Robinson-Patman Act: A federal law aimed at leveling the playing field between small and large businesses

• The Robinson-Patman Act prohibits price discrimination against small business.
• It was enacted to overcome ambiguity in the Sherman Act of 1890 and the Clayton Antitrust Act of 1914.
• The principal criticism of Robinson-Patman is that it protects competitors instead of encouraging and maintaining competition.

The Robinson-Patman Act was enacted in 1936 to protect small retailers from unfair competition by larger retailers, mostly through volume discounts from manufacturers. For this reason it's sometimes called the "Anti Chain Store Act."

The Act applies only to physical items of the same quality and prevents large retailers from gaining an advantage over independent stores buying the same products. Wholesalers supported enactment of the Robinson-Patman Act since it prevented large retailers from buying directly from manufacturers at deep discounts, a move that cut wholesalers out completely.

The legislation's main purpose was to overcome ambiguous language in antitrust law at the time, specifically the Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914.

What does the Robinson-Patman Act do?

In simple terms, the Robinson-Patman Act says manufacturers (sellers) must charge retailers (buyers) the same prices when selling identical products at the same time in the same geographic area. There are exceptions, and the law is complicated - so complicated that some critics, including the Federal Antitrust Modernization Commission, have called for its repeal.

Note: In his book, "The Antitrust Paradox," former Solicitor General, Robert Bork argues that the Robinson-Patman actually protects less-efficient competitors rather than consumers.

Legal tests

To be considered price discrimination under the Robinson Patman Act the claim must meet specific legal tests:

• The claim must refer to commodities, not services, and to purchases, not leases.
• The goods must be of "like grade and quality."
• There must be likely injury to competition.
• The sales must involve interstate (across a state line) commerce.

Types of injury

Enforceable Robinson-Patman violations resulting in competitive injury may happen in one of two ways:

Primary line injury. This type of competitive injury occurs when one manufacturer reduces its prices in a specific geographic market and causes injury to its competitors in the same market.

Secondary line injury. This type of injury happens when favored customers (retailers) of a supplier (manufacturer) are given a price advantage over competing customers.

Criminal penalties

Section 3 of the Robinson-Patman Act authorizes the government to seek criminal penalties against any entity that knowingly discriminates against a competitor of a purchaser or charges "unreasonably low prices" or different prices in a different part of the United States "for the purpose of destroying competition or eliminating a competitor."

Enforcement

Enforcement of Robinson-Patman is the responsibility of the Federal Trade Commission (FTC) and the Department of Justice (DOJ). That said, most successful lawsuits today are between private parties.

Note: Enforcement of the Robinson-Patman Act is rare.

Enforcement can happen through any of the following:

FTC Proceedings. The FTC can conduct administrative proceedings and, if warranted, levy injunctive relief and civil penalties.

Treble Damages. In a private action, a plaintiff can seek treble (triple) damages and attorney's fees based on lost profits.

Attorney's Fees. If successful, the plaintiff (retailer) can recover attorney's fees but if the defendant prevails, they cannot recover their attorney's fees from the plaintiff unless the lawsuit is judged "frivolous."

Criminal prosecution. In rare cases, the Justice Department can, theoretically at least, prosecute criminal claims for price discrimination. A prosecution of this type has never been successful in US courts.

Who created the Robinson-Patman Act?

The Robinson-Patman Act is named for its co-sponsors, Senator Joseph T. Robinson of Arkansas and Representative Wright Patman of Texas, both Democrats. The legislation was meant to be a correction and amplification of sparse anti-price discrimination language in Section 2 of the Clayton Act of 1914.

Robinson, Patman, and other proponents saw the sheer size of chain stores like A&P and Sears, Roebuck as giving them too much of an edge over smaller stores because their scale enabled them to negotiate lower prices for goods along with rebates and other types of pricing concessions. The legislation's supporters believed the sparse language in the Clayton Act was not sufficient to combat what they saw as these unfair advantages enjoyed by chains.

Key provisions of the Robinson-Patman Act:

The main focus of the Act is to protect small businesses by requiring suppliers to sell to them for the same price they charge larger companies.

A comparison of the provisions of both the Clayton and Robinson-Patman Acts shows how the Robinson-Patman Act expands on the Clayton Act:

The affirmative defense noted above has four parts. A charge of price discrimination cannot be enforced against a seller if:

• Volume discounts are attributable solely to lower per-unit production and shipping costs - that is, if it is cheaper per unit for the manufacturer to make and send 100 widgets than just 20 widgets to a retailer.
• Price differences are the result of a response to changing conditions affecting the market for or marketability of the goods concerned, such as if demand has decreased significantly.
• The discriminatory pricing is offered "in good faith to meet an equally low price of a competitor."
• The advantageous price was practically or functionally available to the disfavored buyer.

  Note: Exemptions to the provisions of the Robinson-Patman Act include some sales involving the government, non-profits, or cooperative associations.

Notable cases involving the Robinson-Patman Act

In 2010, Spartan Concrete, which operated on St. Croix, one of the US Virgin Islands, tried to displace a competitor, Heavy Materials, as the sole provider of ready-mix concrete on St. Thomas Island. Both companies dealt with the same wholesale concrete distributor, Argos. After an unsuccessful three-year price war, Spartan agreed to leave St. Thomas. Shortly thereafter it sued Argos, complaining the wholesaler gave Heavy Metals a 10% discount but refused to extend the same discount to Spartan.

"Although the case actually went to a bench trial, the trial court still granted a directed verdict in the defendant's favor based on the plaintiff's failure to prove antitrust injury," says Henry Su, a partner at the law firm Bradley Arant Boult Cummings, who notes that most Robinson-Patman cases never make it as far as a trial. "The case illustrates how difficult it has been for Robinson-Patman plaintiffs to link the challenged business practices to some harm to competition."

Although seldom enforced today, in part due to the problems illustrated by the case above, there have been notable Robinson-Patman actions over the years:

FTC v. Morton Salt

In 1948, the Supreme Court upheld the FTC's enforcement of the Act finding that Morton Salt violated Robinson-Patman when it sold its finest "Blue Label" salt on a supposedly standard discount that was available only to five national chains. The court ruled that Morton Salt was in violation and issued a cease and desist order.

Lewis v. Texaco

In 1976, a dozen Texaco retailers in Spokane, Washington sued Texaco and won damages of $449,000, which were tripled under provisions of Robinson-Patman. The suit charged that Texaco made a practice of selling gasoline at one price to retailers and a lower price to wholesalers. When those wholesalers went into the retail business, they obtained gasoline for their retail stations at the wholesaler discount, a violation of the Act.

American Booksellers v. Houghton Mifflin

In 1994, the American Booksellers Association and independent bookstores suedpublishers including Houghton Mifflin Company and Penguin USA, claiming they violated Robinson-Patman by offering "more advantageous promotional allowances and price discounts" to "certain large national chains and buying clubs." The publishers agreed to offer the same prices and discounts to all bookstores as a result of the lawsuit.

The financial takeaway

Despite the fact that the Robinson-Patman Act is rarely enforced, it remains law and most recently has been the focus of a group known as the Main Street Competition Coalition which has urged the FTC to bring Robinson-Patman action against large chains and business entities.

In a letter to the FTC the coalition says: "As a result of unprecedented levels of concentration, small and medium-sized businesses are increasingly subject to discriminatory terms and conditions, including less favorable pricing and price terms, less favorable supply, less favorable retail packaging, and sometimes an inability to access products in short supply that are available to their competitors."

Su is skeptical, saying: "In my view, the only way this can and will change is if a complainant presents the FTC with the rudiments of a potential Robinson-Patman Act case against a large retailer for further investigation and possible enforcement. Simply generally calling for the agency to use its enforcement authority, which it has always had, is not going to shift the considerable momentum that has developed over the past several decades favoring industry guidance over enforcement."