The Robinson-Patman Act Explained: FTC Files First Government Enforcement Price Discrimination Complaint in Nearly 25 Years

• The FTC has filed a complaint alleging that Southern Glazer’s has violated the Robinson-Patman Act by engaging in years of price discrimination, favoring large national and regional retailers to the competitive detriment of smaller outlets.
• The 3-2 vote by the Commission to file a complaint was along party lines. Commissioners Ferguson and Holyoak each issued lengthy dissenting statements, arguing in part that the action is misguided because it prioritizes protecting individual competitors rather than protecting competition in the market as a whole.
• After decades of dormancy, it appears that a majority of the incoming Commission may continue to support enforcement of the Robinson-Patman Act moving forward.

On December 12, 2024, the Federal Trade Commission (FTC) sued Southern Glazer’s Wine and Spirits, LLC (Southern) in the U.S. District Court for the Central District of California alleging that Southern committed “paradigmatic violations” of the Robinson-Patman Act (RPA). The FTC is seeking a permanent injunction against Southern’s allegedly unlawful discriminatory pricing practices and other equitable relief. The stated purpose of the FTC’s lawsuit, per the majority’s statement, is to put an end to Southern’s discriminatory pricing policies related to its sales of wine and spirits so that “small, family-run grocery and liquor stores can get the same prices as their billionaire competitors.”

Refresher on the Robinson-Patman Act

Enacted in 1936, the RPA was passed to strengthen the existing price discrimination prohibitions in Section 2 of the Clayton Act. At a high level, the RPA prohibits companies from selling the same or similar products at different prices to competing purchasers with a resulting competitive injury. Sellers can also violate the RPA by offering different promotional allowances
(i.e., compensation for advertising and other services) to competing customers. In other words, sellers must treat all competing customers in a proportionally equal manner in relation to prices, sale terms, or promotional support. Conversely, buyers can be found liable under the RPA for knowingly inducing and receiving discriminatory prices. The RPA only applies to differential pricing or promotional allowances for tangible products (i.e., commodities), not services.

There are two types of injury possible under the RPA: primary line and secondary line. Primary line injuries occur when a seller’s price discrimination harms the seller’s competitors. Secondary line injuries occur when a seller’s price discrimination harms the competitors of a favored buyer. The FTC’s complaint asserts a secondary line injury based on Southern’s pricing policies allegedly favoring large chains and harming small retailers.

The RPA provides three complete defenses to otherwise valid claims of price discrimination: (1) meeting competition; (2) cost justification; and (3) changing conditions in the marketplace. The “meeting competition” defense requires the seller to demonstrate that its differential pricing was made in good faith to meet (but not beat) the prices of a competitor. The “cost justification” defense requires evidence of actual cost savings that are equal to or greater than the difference in prices. Judicial interpretation of the RPA has created several additional defenses, including that the allegedly lower price was “functionally available” to all competing purchasers, including the disfavored firm, and the “functional discount” defense under which a difference in price is based on a reasonable reimbursement for services performed by the buyer for the seller.

The RPA, according to its critics, prevents more efficient competitors from offering lower prices, effectively prioritizing small, less-efficient companies over consumers. Based on similar arguments, enforcement of the RPA was explicitly abandoned by the U.S. Department of Justice in a report published in 1977. The recent renewed interest in revitalizing the RPA was a policy priority of the Biden Administration’s Competition Council to crack down on unfair and illegal pricing practices.

Despite minimal government enforcement of the RPA over the last nearly 50 years, private litigants have continued to bring cases under the Act with some recent success, including a jury verdict earlier this year in favor of a group of regional medical supply wholesalers who claimed that they paid more for eye drops than two large wholesale membership clubs as a result of price discrimination, exclusive manufacturer rebates, and quarterly payments for advertising and promotional services offered to the favored club store chains by the eye drop supplier.

FTC’s Complaint Against Southern

Since at least January 2018, according to the FTC’s heavily redacted complaint, Southern has violated the RPA by selling wine and spirits to small, independent retailers at prices that are “drastically higher” than those it charged to large national and regional retail chains, such as Costco, Total Wine, and Target for the exact same products. These pricing practices, according to the FTC, “have victimized” smaller independent retailers by depriving them access to quantity discounts and rebates, thereby impeding their ability to compete effectively with the chains in the same geographic locations. Ultimately, according to the complaint, Southern’s discriminatory pricing practices lead to fewer choices and higher prices for consumers.

The FTC describes the various “mechanisms of price discrimination” employed by Southern that purportedly favor or are only available to large retailers. These methods include quantity discounts, cumulative quantity discounts, and scan rebates
(i.e., “price reduction[s] given to a retailer’s customer at the register for each bottle of a certain brand or product purchased…reimbursed dollar-for-dollar by the supplier or Southern”). The quantity discounts, according to the FTC, require quantity purchase levels so high “that only a few specific large chain customers can attain.” Similarly, Southern allegedly favors large chain retailers by allowing them to “combine purchases over a specified period to qualify for cumulative quantity discounts…by combining purchases across many stores or by utilizing warehouses.” The scan rebates are flatly not available to independent retailers, according to the FTC.

The FTC’s complaint affirmatively argues that there are no legitimate business or competitive justifications that would provide a complete defense under the RPA for the differential prices offered by Southern to its favored retailers: the discounts provided to favored retailers are not derived from differences in Southern’s distribution costs to those larger retailers (“cost justification” defense); nor do they reflect legitimate attempts to meet prices offered by competing distributors to chain retailers (“meeting competition” defense). Further, the FTC alleges that smaller retailers cannot take advantage of the discounts offered to larger chains due to their insufficient warehouse storage, store throughput and cash-on-hand (“functionally available” defense).

Incoming FTC Commissioner Support for RPA Enforcement

Despite being filed in the waning weeks of the Biden Administration, the FTC’s complaint against Southern will likely continue to be litigated under the Trump Administration given that a majority of the incoming FTC seemingly supports enforcement of the RPA. In addition to Democratic Commissioners Bedoya and Slaughter who are supportive, President-elect Trump’s nominee to fill Chair Khan’s position, Mark Meador, appears to support FTC enforcement of the RPA, stating in a recent article that “[t]he FTC should exercise its prosecutorial discretion to investigate and bring RPA cases where it has evidence that consumers are harmed by price discrimination.” Further, Meador noted that “enforcing the RPA actually makes sense in the grocery space and other industries with similar cost and pricing dynamics,” suggesting that he may be supportive of the FTC’s complaint against Southern.

In their dissenting statements, Commissioners Ferguson and Holyoak agree that the FTC has a responsibility under the Constitution to enforce, with prosecutorial discretion, the laws passed by Congress. As such, both commissioners do not support a policy of categorical non-enforcement of the RPA. However, they argue that the action brought against Southern is inconsistent with the text of the RPA because of the lack of the requisite demonstrable evidence of harm to competition or consumers in the FTC’s complaint. They also argue that the action is an imprudent use of agency resources and that any potential remedy would likely harm consumers. Ultimately, both commissioners would not bring this particular action, which, according to one statement, “condemns conduct that is plainly innocuous or even procompetitive.”

Key Takeaways from the FTC’s Action Against Southern

• Generally speaking, to be in compliance with the RPA: (1) any price differences in the sale of the same or similar products to competing customers must be justified on the basis of cost savings or meeting competition and (2) promotional allowances or services should be available to all competing customers on proportionally equal terms.
• Despite being dormant for several decades, it appears that the incoming Commission is supportive of continued RPA enforcement, but it remains to be seen whether the incoming Commission will bring any additional RPA actions.
• The FTC’s complaint against Southern and recent wins by plaintiffs in RPA civil cases will likely incite continued private litigation under the RPA.
• Industries that involve manufacturers selling tangible products to resellers (i.e., wholesalers) that then sell to end users are often the targets of RPA enforcement (e.g., food & beverage, medical supplies). Examples of offerings that may attract RPA scrutiny include exclusive discounts or promotional allowances, quantity discounts, pick-up allowances or product-specific promotional support.
• Whether new pricing or promotional allowance practices would disfavor certain purchasers or competitively disadvantage any rivals should be taken into consideration as those parties may raise concerns with government enforcers or initiate litigation under the RPA.
• Pricing and promotional allowances should be regularly reviewed for adherence to the RPA to ensure competing customers are treated in a proportionally equal manner, unless there are legitimate business or competitive justifications.

*       *       *