The Robinson-Patman Act and what it means today
Antitrust laws created a century ago set the standard for protecting a competitive market in the United States. At its core, the Robinson-Patman Act seeks to ensure fairness by giving competitors a level playing field across the entire marketplace. But with an increasing number of companies practicing price discrimination, the future of this branch of antitrust law remains to be seen.
What is the Robinson-Patman Act?
The Robinson-Patman Act of 1936 (RPA) is a US antitrust law preventing large franchises and chains from engaging in price discrimination against small businesses. If a wholesale supplier sells products to a franchise at a discounted price not available to a small business, such as a volume price, it could be violating the Robinson-Patman Act. However, price discrimination is legal if the cost of the transaction varies from buyer to buyer or if a seller tries to match a competitor’s price offer.
Brief History of Antitrust Laws
The first American antitrust legislation was the Sherman Anti-Trust Act, enacted in 1890. Several trusts began to form in the late 19e century, causing a monopoly among the largest oil companies. The purpose of the law was to prohibit the “restriction of trade or commerce between [the] several states, or with foreign nations.
Undefined language in the Sherman Act led to a new law enacted in 1914, the Clayton Antitrust Act. This legislation expands antitrust guidelines by prohibiting anti-competitive mergers, predatory and discriminatory pricing, and exclusive sales contracts. The Clayton Act is also significant for its protection of organized unions and peaceful strikes. Most antitrust laws today modify this law.
In response to the growing power of chain stores in the 1920s and 1930s, the Robinson-Patman Act was codified into U.S. law to prevent wholesale distributors from awarding preferential volume pricing to franchises rather than small businesses.
Violations of the Robinson-Patman Act
For a claim to be in violation of RPA, it must meet several legal requirements:
- Goods and purchases are protected by law, but services and leases are not.
- Goods must be “of like class and quality”.
- The likely harm to competition must be proven.
- The sales in question must cross state lines.
Two types of injuries can occur: primary and secondary. Main line injury occurs when a manufacturer injures competitors in the same market by lowering prices for a specific geographic area for an extended period of time. Secondary line damage occurs when a wholesaler grants price advantages to preferred customers over competing customers.
Robinson-Patman law in modern times
RPA enforcement is overseen by the Federal Trade Commission, but cases have declined since the 1980s due to the complexity of the law and the requirement to prove intentional damage. Juries in recent cases alleging RPA violations have failed to convict the defendants.
An example is US Wholesale Outlet & Distribution Inc., et al. v. Living Essentials LLC, et al. bulk product. Plaintiffs argued they suffered damages of hundreds of thousands of dollars in lost sales for Costco. Defendants countered that there was insufficient evidence for these lost sales, since customers could have purchased 5-Hour Energy from Costco competitors like Sam’s Club or McLane. The jury sided with the makers of 5-Hour Energy, citing no direct competition between the two companies.
How should lawyers handle price discrimination cases?
As mentioned earlier, cases alleging RPA violations are difficult to prove in court. If a client is concerned about price discrimination against their business, their lawyer should do extensive legal research to determine whether to press charges.
Antitrust Laws in the Digital Age
With the rapid expansion of online retailers over the past two decades, price discrimination occurs in e-commerce as well as physical stores. But with a big company like Amazon offering a variety of products, proving head-to-head competition through the Robinson-Patman Act is harder than ever.
However, lawmakers are still concerned about the broader area of antitrust. A bill with features similar to RPA was introduced in October 2021 in the US Senate. The American Innovation and Choice Online Act would prohibit Google and Amazon (among others) from giving preference to their own search results/products. It would also prevent them from limiting the availability of competing products on their platform. The purpose of the bill is to level the playing field for small businesses and sites, which is what the Robinson-Patman Act aims to do.
For more information on antitrust laws and other legal issues, go to content.next.westlaw.com/practical-law/antitrust.