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Robinson-Patman Act and what it means for today

Antitrust laws created a century ago have set the standard for protection of a competitive market in the United States. At its core, the Robinson-Patman Act is about ensuring fairness by giving equal opportunity to competitors across the market. But with a growing number of corporations 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 U.S. antitrust law preventing large franchises and chains from engaging in price discrimination against small businesses. If a wholesaler supplier sells products to a franchise at a discounted price not available to a smaller business, such as a volume price, they could be in violation of the Robinson-Patman Act. However, price discrimination is legal if the cost of dealing varies between buyers or if a seller is attempting to meet a competitor’s price offering.

A brief history of antitrust laws

The first U.S. antitrust legislation was the Sherman Anti-Trust Act, enacted in 1890. Several trusts began forming toward the end of the 19th century, causing a monopoly among the top oil companies. The goal of the act was to outlaw the “restraint of trade or commerce among [the] several states, or with foreign nations.”

Undefined wording in the Sherman Act led to a new law enacted in 1914, the Clayton Antitrust Act. This piece of legislation expanded upon the antitrust guidelines by outlawing anticompetitive mergers, predatory and discriminatory pricing, and exclusive sales contracts. The Clayton Act is also important for its protection of organized labor unions and peaceful strikes. Most antitrust legislation today amends this act.

In response to the growing power of chain stores in the 1920’s and 1930’s, the Robinson-Patman Act became codified in U.S. law to prevent wholesaler distributers from giving preferable volume pricing to franchises over small businesses.

Violations of the Robinson-Patman Act

For a claim to be in violation of the RPA, it needs to meet several legal requirements:

  • Commodities and purchases fall under protection of the act, but services and leases do not.
  • The goods must be of “like grade and quality.”
  • Likely injury to competition must be proved.
  • The sales in question must cross state lines.

There are two types of injury that can occur­­: primary and secondary. Primary line injury is when a manufacturer causes harm to competitors in the same market by reducing prices for a specific geographic area for a sustained period. Secondary line injury occurs when a wholesaler gives price advantages to favored customers over competing customers.

Robinson-Patman Act in modern times

Enforcement of the RPA 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 intended damages. Juries in recent cases claiming RPA violations have not found the defendants guilty.

One example is U.S. Wholesale Outlet & Distribution Inc., et al. v. Living Essentials LLC, et al. In 2019, a family-owned wholesaler (U.S. Wholesale Outlet) allegedly claimed that the makers of 5-Hour Energy (Living Essentials) engaged in price discrimination by giving unique discounts to Costco for buying their product in bulk. The plaintiffs argued they suffered damages of hundreds of thousands of dollars in lost sales to Costco. The defendants countered that there was insufficient proof for these lost sales, since customers could have shopped for 5-Hour Energy at 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 cases about price discrimination?

As mentioned previously, cases claiming RPA violations are hard to prove in court. If a client is concerned about price discrimination against their company, their lawyer should conduct extensive legal research to determine if a case should be made.

Antitrust laws in the digital age

With the rapid expansion of online retailers within the past two decades, price discrimination is occurring in ecommerce as well as brick-and-mortar stores. But with large companies like Amazon offering a variety of products, proving direct competition through the Robinson-Patman Act is harder than ever before.

However, legislators are still concerned about the broader realm of antitrust. A bill with similar characteristics to the RPA was introduced in October 2021 to the U.S. 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 goal of the bill is to give equal opportunity to smaller businesses and sites, which the Robinson-Patman Act is all about.

For more information on antitrust laws and other legal matters, go to content.next.westlaw.com/practical-law/antitrust.

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