The Robinson-Patman Act (RPA) of 1936 prevents unfair competition by regulating price discrimination. The Act prohibits any person or firm engaged in interstate commerce from discriminating in the price of the same commodity charged to different buyers if such discrimination would reduce competition. So, a person or firm selling commodities must offer the same price to all buyers with certain important exceptions discussed below.
The RPA is intended to protect independent retailers from big retail chains, which may be able to purchase commodities at a reduced price due to the large volume of their purchases. The RPA also benefits wholesalers by preventing retail chains from buying directly from manufacturers at a reduced price.
The goal of the RPA is to prevent buyers who purchase large volumes of goods from gaining an advantage over those who only purchase small volumes. The act only applies to sales of goods that are made to different customers at reasonably close times. In addition, the goods should be similar in quality.
It is important to recognize some of the basic kinds of conduct that can be illegal under the RPA, including the following:
- A business that sells goods below its cost when it charges higher prices in different localities with a plan for recouping the losses it experiences for the below-cost sales;
- The sale of identical goods at different prices that cannot be justified on the basis of cost savings or meeting a competitor’s prices; or
- Offering promotional allowances or services that are not available in practice to all customers on proportionately equal terms.
It is also important to recognize that eligible nonprofit entities may buy supplies at reduced prices for their own use, i.e., not to sell to others, under the Nonprofit Institutions Act, and this does not violate the RPA.
How Broad Is the Robinson-Patman Act?
The U.S. Constitution limits the application of the RPA to activities related to interstate commerce only, so commerce between states as opposed to commerce within a state.
Price discrimination is generally legal, especially if different prices reflect the different costs to the seller of dealing with different buyers. Different prices are legal if they result from a seller’s attempts to match the price that a competitor offers to a particular customer.
The U.S. Supreme Court has ruled that courts should evaluate claims of illegal price discrimination made pursuant to the RPA in a way that is consistent with overall federal antitrust policies. In practice, this means that claims made under the RPA must meet the following legal tests:
- The RPA applies to commodities only and not services. It also applies only to outright purchases of commodities but not to leases of them;
- The goods offered at discriminatory prices must be of the same or similar grade and quality;
- There must be a probable injury to competition. That is, a private plaintiff must also show actual harm to their business;
- Normally, the sales must be “in” interstate commerce, i.e., the sale must be across a state border.
Competitive injury may result from price discrimination in either of two ways. One type of injury is referred to as “primary line” injury. Primary line injury occurs when one manufacturer lowers its prices in a specific geographic market and causes injury to its competitors in that market.
For example, if a manufacturer sells a product below cost in a local market over a period of time, this may be illegal.
Another type of injury is referred to as a “secondary line” violation, which occurs when a supplier gives favored customers a price advantage over competing customers. This is considered to be a buyer’s level injury.
In these cases, a court can infer harm to competition at the level of the buyer from the mere existence of significant price discrimination over time. However, courts may be limiting this inference to situations in which either the buyer or the seller has market power. This is because of the fact that lasting competitive harm is not likely if a buyer has alternative sources of supply for a commodity.
Under What Two Circumstances Are Price Differentials Under the Robinson-Patman Act Legal?
There are two legal defenses to these types of violations of the RPA when they are alleged as follows:
- The difference in prices offered to different customers is justified by different costs in manufacture, sale, or delivery. For example, they might be volume discounts offered to a customer who buys in greater quantities than other customers do,
- A seller offered a price concession in good faith to a buyer to match the price that a competitor offered to the same customer.
The RPA also prohibits the payment of certain discriminatory allowances or furnishing of services to customers. In general, the RPA requires that a seller of goods deal with all competing customers in an equitable manner.
Services or facilities covered include:
- Payment for or furnishing advertising or promotional allowances;
- Handbills;
- Catalogs;
- Signs;
- Demonstrations;
- Display and storage cabinets;
- Special packaging;
- Warehousing facilities;
- Credit returns; and
- Prizes or free merchandise for promotional contests.
The cost justification does not apply if the discrimination is in allowances or services furnished.
The seller must inform all of its competing customers if any services or allowances are available. The seller must allow all types of competing customers to receive the services and allowances involved in a particular plan or provide some other reasonable means of participation for those who cannot use the basic plan.
More detailed information on these promotional issues can be found in the Fred Meyer Guides of the Federal Trade Commission (FTC).
As an example, the RPA demands that if a wholesale distributor sells two 17-inch laptop computers of the same or similar quality to 2 different retail outlets on 2 consecutive days, both stores must be charged $300 per laptop. However, the RPA does not require that 2 different wholesale distributors both sell 17-inch laptops to all retailers with which they do business at $300 per laptop.
What Are the Penalties for Violating the Robinson-Patman Act?
The RPA has not always been enforced since the time of its enactment. Some have criticized the law as too complex. In addition, it involves business practices relating to prices that are apparently quite common.
Reportedly, businesses pressured the federal government to stop enforcing the RPA for several years in the late 1960s. However, private individuals could file private lawsuits against businesses for violations of the RPA. But apparently, private enforcement was challenging because the law was complex and it was difficult to apply.
Repeal of the RPA was even attempted in Congress, but the repeal attempt was not successful. The RPA remains on the books. In the late 1980s, the FTC began to enforce it again, but then enforcement waned starting in the 1990s.
If found guilty, a person who violates the RPA can be punished by payment of a fine of as much as $5,000 and imprisonment for up to 1 year.
Do I Need a Lawyer for My Robinson-Patman Act Problem?
Antitrust and unfair competition laws can be complicated. If you have been charged with a violation of the RPA, you want to consult an experienced business lawyer. LegalMatch.com can connect you with a lawyer in your area who can help guide you through the legal process and make sure all of your rights are protected.
If you feel that you have been put at an unfair disadvantage by a business competitor through discriminatory pricing, you also want to consult an antitrust lawyer. It is possible for a private individual to file a lawsuit for damages for RPA violations.
