Articles Posted in Antitrust Counseling

Author: Steven Cernak

When I first started practicing antitrust law in the “80’s, the Robinson-Patman Act was already an object of derision.¹ With Chicago School thinking riding high in academia and the courts and antitrust law’s focus shifting to effects on consumers, not rivals, RP cases seemed to be dwindling down to nothing. My colleagues and I were convinced that RP would soon be dead and we would never again need to deal with its tortured language² and questionable economics.

But not all my colleagues. One insisted that Robinson-Patman would never be repealed—after all, what member of Congress would vote against protecting small business?—and the private right of action would mean that the threat of litigation would always at least affect negotiations even if the federal agencies stopped bring new cases.³  Despite our constant ridicule of his outdated ways, he insisted that I learn the intricacies of the statute and cases, analyze the latest changes to the Fred Meyer Guides, and otherwise prepare to take over from him the counseling of a client that sold goods “of like grade and quality” in at least three overlapping channels.

I’m glad he did. He was right. To this day, suppliers and retailers negotiate in the shadow of RP and require counseling about its sometimes-obscure details. Every year, new private litigation gets filed and generates opinions and even jury verdicts on Robinson-Patman issues.⁴  Fewer than in the “60’s but still greater than zero.  So for all the suppliers and the retailers through whom they sell—along with their respective counselors—here is a summary of what you need to know about RP in the 21^st Century:

The Basics of the Robinson-Patman Act

There are two kinds of discrimination that RP is meant to prevent and where some litigation is still filed today. Section 2(a) prohibits the sale of the same commodity at different prices to two competing buyers by one seller if the result is harm to competition. It has several elements that must be met and potential defenses, all of which narrow the scope of its application. Sections 2(d) and 2(e) are per se prohibitions of the discriminatory provision of or payment for certain promotional aids meant to assist in resale of a seller’s commodity. Again, several elements must be met to prove a violation. In addition, Robinson-Patman applies only to commodities sold for use or resale in the U.S.

Section 2(a) Price Discrimination – Elements

The elements of a Section 2(a) claim are usually summarized as prohibiting (1) a difference in price (2) in reasonably contemporaneous sales to two buyers purchasing from a single seller, (3) involving commodities, (4) of like grade and quality (5) that may injure competition.

While price discrimination is “merely a price difference”, actual net prices must be compared, after taking into account all discounts, rebates and other factors affecting price. If the lower price is “functionally available” to the plaintiff but plaintiff chooses not to accept it, courts have held that such proof “essentially negates the discrimination element” of plaintiff’s price discrimination claim.⁵

The two sales at different prices must be reasonably contemporaneous, a question of fact that depends on the seasonal quality of the sales and overall market conditions. Also, those two contemporaneous transactions must be “sales”, not something else like leases, licenses or an offer to sell. Finally, two completed sales are required and so at least one court has held that this element is not met in competitive bid situations where the commodity is only purchased if the dealer’s bid is successful.⁶

Section 2(a), as well as sections 2(d) and 2(e), apply only to “commodities”, a term left undefined by the statute. Courts have consistently interpreted the term to mean tangible products. Intangible items that have been held not to be commodities include medical services, cable television programming, and advertising, including online advertising.

The two commodities sold at different prices must be “of like grade and quality” for Section 2(a) to apply. When interpreting that statutory language, lower courts have followed the US Supreme Court’s lead in FTC v. Borden Co. and focused on physical differences in the products that affect consumer marketability.⁷ In that case, the Court found two varieties of the defendant’s evaporated milk to be “of like grade and quality” because the products were physically identical, even though the higher-price branded version had gained consumer preference over the lower-priced private label version.⁸

The final element of a Section 2(a) violation is whether “the effect of such discrimination may be substantially … to lessen competition or tend to create a monopoly …”, which has been interpreted to mean that a plaintiff need not show an actual adverse effect on competition, only a “reasonable possibility” of such an effect.

Injury to competition generally is found at the level of a rival to the discriminating seller (“primary line injury”) or of the disfavored customer (“secondary line injury”). The Supreme Court’s Brooke Group opinion clarified that a successful primary line claim must meet the same difficult test required of predatory pricing plaintiffs.⁹ As a result, secondary line cases now predominate.

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