Key Points:
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The Commission revised its guidelines for interpreting and complying with the Robinson-Patman Act to account for changes in technology and methods of marketing that have taken place since the last revision in 1990, including the rapid growth of online retailers.
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Based on these revisions, promotional allowances and services should be available on proportionately equal terms to all competing resellers, including both brick-and-mortar and online retailers, if they purchase goods of like grade and quality from the same seller for resale and they market those goods to the same or similar prospective purchasers.
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The revisions reinforce the Commission’s view that market definition is a dynamic process and must account for the latest technological and other changes.
On September 24, 2014, the U.S. Federal Trade Commission (“the Commission”) revised its Guides for Advertising Allowances and Other Merchandising Payments and Services (“the Fred Meyer Guides”).1 The revisions reflect the growing importance of the Internet and online commerce, recognizing explicitly that online retailers can and often do compete with brick-and-mortar retailers. They also reflect the Commission’s recognition of the dynamic nature of markets and that technological and other changes in methods of doing business frequently warrant reevaluations of traditional market definitions.
The Current Revisions
The Fred Meyer Guides,2 though not binding, aim to help companies interpret and comply with sections 2(d) and 2(e) of the Robinson-Patman Act, which prohibit price discrimination through promotional payments or services. Sections 2(d) and 2(e) generally prohibit a seller from paying allowances or furnishing services to promote the resale of its products unless the allowances or services are offered to all competing customers on proportionally equal terms.3 The Fred Meyer Guides address the main issues of sections 2(d) and 2(e), such as the measurement of proportionally equal treatment, the concept of availability of offers to competing customers, the notification of offers required to be given to customers, and other issues such as the interstate commerce requirement.
The Commission’s revisions “reflect more recent legal developments as well as changes in technology and methods of marketing that have occurred since the Fred Meyer Guides were last revised, such as the emergence of the Internet and widespread online marketing.”4 Specifically, the Fred Meyer Guides suggest that the most relevant considerations for determining whether retailers compete for customers are whether they “purchase goods of like grade and quality from the same seller for resale” and “contemporaneously market those goods to the same or similar prospective purchasers.”5 In this regard, the commentary to section 240.5 of the revised Fred Meyer Guides regarding the definition of “competing customers” references the Internet, explaining that retailers may constitute competing customers of a seller whether operating through brick-and-mortar stores, online, or through other formats.
The Commission also added “online advertising” to the list of examples of covered promotional services in section 240.7 of the Fred Meyer Guides. Further, the Commission revised Example 1 to section 240.10(a), which covers the requirement that the seller take reasonable steps to ensure that offered promotional services are functionally available to all competing customers, to encourage making promotional alternatives available to online customers.6
Implications of the Commission’s Revisions to the Fred Meyer Guides
Notably, the Commission has done little to enforce the Robinson-Patman Act since the Commission’s case against McCormick in 2000.7 The latest revisions to the Fred Meyer Guides do not necessarily signal the Commission’s intent to ramp up its enforcement efforts in this area. They do, however, add to the list of examples demonstrating that the Commission recognizes the growing importance of online commerce and the dynamic nature of markets generally. Last year, for example, the Commission demonstrated its awareness that markets evolve when it unanimously closed its seven-month investigation of Office Depot, Inc.’s proposed merger with OfficeMax, Inc. That transaction—seeking to combine the country’s second and third largest chains of office supply superstores—was very similar to Staples, Inc.’s attempt to combine with Office Depot, a transaction that the Commission successfully blocked sixteen years prior.8 Recognizing that “the explosive growth of online commerce . . . had a major impact on this market,” however, the Commission cleared the OfficeMax/Office Depot merger unconditionally.9
Similarly, in light of technological changes and the growth of online retailers in the relevant market, the Commission earlier this year agreed to loosen its fifteen-year-old antitrust restrictions on Toys “R” Us Inc. (“TRU”) in its interactions with suppliers.10 Those restrictions had been imposed as a remedy following the Commission’s determination that, in the 1990s, TRU used its significant market power to orchestrate a “hub-and-spoke” conspiracy among its suppliers to restrict the supply of toys to certain warehouse clubs. TRU petitioned to reopen and modify that order, arguing that the emergence of competition from discount and online retailers such as Amazon had significantly reshaped competition among purchasers and sellers of toys and made unnecessary some of the restrictions on TRU’s agreements with toy manufacturers. The Commission agreed with TRU and modified its order to account for the changed market conditions.
The revisions to the Fred Meyer Guides serve as the latest reminder that the Commission appreciates that markets are dynamic. Changes in technology, the emergence of discount and online retailers, and new ways of doing business are all important factors in defining a market, identifying key market players and analyzing how they operate. These issues will be important going forward not only in matters dealing with the Robinson-Patman Act, but in other matters where market definition is in dispute.
Footnotes
1) The FTC Commentary and revised Guides. The changes will become effective on November 10, 2014.
2) The Commission first issued the Fred Meyer Guides in 1969 after the Supreme Court’s opinion in FTC v. Fred Meyer, Inc., 390 U.S. 341 (1968) (holding that a supplier that provides allowances to a direct-buying retailer must provide the same allowances on comparable terms to those buying through wholesalers, if those buyers compete with the direct buyer in the resale of the product).
3) Sections 2(d) and 2(e) of the Robinson-Patman Act apply to the resale of products, whereas section 2(a) of the Act addresses the original sale. Section 2(d) prohibits discrimination in payments by a seller to a customer for services furnished by or through the customer in connection with offering the seller’s products for sale (e.g., advertising or promotional allowances), and section 2(e) prohibits discrimination in the furnishing of services by a seller to the purchasers of the seller’s products in connection with offering the seller’s products for sale. Unlike section 2(a), “sections 2(d) and 2(e) do not require proof of likely adverse competitive effects, nor do they permit a cost-justification. They do, however, permit a meeting-competition defense.” 79 Fed. Reg. 58,245, 58,246 (Sept. 29, 2014). The revisions to section 240.13(a) of the Fred Meyer Guides, however, state that “where there is likely injury to competition, the Commission may proceed under section 5 of the Federal Trade Commission Act against a customer who knows, or should know, that it is receiving a discriminatory price through services or allowances not made available on proportionately equal terms to its competitors engaged in the resale of a seller’s product.” Id. at 58,255-58,256.
4) 79 Fed. Reg. 58,245 (Sept. 29, 2014) (citing 77 Fed. Reg. 71,741 (Dec. 4, 2012) (request for public comments)).
5) Id. at 58,247-58,248.
6) The Commission also made several other modest changes to the Fred Meyer Guides, such as adding or removing certain clarifying examples. The basic framework, however, remains intact, and the Commission refrained from dealing with some of the tougher issues that the commentators highlighted. For example, the Commission refused to revise the Fred Meyers Guides to state explicitly that sections 2(d) and 2(e) apply only where there is injury to competition; the Commission merely stated in the commentary that its own intent is to enforce the Robinson-Patman Act only where harm to competition exists. The Commission also rejected the ABA Antitrust Section’s suggestion to allow a written promotional plan to include a plan on a seller’s website; the Commission did not want to shift the burden from the seller to the buyer to uncover the essential features of an offer.
7) In re McCormick & Co., Docket No. C-3939 (Apr. 27, 2000) (Decision and Order). Pursuant to the settlement, McCormick agreed to stop granting discounts (partly in the form of up-front shelf-allocation payments) to large chains without making comparable payments available to other chains and independents that compete with the favored chains.
8) Statement of the Federal Trade Commission Concerning the Proposed Merger of Office Depot, Inc. and OfficeMax, Inc., FTC File No. 131-0104 (Nov. 1, 2013). Dechert played a key role in securing unconditional clearance for the OfficeMax/Office Depot merger.
9) Id.
10) Press Release, FTC Approves Toys “R” Us Petition to Reopen and Modify 1998 Final Commission Order (Apr. 15, 2014).
