Neither the FTC nor the Antitrust Division of the US Department of Justice (“DOJ”) has brought an enforcement action under the Robinson-Patman Act in more than 20 years;1 though, since that time, the RPA has remained a subject of private litigation. However, recent developments at the FTC—including news of this soft drink investigation—suggest a potential resurgence of FTC enforcement of the RPA, with indications that the agency’s initial areas of focus include soft drinks, grocery, and pharmaceuticals.
The main provision of the RPA, Section 2(a), prohibits price discrimination in the sale of commodities.2 Price discrimination claims typically fall into two categories: primary-line injury and secondary-line (or lower) injury claims. Primary-line injury occurs when a seller sells a product to one or more customers at a lower price than it sells to other customers, with the aim of harming a competing seller. Under current precedent, the lower price must amount to predatory pricing, which requires a showing that the seller made below-cost sales to the favored customers and that the seller has a reasonable probability of recouping its losses from the below-cost pricing.3
Secondary-line injury occurs when a seller sells to one customer at a lower price than it sells to another. If the disfavored customer loses sales or profits to the favored competitor, then the practice may constitute an RPA violation.4 The harm to competition in secondary-line cases arises at the level of the seller’s customers, meaning, between the seller’s favored and disfavored customers.
A number of defenses are available to Section 2(a) claims, including the cost justification and meeting competition defenses.5
The RPA also establishes other forms of liability separate from Section 2(a):
- Section 2(c) prohibits certain types of commissions or brokerage fees that do not reflect the value of services rendered.6
- Section 2(d) forbids discrimination among customers with respect to payments and allowances for resale promotions and advertisements.7
- Section 2(e) prohibits a seller from making promotional, advertising, or other processing/handling services available to a reseller, unless proportionally equal services are offered to its competitors.8
- Section 2(f) prohibits a buyer from knowingly inducing or receiving an unlawful discriminatory price.9
With the FTC Chair looking for the agency “to use all of the tools in [its] toolbox,”10 each provision of the RPA is another potential means for the FTC to challenge conduct.
The penalties for an RPA violation differ depending on the plaintiff. For its part, the FTC can only seek injunctive relief. However, the DOJ has authority to enforce the RPA, including the authority to prosecute RPA violations criminally.11While the DOJ’s last criminal indictment for an RPA violation was back in the 1950s,12 potential criminal penalties still remain on the books.
Sectors of Interest
The current FTC has expressed broad interest in RPA enforcement. In a December interview, for example, FTC Commissioner Alvaro Bedoya acknowledged that while the RPA is “not the clearest law on Earth,” it is an enforceable law that the FTC should utilize.13 Although RPA enforcement efforts could affect a wide variety of sectors, FTC activity and commissioner statements indicate that the agency is initially focused on at least three: soft drinks, grocery, and pharmaceuticals.
Soft Drinks. As noted above, the FTC recently initiated an RPA investigation into soft drink manufacturers, and it has reportedly reached out to retailers for data and information on the purchase and pricing of those beverages.14 The outcome of this investigation remains to be seen, including whether, and under what theory, the FTC will bring a case.
Grocery. Closely related, the grocery industry—the original focus of the RPA, as it was originally named the Wholesale Grocer’s Protection Act15—may also be an area of scrutiny. In December, Commissioner Bedoya opined publicly that the unaffordability of groceries among lower-income consumers is evidence of “the need to enforce laws like Robinson Patman,” and that he would like to see more antitrust investigations in the grocery industry go beyond traditional antitrust metrics of price, quality, and output to focus on “fairness for both consumers and businesses.”16 This statement echoes earlier comments, in which he called for enforcement of the RPA to address concerns that independent grocers and the often-rural communities they serve were struggling to compete with larger retailers.17 For her part, FTC Chair Lina Khan has expressed an interest in reviving RPA enforcement,18 as well as concerns specifically about “the anticompetitive practices of large supermarket chains.”19 With the grocery industry in the FTC’s sights, at least one industry association has already stepped up lobbying efforts to persuade regulators to enforce the RPA to aid independent grocers.20
Pharmaceuticals. The pharmaceutical industry is another likely area of focus for the FTC’s RPA efforts, not only because the industry is under heightened FTC scrutiny generally, but also because the agency already called out the RPA as a way to address specific concerns relating to pharmaceutical manufacturer rebates and fees. Specifically, in June 2022, the FTC issued a Policy Statement21 that put the pharmaceutical industry on notice that the FTC could challenge rebates and other fees pharmaceutical manufacturers pay to pharmacy benefit managers and other intermediaries under Section 2(c) of the RPA (among other legal theories). Although the FTC identified Section 2(c) specifically, other provisions of the RPA are also relevant to pharmaceutical pricing, such as Section 2(a).
Notwithstanding that the FTC’s recent RPA enforcement efforts may be concentrated in a few industries, the FTC’s renewed enforcement of the RPA has potential implications for any companies selling commodities.22 As a result, businesses need to be aware of the FTC’s renewed enforcement focus on the RPA—particularly those involved in the chain of producing consumer-facing goods, which appear to be top of mind at the FTC.
Guidance for Businesses
In light of the FTC’s renewed focus on the RPA, companies should be aware of potential liability for price discrimination and ensure they have appropriate compliance programs in place to mitigate risk of potential violations. If the RPA is not adequately addressed by existing compliance programs, companies should strive to update these policies as soon as possible. To the extent possible, companies should work closely with antitrust counsel to ensure their pricing practices, including discount programs and rebates, as well as promotional allowances and other services, comply with the antitrust laws, including the RPA.
If you have questions regarding the RPA or the risks related to your company’s current pricing practices, please reach out to an author of this post or the Hogan Lovells lawyer with whom you typically work.
Authored by Ilana Kattan, Chris Fitzpatrick, and Jill Ottenberg.
1 Vasant, Khushita, Mlex, “Comment: Robinson-Patman Act not ‘clearest’ law, but US FTC’s Bedoya seeks enforcement revival (27 December 2022) available here.
2 15 U.S.C. § 13(a).
3 See Brooke Group, Ltd. v. Brown & Williamson Tobacco Co., 509 U.S. 209 (1993).
4 Sullivan, Hovenkamp, Shelanski and Leslie, Antitrust Law, Policy and Procedure, Chapter 8: Secondary-Line Differential Pricing and the Robinson-Patman Act (7th ed. 2013).
5 See Federal Trade Commission, “Price Discrimination: Robinson-Patman Violations” available here. These are two of a number of defenses to the RPA. Other defenses include functional availability and changed conditions.
6 15 U.S.C. § 13(c).
7 Id. at § 13(d).
8 Id. at § 13(e).
9 Id. at § 13(f).
10 Zakrzewski, Cat, Washington Post, “After months of deadlock, Lina Khan is unleashed” (8 June 2022) available here.
12 D. Daniel Sokol, Reinvigorating Criminal Antitrust?, 60 Wm. & Mary L. Rev. 1545, 1569 (2019).
13 Vasant, Khushita, Mlex, “Comment: Robinson-Patman Act not ‘clearest’ law, but US FTC’s Bedoya seeks enforcement revival.”
14 Sisco, Josh, Politico, “Pepsi, Coke soda pricing targeted in new federal probe” (9 January 2023) available here.
15 Terry Calvani Gilde Breidenbach, An Introduction to the Robinson-Patman Act and Its Enforcement by the Government, 59 Antitrust L.J. 765, 769 (1991).
16 Federal Trade Commission, “Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act,” Commission File NO. P221202 (10 November 2022) available here; Sisco, Josh, Politico, “The FTC’s newest commissioner speaks” (30 December 2022) available here.
17 Federal Trade Commission, “Returning to Fairness: Prepared Remarks of Commissioner Alvaro M. Bedoya,” (22 September 2022) available here.
18 Papscun, Dan, Bloomberg Law, “FTC’s Khan Eyes Old Weapon to Crack Down on New Market Players (7 July 2022) available here.
19 Federal Trade Commission, Prepared Statement of the Federal Trade Commission Before the United States Senate Committee on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights ‘Oversight of the Enforcement of the Antitrust Laws’” (20 September 2022) available here.
20 National Grocers Association, “Modernize & Enforce the Robinson-Patman Act (January 2021) available here; Senate Committee on the Judiciary Subcommittee on Competition Policy, Antitrust and Consumer Rights, “Testimony of Michael Needler, CEO Fresh Encounter, Inc. on behalf of the National Grocers Association (29 November 2022) available here.
21 Federal Trade Commission, “Policy Statement of the Federal Trade Commission on Rebates and Fees in Exchange for Excluding Lower-Cost Drug Products” (16 June 2022) available here.
22 Although the RPA only applies to the sale of commodities, the FTC’s authority under Section 5 of the FTC Act is not so limited. And the FTC’s recent Section 5 Policy Statement expressly stated that Section 5 can reach conduct not subject to the RPA. Federal Trade Commission, “Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act” (Nov. 10, 2022), available here.