Last week, the Federal Trade Commission ("FTC") approved final changes to its Guides for Advertising Allowances and Other Merchandising Payments (the "Guides"), also known as the Fred Meyer Guides. The Guides were originally issued in 1969, and subsequently revised in 1990, to help businesses comply with sections 2(d) and (e) of the Robinson Patman Act (the "Act"). The Act generally prohibits certain forms of price discrimination between suppliers and the merchants who resell their products. Sections 2(d) and (e), which are the focus of the Guides, are designed to prohibit disguised price discrimination in the form of promotional payments or services. In other words, a supplier is prohibited from paying allowances or furnishing services to merchants to promote the resale of the supplier's products, unless the allowances or services are offered to all competing merchants on proportionally equal terms. The Act aims to help small businesses compete against chain stores by prohibiting anticompetitive price discrimination by suppliers, and certain other kinds of business discrimination. In December 2012, the FTC sought public comment on the Guides, and input on the overall costs and benefits and continuing need for the Guides.
In response to the comments solicited, the FTC approved moderate changes to the Guides in order to update them with respect to current technological developments, changes in marketing methods (such as widespread online marketing), and FTC enforcement priorities. The changes also reflect jurisprudential developments since the last revision of the Guides.
All of the comments provided to the FTC indicated a continuing need for the Guides. The following list is a general summary of the changes to the Guides. For additional information, read the Federal Register, which details the comments received and the FTC's final changes.
Changes to the Guides (effective November 10, 2014):
- General: The FTC added references to the
Internet to the lists of promotional media dispersed throughout the
Guides to address and account for new methods of commerce
associated with the growth of the Internet since the Guides were
revised in 1990.
- Section 240.7 (Services and Facilities).
This section of the Guides identifies the types of services and
facilities offered to merchants covered by sections 2(d) and 2(e)
of the Act. This section has been modified to provide an
example of how to distinguish between services and facilities that
are offered for a product's initial sale to the merchant seller
versus its resale to the end consumer. The following new example
was added:
Example 1: A seller offers a supermarket chain an allowance of $500 per store to stock a new packaged food product and find space for it on the supermarket's shelves, and a further allowance of $300 per store for placement of the new product on prime display space, an aisle endcap. The $500 allowance relates primarily to the initial sale of the product to the supermarket chain, and therefore should be assessed under section 2(a) of the Act. In contrast, the $300 allowance for endcap display relates primarily to the resale of the product by the supermarket chain, and therefore should be assessed under section 2(d).
Two additional examples were added to this section to address whether special packaging or package sizes are for promoting a product's resale versus its initial sale.
Example 2: During the
Halloween season, a seller of multi-packs of individually wrapped
candy bars offers to provide those multi-packs to retailers in
Halloween-themed packaging. The primary purpose of the special
packaging is to promote
customers' resale of the candy bars. Therefore, the special
packaging is a promotional service or facility covered by section
2(d) or 2(e) of the Act.
Example 3: A seller of liquid laundry detergent
ordinarily packages its detergent in containers having a circular
footprint. A customer asks the seller to furnish the detergent to
it in special packaging having a square footprint, so that the
customer can more efficiently warehouse and transship the
detergent. Because the purpose of the special packaging is
primarily to promote the original sale of the detergent to the
customer and not its resale by the customer, the special packaging
is not a promotional service or facility covered by section 2(d) or
2(e) of the Act.
- Section 240.8 (Need for a plan). This
section addresses the need for sellers to have a plan for making
alternative promotional allowances available to competing
customers. The FTC agreed to modify the language in this section to
become less restrictive by substituting the word "other"
with "any." 240.8 now states: "Alternative
terms and conditions should be made available to customers who
cannot, in a practical sense, take advantage of
any of the plan's offerings."
(Emphasis added.)
- Section 240.9 (Proportionally equal
terms). This section states that promotional services and
allowances should be made available to competing customers on
proportionally equal terms. The FTC revised Example 4 in this
section to recognize that it may be impractical for a seller to
feature all competing customers in advertising. Example 4 now
provides that a seller should "not identify or feature one or
a few customers in its own advertising without making the same, or
if impracticable, alternative services available to competing
customers on proportionally equal terms..."
- Section 240.10(a) (Availability to all
competing customers). This section addresses the requirement
that a seller take reasonable steps to ensure that promotional
offers are "usable in a practical sense" by competing
customers. The FTC revised Example 1 to encourage making
online promotional alternatives available to online customers (and
others) as appropriate by adding the following language: "In
addition, some competing customers are online retailers that cannot
make practical use of radio, TV, or newspaper advertising. The
manufacturer should offer them proportionally equal alternatives,
such as online advertising, that are useable by them in a practical
sense."
- Section 240.13 (Customer's and third-party
liability). This section addresses when customers may be liable
under section 5 of the FTC Act for when they know or should have
known they are receiving services or allowances not made
proportionally available to competing customers. The FTC made two
changes to this section. First, it clarified that it would
not proceed against a customer for unfair methods of competition
under section 5 of the FTC Act who knows, or should know, that it
is receiving services or allowances not made proportionally
available to competing customers, unless there is "likely
injury to competition."
Further, it added the following paragraph to section 240.13(a): "In addition, the giving or knowing inducement or receipt of proportionally unequal promotional allowances may be challenged under sections 2(a) and 2(f) of the Act, respectively, where no promotional services are performed in return for the payments, or where the payments are not reasonably related to the customer's cost of providing the promotional services." This paragraph was added in order to acknowledge the applicability of section 2(a) and 2(f) of the Act to promotional allowances, and the possibility of a private right of action.
As with other guides issued by the FTC, the Guides are not binding regulations, but are advisory interpretations to help businesses that are seeking to comply with the Act. While the revisions overall were moderate, they are a friendly reminder to suppliers to take a look at their pricing practices.
This article is presented for informational purposes only and is not intended to constitute legal advice.