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ANALYSIS: Is This the Robinson–Patman Act’s Moment?

April 8, 2022, 9:00 AM

Last week, 43 members of the House of Representatives urged the Federal Trade Commission to return to enforcing a law they haven’t used in more than 20 years: the Robinson-Patman Act. This complex law forbids sellers to favor one buyer over another in pricing, services, or facilities.

There are good reasons why the act has fallen into disuse, including its propensity to create perverse outcomes for the small producers it was intended to protect from market gorillas.

But now might be a unique moment when the act could see a resurgence. Not only are market and supply conditions in a rough spot, with concentration in many markets making it difficult for small players to compete, but we’re hearing policymakers discuss goals other than efficiency when imagining how we want markets to function and what the goals of the antitrust laws should be.

Mom & Pop on the Ropes

The Robinson–Patman Act is a poster child for the types of competition concerns and market ideals that have fallen out of favor in the past 50 years or so.

Enacted in 1936, it was transparently concerned with small retailers being squeezed out by better purchasing terms negotiated by big chains with massive purchasing power. Congress considered those small businesses important constituents, and passed the law to protect them.

The act forbids any person to “discriminate in price between different purchasers of commodities of like grade and quality” when that discrimination may substantially injure competition at the seller’s level (called primary–line discrimination) or buyer’s level (secondary–line discrimination).

Harmful discrimination is also prohibited at further steps of the distribution chain (third– and fourth–line discrimination). It also forbids predatory pricing—meaning that companies using below–cost prices with the intent of driving any rivals out of business would be subject to enforcement under the act.

It’s a complicated issue, however, to distinguish between discounting that’s good for consumers and discounting that tips the field unfairly against one set of players. And from the beginning, courts have struggled to interpret the statute consistently with the rest of the antitrust laws. Businesses have also struggled to interpret how it applies to their own pricing and discounting policies.

Precisely those same concerns about small sellers animated the letter a bipartisan group of House members sent to the FTC on March 30. The representatives said that increased market concentration, combined with Covid–19 supply chain snarls, mean that “small and medium–sized businesses are increasingly subject to discriminatory terms and conditions,” including less favorable pricing, difficulty getting supplies of scarce goods, and other impediments that don’t impact big competitors.

The representatives exhorted the FTC to use both the Robinson–Patman Act and the Federal Trade Commission Act’s prohibition on “unfair competition” to level the playing field.

Rumors of Demise

Businesses struggle to comply with the Robinson–Patman Act because it’s still on the books, is complex to apply, and can lead to costly private lawsuits. But the U.S. antitrust agencies haven’t enforced it for more than 20 years, and have all but written it off as a tool of competition policy.

Perhaps politicians still see the mom and pop stores as important constituents, but between 1936 and now, there has been a sea change in how antitrust authorities view the role of the antitrust laws (and the goal of competitive markets). Although the antitrust laws arose from concerns about concentrated economic power, antitrust has been primarily about efficiency, as particularly defined in economic terms, for around half a century. As evidence of that shift, the act fell into disuse during the 1970s and, apart from a low–level hum of private antitrust actions under the statute, hasn’t been used as an enforcement tool in decades.

There have been repeated calls to repeal the act, but they haven’t been successful. And now it’s possible that policy is coming back around in its favor.

In one of her first moves as FTC Chair, Lina Khan led the repeal of the FTC’s 2015 statement on its use of its unfair methods of competition authority. The statement had (for the first time) expressed limits on the agency’s use of the FTC Act’s “unfair competition” powers. Explaining the move, Khan and the other two Democrats on the Commission said that the FTC’s unfair competition powers (and concerns) extend beyond the Sherman and Clayton acts, and the agency should be able to use all of its available tools to their fullest extent. In short, Khan’s FTC is signaling a revival of expansive enforcement and a creative review of the statutory “toolbox.”

Khan has also coupled the Robinson–Patman Act with other aspects of the “fair trade” movement, and has written favorably about the act’s role in courts distinguishing between “competitive advantages drawn from superior skill and production,” which are legitimate, “and those drawn from the brute power of size and capital.” Indeed, those populist-era ideas about fair trade and the dangers of big corporations are seeing a revival, with concerns about concentration in key markets—and about companies with inordinate market (and even societal) power—coming to the fore.

Who or What Is Worth Protecting?

It’s often said that the Robinson–Patman Act protects competitors over competition—favoring protection of less efficient mom and pop stores over the sleek, big-box chains. That’s directly opposed to what courts and enforcers have famously declared about the purpose of the antitrust laws: They exist to protect competition, not individual competitors, and are concerned only that the most efficient possible producers form the market.

But the act also openly favors diversity in a market and a “level playing field” over pure efficiency. It’s not protecting “competitors,” so much as an idea that markets should be relatively open, and that powerful players shouldn’t be able to force better terms on suppliers that make it impossible for other players to compete even if they are otherwise equally efficient. If your only advantage is bargaining power vis–a–vis suppliers, should that be enough to drive out other competitors? Are we okay with markets dominated by one super firm?

The answer these days may be different than it has been in the past half-century. Watching supply chains buckle and consumers (and businesses) tolerate abusive terms or prices from a supplier because they have no reasonable alternative to turn to, policymakers are considering whether old restrictions on bigness are worth reviving.

The Robinson–Patman Act faces an uphill battle to becoming a relevant enforcement tool again. But the law itself has been on the books for most of a century and doesn’t appear to be going away. As the FTC actively talks about using all the statutory tools at its disposal, the unloved old act might even have a moment in the spotlight.

Bloomberg Law subscribers can find related content on our Antitrust Practice Center resource.

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