The Robinson-Patman Act: The Allowances & Services Provisions
By: RICHARD J. WEGENER
For many companies, the Robinson-Patman Act is all about advertising and promotional allowances and services – those “programs,” “plans,” etc. that facilitate resale of the manufacturer’s products. Sections 2(d) and (e) of the Act1 prohibit discrimination in the grant of promotional allowances and services in connection with the buyer’s resale of the seller’s goods to both direct and indirect purchasers.2
It is important to understand that in order to be within Sections 2(d) and (e), a promotional allowance must be not only in connection with resale, but contain a “performance requirement;” that is, be granted upon the condition that the customer undertake something in return. For example, a discount of 10% off for all purchases displayed with a point-of-purchase sign would be covered because the 10% discount is earned only in return for displaying the product with a required sign.
A seller may not grant promotional allowances or services to customers unless they are made available to all competing customers on proportionally equal terms. Both the requirements of “availability” and “proportionately equal terms” have been subject to extensive litigation before the Federal Trade Commission and in the courts. The former requires that the seller take reasonable steps to make the offer known to all competing customers. The latter recognizes that a particular allowance may not be valuable to all customers, but that some practical alternative must be made available to such customers. For example, a large chain grocery store may find that a television advertising allowance is valuable while an independent local grocery store may not. The independent local grocery store should be provided with some practical alternative such as a handbill advertising allowance.
Sellers have some discretion in structuring their promotional programs. The Supreme Court has recognized that a seller may structure the types of allowances and services offered to meet the special needs of the seller’s diverse customer base, but must do so in good faith.3 In guidelines interpreting these provisions of the Act4, the Federal Trade Commission recognized that the “proportionately equal” requirement may be satisfied in different ways. Basing allowances on dollar volume or quantity purchased may be the simplest methods. It would appear that proportionality may also be measured by either cost or value to the seller.
Courts have had difficulty determining whether a particular payment is an allowance subject to the more stringent allowances and services provisions (having no competitive injury requirement and offering no cost justification defense) or essentially a price discount subject to the basic price discrimination prohibition of Section 2(a) of the RPA.5 For example, is a “slotting allowance” an allowance or a price discount? Although the case law is not crystal clear, the better view is that the allowances and services provisions apply only when the allowance or service is connected with the resale of the product. In the case of “slotting allowances,” the F.T.C. Staff has suggested that if the allowance is granted to get the product on the seller’s shelves (a “slot” in the customer’s warehouse), the allowance is not connected with the resale of the product and is really a price discount. On the other hand, if the “slotting allowance” is to obtain end-aisle product placement in the store it is clearly connected with the resale of the product and falls under the allowances and services section.
It should be noted that there is no requirement for proof of competitive injury for violation of these provisions; 2(d) and (e) are per se provisions. This means that in a private action under Section 2(d) or (e) there is no need to show competitive injury to establish the violation (although the plaintiff must still show damages). Given this reduced burden, plaintiffs will often seek to plead an “allowance and service” case.
Next: Competitive Injury and Functional Discounts
4 See generally Guides for Advertising Allowances and Other Merchandising Payments and Services (“Fred Meyer Guides” or “Guides”), 16 C.F.R. § 240. The original Guides resulted from the Supreme Court’s decision in Fred Meyer, Inc. v. FTC, 390 U.S. 341 (1968), holding that a manufacturer offering promotional benefits to direct-buying retailers was required by sections 2(d) and 2(e) of the Robinson-Patman Act to offer equal or proportionate benefits to competing retailers which purchased through wholesalers. The Court recognized the compliance difficulties created by its ruling and suggested that the FTC issue guidelines to assist manufacturers (390 U.S. at 358). The original Guides were issued in 1969 and have been revised on several occasions. Mr. Wegener served as a member of the ABA Antitrust Section’s Special Task Force on the FTC’s Guides for Advertising Allowances and Other Merchandising Payments and Services when they were last revised in August, 1990.
5 Section 2(a) makes it unlawful for a seller to charge competing customers different prices where “the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce.”