October 24, 2014

Amended Fred Meyer Guides Account for Rise of Online Business, Otherwise Remain Largely Unchanged

On November 10, 2014, the Federal Trade Commission's (FTC) first amendments in 20 years to the so-called Fred Meyer Guides will take effect. The Guides give direction to manufacturers, wholesalers and other suppliers seeking to comply with the advertising and promotional assistance provisions of the federal price discrimination statute, the Robinson-Patman Act (RPA). While the modest revisions address the increased presence of businesses online, the new Guides remain largely unchanged from the last update in 1990, and the FTC rejected many of the seller-friendly proposed revisions recommended during the comment period.

Background

Since they were first published in 1969, the Guides have offered the FTC's guidance to businesses seeking to comply with Sections 2(d) and 2(e) of the RPA, 15 U.S.C. § 13. These provisions complement the general prohibition against price discrimination embodied in Section 2(a) by prohibiting sellers of goods from supplying advertising allowances and other promotional services to customers on a discriminatory basis. In practice, the RPA prevents suppliers from circumventing Section 2(a) by dedicating significant advertising support to their largest customers, without also offering proportionately equal benefits to their smaller buyers. In contrast to Section 2(a), Sections 2(d) and 2(e) do not require evidence of adverse competitive effects. While the Guides do not carry the force of law, businesses and their counselors rely on the Guides to "demarcate a safe path for businesses seeking to navigate the [RPA]." 

In November 2012, the FTC announced that it was considering revisions to the 1990 Guides, and opened a period for public comment. Several organizations responded — including the Food Marketing Institute and the Antitrust Section of the American Bar Association — by recommending various pro-seller changes, including insertion of language requiring "anticompetitive effects" for Sections 2(d) and 2(e) violations, and additional guidance on the proportionality requirement. In contrast, the National Grocers Association opposed several of these suggestions, noting that the proposed revisions would allow sellers to impermissibly favor large buyers. All commentators recognized the need for additional clarity on the RPA's application to online businesses.

Amendments to Guides

The FTC added references in the new Guides to ensure that parties understand that the Guides cover Internet commerce. The FTC clarified that Internet retailers are "competing customers" under the RPA to the extent that they (1) purchase similar goods for resale from the seller; and (2) contemporaneously market those goods to similar purchasers. In such circumstances, the FTC explained that Internet retailers may be entitled to advertising and marketing allowances that are proportionately equal to those received by their brick and mortar competitors. The FTC did not explain how such allowances should be made available "across reseller formats," but it urged sellers to apply "common sense and good faith" to ensure proportionality.

In addition, while Sections 2(d) and 2(e) only apply to sellers, the FTC stated that it could proceed under Section 5 of the FTC Act against buyers who induce or receive allowances or services that violate the RPA. In such cases, however, the FTC will only proceed against the buyer if the allowance or service threatens adverse competitive effects. Private litigants may have claims against individual buyers under Sections 2(a) and 2(f) of the RPA.

The new Guides also clarify that particular promotional programs may implicate both Section 2(a) and the promotions provisions. For example, slotting allowances for new products are covered by Section 2(a) if they relate to initial sales; however, to the extent that an allowance is intended "primarily to promote the resale" of the product, it is covered by Sections 2(d) and 2(e).

Many Areas Left Unchanged

In contrast, the FTC rejected many of the proposed revisions. For example, some commentators urged the addition of an anticompetitive effects element for RPA claims under Sections 2(d) and 2(e), similar to the one embodied in Section 2(a). Though the FTC expressed its intention to limit enforcement to cases where there are likely adverse competitive effects, it declined to add the limiting language to the Guides, noting that "requir[ing] such a showing might not provide accurate guidance to the business community about the risks of private litigation."

The Guides also reject some commentators' pleas to explicitly bless proportionalization based on value to the seller. The FTC noted that a value standard in the Guides might promote imprecision, subjectivity and elastic measurements of value that could conceal unlawful price discrimination.

Finally, the FTC declined to remove the "special packaging" example of a promotional service covered by Sections 2(d) and 2(e), to the extent that the special packaging is used to promote a product's resale. However, the new Guides clarify that Sections 2(d) and 2(e) are not implicated when the special packaging relates to a non-promotional purpose, such as a customer's unique shipping and storage needs.

The FTC's description of the finalized Guides can be found here.

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