable terms from suppliers by maximum use of excessive quantity and similar discounts. The future of the independents was considered to be in such grave danger, in view of their inability to compete with the large chain stores, that there was broad public support for legislation compelling suppliers to treat all buyers on a fair and equal basis.
More than seventy years later, the Act remains controversial and complex. The statute was drafted and became law very quickly, resulting in many confusing sections and giving birth to many court cases on its interpretation. Two Supreme Court justices have characterized the Act as an “opaque and illusive statute.” Another has remarked that “precision of expression is not an outstanding characteristic of the Act.”
Summary of the Act
Section 2(a) is the heart of the Act. It prohibits sellers engaged in interstate commerce from discriminating in price when competitive injury may result. The section also provides a defense, when an otherwise unlawful price discrimination, can be cost-justified by the seller, and other limited defenses and exceptions.
Section 2(b) is related to 2(a), (d) and (e) and sets forth burdens of proof in defending a violation. Section 2(b) also provides that price discrimination is not unlawful if it is made in good faith to meet the equally low price, allowances or services of a competitor. “Meeting competition” is a complete defense to a Section 2(a) violation.
Section 2(c) is the “brokerage” provision. It prohibits the seller from paying any brokerage fee, commission, or an equivalent to a buyer or the buyer’s agent. Section 2(c) also prohibits a buyer from accepting any such brokerage fee or commission. It also prohibits a buyer from receiving such payments.
Sections 2(d) and 2(e) are closely related sections which prohibit a seller from granting discriminatory allowances [2(d)] and services and facilities [2(e)] to a buyer unless the assistance is made available to other competing buyers on proportionally equal terms.
Section 2(f) imposes liability on buyers who knowingly receive price discriminations prohibited by Section 2(a).
Section 3, which is not a part of the Clayton Act, contains criminal penalties. Section 3 declares it unlawful for a seller to provide certain secret allowances to the buyer. It also prohibits geographic price discrimination or sales at unreasonably low prices where the seller’s purpose is to destroy competition or to eliminate a competitor.
Jurisdictional Requirements
Section 2(a) prohibits direct or indirect discrimination in price in the sale of commodities by a seller engaged in interstate commerce. In general terms, the following elements must be met to establish a violation of the Act:
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Sales in interstate commerce. The Act concept of “interstate commerce” is more restrictive than under the Sherman Act. Under the Act, at least one of the sales has to actually cross a state line; whereas for Sherman Act purposes it is sufficient that the sales merely affect interstate commerce. If a local seller in Minnesota discriminates between his Minneapolis and St. Paul buyers, the Act does not apply. But if the Minnesota seller discriminates between a Minneapolis buyer and a competing Chicago buyer, the commerce requirement of the Act is established because a state line has been crossed with respect to one of the transactions.
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Discrimination in price. The cases have established that “price discrimination” simply requires that there be a price difference.
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Two sales to different buyers. A sale to one buyer and an outright refusal to sell to another cannot satisfy Section 2(a). Similarly, a sale to one buyer and a consignment to another cannot be reached by the Act.
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Commodities of like grade and quality. Only sales of goods, not services, are covered. Only tangible goods in the conventional sense are encompassed by the term “commodities.”Sales of televisions would be covered; sales of television broadcasting time would not.
When identical goods are sold, the requirement of “like grade and quality”is met. But how much difference between similar commodities is necessary so that the goods are not of like grade and quality? The courts have held that price discrimination in the sale of identical goods between those sold under a private label name and those sold under a prominent trademark is covered by the Act. On the other hand, small physical differences between the two products may be sufficient to distinguish one from the other and place pricing outside of the Act coverage. -
Contemporary transactions. The requirement for reasonably contemporaneous sales protects the seller and prevents any “freezing” of pricing practices over long periods of time. Individual situations, in individual industries, will determine what contemporaneous sales are under the law. A two-month difference between two sales might not be covered under the Act in one industry, while an even longer period between sales might be covered in another industry. Inventory turns, price movement in the marketplace, seasonality and other factors are considered in determining if the time requirement has been satisfied; no one rule fits all situations.
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Competitive injury. This requirement merits special attention. The Act addresses both primary-line (“seller level”) and secondary-line (“buyer level”) discrimination. The competitive injury requirement is different for both.
Primary-line discrimination imposes injury on a competitor of the seller. A car company’s sale of imported cars at a lower price to a rural Kansas dealership, where it may not have competition from competing auto manufacturers, may not violate the Act. On the other hand, its sale of cars in New York City at a lower price, where it has competition, is an example of primary-level discrimination.
Secondary-level discrimination places the injury on the disfavored buyer. An import car company’s price to a dealership in Chicago at a favored price while it sells the same car to a competing Chicago dealership at a less favorable price is an example of this variety of discrimination.
Following the Supreme Court’s 1993 decision in Brooke Group v. Brown & Williamson Corp.,2 the law of primary-line price discrimination is virtually the same as predatory pricing under the Sherman Act. The disfavored price must be below cost (i.e., below average variable cost). Furthermore, the plaintiff must be able to demonstrate that the predator has a reasonable prospect of recouping its investment in below-cost prices. It is insufficient that the plaintiff has been injured by virtue of the below-cost sales; there must be injury to competition.
The secondary-line competitive injury requirement is quite different. The cases have historically held that substantial price discrimination between competing customers over time gives rise to a presumption of competitive injury.3 For secondary-line cases, injury to a competitor has historically been deemed sufficient, although recent statements by the Supreme Court have suggested that even secondary-line cases should focus on injury to competition, not just injury to a competitor.4
Next: Promotional allowances and services
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1 15 U.S.C. §§ 13, 13a, 13b, 21a.
3 FTC v. Morton Salt Co., 334 U.S. 37 (1948). “In Morton Salt this Court held that, for the purposes of § 2(a), injury to competition is established prima facie by proof of substantial price discrimination between competing purchasers over time…. In the absence of direct evidence of displaced sales, this inference may be overcome by evidence breaking the causal connection between a price differential and lost sales or profits.” Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S. 428 (1983).
4 Volvo Trucks North America, Inc. v. Reeder Simco GMC, Inc., 546 U.S. 164, 180-81 (2006) (“Interbrand competition, our opinions affirm, is the ‘primary concern of antitrust law.’ Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 51-52, n. 19 (1977). The Robinson-Patman Act signals no large departure from that main concern. Even if the Act’s text could be construed in the manner urged by Reeder and embraced by the Court of Appeals, we would resist interpretation geared more to the protection of existing competitors than to the stimulation of competition. In the case before us, there is no evidence that any favored purchaser possesses market power, the allegedly favored purchasers are dealers with little resemblance to large independent department stores or chain operations, and the supplier’s selective price discounting fosters competition among suppliers of different brands.”)