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Price discrimination and a possible revival of the Robinson-Patman Act

May 25, 2022

With the Senate confirmation of Alvaro Bedoya as a Federal Trade Commission (“FTC”) Commissioner, ending a longstanding 2-2 split between the Republican and Democrat Commissioners, FTC Chair Lina Khan now has the power to reform antitrust laws in the United States. One potential tool for such reform is the federal Robinson-Patman Act (the “RPA”). The RPA has long prohibited price discrimination, and is a frequent subject of civil litigation claims, but the FTC has rarely brought enforcement actions under the statute. Considering Chair Khan’s previous statements favoring revitalization of the RPA, specifically emphasizing that the RPA “enshrines a key tenet: [t]hat preserving fair competition requires that we curb the bullying power of size,”1 companies should be particularly aware of price discrimination issues now that Democrat Commissioners have a majority. This article examines the elements of and defenses to RPA price discrimination claims.

Elements of an RPA Price Discrimination Claim:

At its simplest, price discrimination occurs when a seller sells the same product to two competing customers at the same time, but the seller offers different prices or terms of purchase to the customers. The RPA can be enforced through governmental action or private civil suits – the latter of which are much more common in recent years. 

Elements of a Price Discrimination Claim Under RPA:

  1. One seller
  2. Two or more actual sales involved: Must be sales, not offers or leases, and must cross state lines  
  3. A difference in price paid: “Price” is not defined under RPA but generally means the actual invoice price paid by the purchaser less any discounts, offsets, or allowances
  4. Two or more purchasers: Two different, unrelated purchasers who are “similarly situated” or competing with each other
  5. Sales were contemporaneous in time: Within a reasonably short time frame under similar market conditions
  6. Sale of “commodities”: RPA only covers tangible goods
  7. Commodities must of “like grade and quality”: Determined by physical characteristics, including characteristics affecting use and marketability
  8. Competitive Injury: The price differential must have the effect of substantially lessening or injuring competition among either resellers or the resellers’ customers

Section 2(a) of the RPA is the most commonly implicated and litigated section; however, Sections 2(c), 2(d) and 2(e) prohibit sellers from using brokerage, promotional allowances, and promotional services aimed at customer resale to accomplish indirectly what Section 2(a) prohibits directly.

Additionally, most states also prohibit price discrimination through state statutes that are often modeled after, and usually similar to, the RPA. So, companies should be aware that in addition to claims of price discrimination under federal laws in federal courts, plaintiffs may also bring claims under state law, in state courts. 

Defenses to an RPA Price Discrimination Claim:

Despite its seemingly broad reach, the fact that a seller charges different customers different prices for the same product does not necessarily mean that the seller has violated RPA. There are four main defenses to a claim of price discrimination under RPA, which frequently defeat price discrimination claims in their entirety. Some courts analyze certain defenses – such as the practical availability defense or the functional discount defense – not as a traditional “defense,” but as an “affirmative burden” that a plaintiff bears in maintaining a successful RPA claim. Whether considered a “defense” or the plaintiff’s burden, however, these doctrines are highly factual, and evidence based, placing an expensive and time-consuming burden on the seller.

Cost Justification

Price difference was due to a difference in the cost to manufacture, sell, or deliver goods. For example, the cost of selling branded versus unbranded products may have different marketing costs. Evidence of actual costs must be provided.

Changed Conditions

Price difference was due to a reaction to a change in market conditions, such as actual or imminent deterioration of perishable goods, obsolesce of seasonal goods, or a liquidation sale.

Meeting Competition

Price difference was due to meeting competition. This defense requires:

  1. Verification of the competitor’s price (but seller should not contact a competitor to do so!)
  2. The sale price does not beat the competitor’s price
  3. The met price was given in good faith

Practical Availability/Functional Discounts

Price difference was available to all purchasers, but the plaintiff failed to take advantage of such lowered price. This defense requires:

  1. The availability of the lower price must have been known to the plaintiff
  2. The lower price must have been realistically obtainable by the plaintiff
  3. The lower price must be “reasonably proportionate,” meaning the lower price was tied to purchase volumes and sales target, as opposed to growth of market share

A functional discount for customers that operate in different sales channels (ex. reseller performs warehousing, inventory handling, warranty services, etc.), which effectively lowers a seller’s operating costs, are justified price discounts. 

 

1 Lina Khan, A remedy for Amazon-Hachette fight?, CNN, https://www.cnn.com/2014/05/30/opinion/khan-amazon-hachette-antitrust/index.html (last updated May 30, 2014). 

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