Robinson-Patman Act

views updated May 17 2018

ROBINSON-PATMAN ACT

The Robinson-Patman Act is a 1936 statute (15 U.S.C.A. § 13(a–f) that amended Section 2 of the clayton act (Oct. 15, 1914, ch. 323, 38 Stat. 730), which was the first antitrust statute aimed at price discrimination. The Robinson-Patman Act prohibits a seller of commodities from selling comparable goods to different buyers at different prices, except in certain circumstances.

The Robinson-Patman Act seeks to limit the ability of large, powerful buyers to gain price discounts through the use of their buying power. Although the act remains an important antitrust statute, private parties do not use it nearly as often as they use the Sherman Act, in part due to the Robinson-Patman Act's convoluted and complicated language. The government, which may bring an action under the Robinson-Patman Act through the federal trade commission (FTC), rarely initiates actions under the statute.

In fact, the Robinson-Patman Act has been severely criticized throughout its history, both for its poor drafting and the economic theory behind it. Even the Supreme Court has criticized the act on more than one occasion, stating in 1952 that it is "complicated and vague in itself and even more so in its context. Indeed, the Court of Appeals seems to have thought it almost beyond understanding" (FTC v. Ruberoid Co., 343 U.S. 470, 72 S. Ct. 800, 96 L. Ed. 1081 [1952]). Nevertheless, the Robinson-Patman Act remains an important deterrent and remedy to market power abuses by large and powerful buyers.

The Robinson-Patman Act was passed during the Great Depression following the emergence of large, successful grocery-store chains. Small, independent grocery stores and their suppliers lobbied Congress to do something about the large chains, which were alleged to have exercised their superior buying power to achieve price discounts, driving small grocers out of business. The United States Wholesale Grocers Association drafted the original bill of what was to become the Robinson-Patman Act. Many critics of the act point out that Congress passed the act with the protection of small grocers and their wholesalers in mind, rather than the welfare of competition or the consumer.

The Robinson-Patman Act was intended to remedy perceived shortcomings in the Clayton Act. The federal courts had determined that the Clayton Act did not apply to price discrimination based on quantity, which was precisely what the small, independent businesses were worried about. The act considerably expanded the scope of the Clayton Act by specifically prohibiting discounts based solely on quantity, except in certain situations. The act's provisions apply both to sellers who offer discriminatory prices and buyers who knowingly receive them. The act is also intended to remedy secondary line injury, which is injury to competitors of a buyer who receives a discriminatory price, in addition to primary line injury, which refers to injury to competitors of a seller who offers a discriminatory price. Both private parties and the FTC may use the statute. A private party can obtain, in appropriate circumstances, treble damages from a price discriminator—in other words, three times the party's actual damages.

To invoke the provisions of the Robinson-Patman Act, certain jurisdictional elements must be established. The act applies only (1) to sales (2) in commerce (3) of commodities (4) of like grade and quality. The sales requirement excludes transfers, leases, or consignment sales from the act's provisions. Other transfers that do not meet the legal definition of a sale, such as an offer or bid, are not covered by the act. Finally, the plural sales is important. The act applies only where there are two completed sales to different purchasers at different prices. The commerce specification requires at least one of the sales to be in interstate commerce, meaning that the goods must have physically crossed a state line.

The Robinson-Patman Act applies only to sales of commodities or tangible goods. The courts have determined that the act is not available to remedy discriminatory pricing of services, money (e.g., loans), insurance, electricity, advertising, or photo processing (primarily a service). In a case such as photo processing, where the product is really both a commodity and a service, the courts look to the "dominant feature" of the transaction. If the dominant feature is not a commodity, the act will not apply. Finally, the act applies only to goods of "like grade or quality." Obviously the determination of whether two goods are of like grade and quality is somewhat subjective. The courts have applied several evidentiary standards to this determination. For the act to apply, the goods must be at least reasonably interchangeable. For example, a generic and brand-name food product are of "like grade and quality" if the only real difference between them is the brand name or label itself.

After the jurisdictional elements of the Robinson-Patman Act have been satisfied, a plaintiff must establish price discrimination by the defendant and injury to competition to prove a violation of the main provisions of the act. The price discrimination element is actually easy to establish; only a difference in price in two different sales is required. The price refers to the actual price paid, net of discounts and allowances. Conversely, there is no price discrimination under the act where the same price is charged to two buyers, even if the seller's costs in serving one buyer are much higher than the costs of serving the other.

The injury to competition element is more difficult to establish. Harm to only the individual plaintiff is not enough to prove injury to competition. Although the plaintiff need not prove actual harm to competition, due to the difficulty of proving it in court, there must be at least a "reasonable possibility" that the price discrimination affected competition in the overall market for the product. As noted earlier, there are two types of injury to competition due to price discrimination: primary line injury and secondary line injury. Primary line injury refers to injury to the competitors of the seller, who lose the business of the buyers who take advantage of the seller's discriminatory price. Secondary line injury refers to injury to the competitors of the buyer, who are unable to take advantage of the discriminatory prices obtained by the buyer.

A primary line injury may be proved in two ways. A plaintiff may present evidence of the seller's intent to destroy a competitor, either by direct evidence or indirect evidence such as business tactics and unexplained price moves. Otherwise, the plaintiff must prove that the seller's discriminatory price caused a substantial change in market shares in the product. The latter is nearly impossible to prove, because courts, commentators, and economists have frequently rejected the idea that discriminatory pricing poses a long-term threat to competition. It is also difficult to prove a seller's intent to destroy a competitor, because a seller isn't likely to leave evidence of such an intent and it is difficult to infer such an intent. One way to prove intent to injure competition is to show that the seller made sales at prices below the seller's average cost of producing the product long enough to force equally efficient competitors out of business. Because of the difficulties in proving a primary line injury under the Robinson-Patman Act, plaintiffs alleging a primary line injury from a discriminatory price are more likely to seek a remedy under other antitrust statutes.

A plaintiff claiming a secondary line injury must also meet several requirements to prove injury to competition. The plaintiff must show that it competed in fact, not potentially, with a buyer who received a discriminatory price, that the price difference was substantial, and that the price difference existed over time. Once these factors are established, a presumption is created that the price discrimination injured competition. This presumption can be overcome only by evidence proving there was no causal connection between the discriminatory price received by the buyer and lost sales or profits of the buyer's competitors.

Even if a plaintiff establishes the jurisdictional elements of a claim under the Robinson-Patman Act and proves a discriminatory price and injury to competition, the defendant may still raise defenses that will defeat the plaintiff's claim. Three main defenses exist: "meeting competition," "cost justification," and "functional availability."

Under the meeting competition defense, a discriminatory price is lawful when the seller is acting in good faith to meet an equally low price of a competitor. This defense is absolute and will bar a claim under the Robinson-Patman Act regardless of injury to competitors or competition.

Under the cost justification defense, a seller who offered a discriminatory price may defeat a Robinson-Patman Act claim by establishing that the difference in price was justified by "differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities" in which the goods are sold. Proving cost justification is difficult because of the complicated accounting analysis required to establish the defense, and therefore it is rarely used.

Although it is not mentioned in the act itself, the functional availability defense allows a seller who offered a discriminatory price to avoid liability under the Robinson-Patman Act if the seller can prove that the discriminatory price the disfavored buyer did not receive was functionally or realistically available to that buyer. Usually this defense involves proof that the disfavored buyer was able to qualify for some discount offered by the seller but failed to take advantage of it.

The basic prohibitions and defenses are contained in Sections 2(a) and 2(b) of the Robinson-Patman Act. The act contains some special provisions as well. Sections 2(d) and 2(e) of the act deal with services and promotional payments that might be provided in connection with a sale of goods. Section 2(d) allows a seller to give discounts to buyers who perform certain services, such as promotions, that the seller would otherwise provide. Substantially similar discounts must be offered to all buyers of like goods, or else the act is violated. Section 2(e) prohibits a seller from discriminating in the furnishing of facilities and services for the processing, handling, or sale of goods.

Section 2(c) of the act prohibits bogus brokerage arrangements whereby large buyers attempt to obtain illegal discounts disguised as brokerage commissions. This provision is usually invoked where the "broker" does not actually render any service to the seller but is merely a large-volume buyer. This section also applies to certain illegal brokerage payments and commercial bribery. Section 2(f) of the act specifically provides that it is unlawful for a buyer to knowingly solicit or receive an unlawfully discriminatory price.

The Robinson-Patman Act has been widely criticized throughout its history, although Congress has retained the act in its original form. The complicated and convoluted language of the act makes it difficult to understand and interpret. The courts have applied its provisions inconsistently over the years and have often confused the proof required for a violation of the Robinson-Patman Act with the standards used in cases brought under the Sherman Act (July 2, 1890, ch. 647, 26 Stat. 209, 15 U.S.C.A. §§ 1 et seq.). Also, many critics suggest that the act is designed merely to protect small business and that it protects competitors rather than competition.

The act has been attacked on economic grounds as well. Most economists believe that discriminatory pricing cannot lead to monopoly power and injury to competition, because the seller offering the discriminatory price cannot profitably sustain the discriminatory price long enough to drive out competitors and, more importantly, keep them out. In fact, the act may discourage competition. For example, the Supreme Court held in the widely criticized Utah Pie case that under the Robinson-Patman Act, a national frozen pie seller that sought to enter a new geographical market could not charge a lower price in the new market than it charged in its existing markets (Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 87 S. Ct. 1326, 18 L. Ed. 2d 406 [1967]). Critics suggest that this interpretation of the act may discourage large, national sellers from entering a new market, even though the consumer and competition in the new market would benefit.

Over the last several decades, fewer and fewer enforcement agencies and private litigants have used the Robinson-Patman Act, for several reasons. First, the legal precedents and theories behind the act have become so complex that plaintiffs usually resort to the more basic antitrust statutes, such as the Sherman Act. Second, the defenses to actions under the Robinson-Patman Act, such as the meeting competition defense, have become substantially more available and effective as the markets for most products have expanded and increased in sophistication.

Despite the decline in its use, the Robinson-Patman Act is still an important antitrust statute. It acts as both a deterrent and a remedy to abuses to market power by large and powerful businesses and reflects the nation's desire to offer some protection to small, family businesses against the predatory acts of national competitors.

cross-references

Antitrust Law; Sales Law; Sherman Anti-Trust Act.

West's Encyclopedia of American Law

Robinson-Patman Act

views updated Jun 27 2018

ROBINSON-PATMAN ACT

ROBINSON-PATMAN ACT, or Federal Anti-Price Discrimination Act, was passed by Congress in 1936 to supplement the Clayton Antitrust Act of 1914, the first federal statute to expressly prohibit certain forms of price discrimination. Twenty years after the Clayton Act, the growth of chain stores such as A&P and Sears, Roebuck led many to fear that retail chains presented a threat to smaller, independent retailers. Proponents of the legislation, including the bill's sponsors, Senator Joseph Robinson and Representative Wright Patman, argued that the size of the chains gave them an unfair advantage over their smaller independent competitors by enabling them to negotiate unfair price concessions and rebates from their suppliers. Opponents of the legislation argued that discounts to chain stores merely represented the increased efficiency of such operations.

The act contains certain exceptions, but, in general, it requires sellers to sell to everyone at the same price and requires buyers with knowledge of the circumstances to buy from a particular seller at the same price as everyone else. It also prohibits sellers and buyers from using devices such as brokerage fees or services to accomplish indirectly what the act prohibits them from doing directly. The Robinson-Patman Act has not always been vigorously enforced by antitrust authorities.