Robinson-Patman Act: What it is and how to comply

BY DANIEL BEEDERMAN
Special to The Wholesaler

The purpose of anti-trust laws is to protect consumers and businesses by promoting, maintaining and protecting competition in the marketplace. Towards these goals, anti-trust laws generally prohibit:

• Agreements or conspiracies that unreasonably restrain trade (Section 1 of the Sherman Anti-Trust Act)
• Monopolization and attempts to monopolize markets (Section 2 of the Sherman Act)
• Mergers and acquisitions that have the tendency to lessen competition (Section 7 of the Clayton Act)
• Certain forms of price discrimination or pricing control (Robinson-Patman Act).

This article will briefly discuss the Robinson-Patman Act (the “Act”) as it relates to the activities of independent sales representatives and their principals (manufacturers). In that regard, it should be understood that the Act, like all anti-trust laws, both on the state and federal level, is a complex and sometimes confusing and almost always controversial piece of legislation that was created in the Great Depression era in an effort to protect small businesses from large chain-store competition.

Because of the inherent complexity of the Act, as well as of its various exceptions and defenses, the Act often is difficult to interpret and apply, and it has often been criticized as being “anti-competition,” because of its effect on limiting price competition. In essence, the Robinson-Patman Act requires a manufacturer (and its independent sales representatives) to treat equally each level of customer with respect to prices and price-related terms and services. Towards that end, the Act prohibits sales of like goods at different prices to two or more competing resellers who intend to resell the products or goods in the same geographic area. In addition, the Act prohibits discrimination between competing customers through providing volume discounts that are not available to all, different rebates, promotional allowances and other similar tactics. The Act prohibits a seller from discriminating in price between two or more competing buyers in the sale of commodities (products and goods) of like grade and quality, where the effect of the discrimination -- maybe substantially -- to:

• Lessen competition in any line of commerce (unfavored reseller unable to compete against lower price)
• Tend to create a monopoly in any line of commerce
• “Injure, destroy, or prevent competition with any person who grants or knowingly receives the benefit of the discrimination, or with the customers of either of them.” [15 U.S.C. 13(a)].

To avoid inadvertently violating the Robinson-Patman Act, an independent sales representative should be cautious when:

• Charging or offering different prices for “preferred” distributors or resellers
• Volume discounts that are not proportionately available to all dealers/customers on equal terms
• Special offers or rates to allow resellers or distributors to establish themselves in the market and eliminate unfavored resellers
• Promotional allowances that are not available, on proportionately equal terms and conditions, to all distributors or dealers.

Does this mean that all customers and resellers are treated alike? The answer, of course, is no. Certainly, not all customers are alike. For instance, some offer more services to the consumer/customer than others. In such instances, a manufacturer may offer such a reseller/distributor terms that are different than those offered to a reseller or distributor who does not provide such service. However, while such distinctions may offer a defense to a claimed violation of the Act, the rep and its manufacturer ultimately must make certain that the differing terms offered to different reseller/distributors can be justified. As such, it is imperative that the sales rep understand and fully evaluate all pricing, rebate, credit terms and discount programs offered by one of its principals so as to make sure that the same type of programs and benefits are proportionately offered to competitive dealers and distributors. Similarly, a case-by-case analysis should be made by the rep whenever one of its principals imposes a minimum price at which one of its resellers or distributors can sell his products. Until last year, such conduct was deemed automatically to be in violation of the Act. However, as discussed in the aim/r Winter 2007-08 News & Views newsletter, 2007, the U.S. Supreme Court ruled that the establishment of a minimum retail price would no longer be per se illegal. A per se violation of the anti-trust laws means that there is no defense to the conduct once the conduct is established. The fact that you did not do your homework in school is a violation of the rule that all homework must be done and handed in when due. A per se violation of the “must do your homework rule” would not allow you to explain that the dog ate it. The Supreme Court overruled legal precedent dating back to 1911, which had strictly prohibited such conduct as being a “per se violation” of the Act. In so doing, the Supreme Court did not hold that minimum prices were legal, but, instead, it eliminated the “no excuse” for “minimum price rule” and replaced it with a “rule of reason” analysis.

It is now possible to justify why minimum prices are essential within an industry. However, a case-by-case review is necessary to determine if the establishment of a minimum price constitutes an “unreasonable restraint of trade.” Just as the Court’s review of potential violations of the Robinson-Patman Act and the other anti-trust laws is on a case-by-case basis, so should you, as an independent sales representative, be vigilant in monitoring the various terms offered by your principals through you to customers. For instance, whenever one or your principals seek to impose a minimum pricing structure, a special rebate or promotional program or discount, you should inquire as to the reasons and justification for doing so. You should proceed cautiously if it appears that the policy is intended to eliminate competition or otherwise to be a restraint on trade. Finally, as noted in AIM/R’s Winter 2007-08 newsletter, reps should seek to minimize the financial impact on being involved in anti-trust litigation, by always seeking to include an indemnification provision as part of every sales representative agreement, whereby your principal will indemnify, defend and hold you and your firm harmless from all liabilities and costs related to anti-trust claims (as well as for claims for product liability and intellectual property infringement).

Daniel E. Beederman is an attorney in Chicago, and a member of Schoenberg, Finkel, Newman & Rosenberg LLC. For almost 30 years, Beederman has handled legal matters relating to manufacturers’ sales representatives. He and his firm serve as legal counsel to numerous sales rep associations in various industries, including aim/r. He also has written many articles published in trade journals and has conducted numerous seminars on manufacturer-rep issues.