United States: FTC Amends Fred Meyer Guides, But Just A Little

The U.S. Federal Trade Commission has approved final amendments to its so-called "Fred Meyer Guides," which offer guidance to manufacturers, wholesalers, and other sellers on to how to provide advertising allowances and other promotional payments and services to retailers in compliance with the price discriminate statute, the Robinson-Patman Act ("RPA"). Unfortunately, the FTC did not drastically revise the Guides, but only adopted modest amendments to reflect technological developments, such as the proliferation of internet commerce. The FTC's limited action will come as a disappointment to businesses seeking greater clarity regarding how their marketing and promotional activities will be analyzed under the RPA.

Background

The Fred Meyer Guides, which do not have the force of law, offer the FTC's guidance to businesses seeking to comply with sections 2(d) and 2(e) of the RPA, 15 U.S.C. § 13. Although the RPA is primarily concerned with price discrimination, sections 2(d) and 2(e) of the Act prohibit a seller of goods from paying allowances or furnishing services to promote the resale of its products unless those allowances or services are offered to all competing customers on proportionally equal terms. These allowances can include advertising allowances – money provided by a manufacturer for the purpose of advertising a specific brand or product – or services such as promotional displays.

In 2012, the FTC sought public comment on the Fred Meyer Guides, which has not been revised since 1990. Seven commentators responded, including the Section of Antitrust Law of the American Bar Association ("ABA") and the American Antitrust Institutes, all urging various amendments or extensions of the Guides. After a lengthy consideration of these comments, the five-member FTC unanimously approved final changes to the Guides which go into effect on November 10, 2014.

Specific Revisions

The amendments to the Guides are more significant for what they did not change. The basic framework of the Guides remains intact, and the changes consist of a few additional examples and minor language changes. For example, numerous comments urged the FTC to make clear that section 2(d) and 2(e) only apply where there is evidence of injury to competition, that is, plaintiffs should be required to prove the same anticompetitive effects when alleging price discrimination under section 2(a). The FTC declined to adopt this recommendation. While recognizing that proof of competitive effects is sound enforcement policy, the FTC simply revised the Guides to state its own intent to enforce only in cases of likely harm to competition. Although this may provide some rhetorical ammunition for defendants facing private enforcement actions, it is likely to have little practical effect since the FTC in the modern era rarely enforces sections 2(d) and 2(e) (or any other provision of the RPA).

The ABA Antitrust Section also had suggested that the Guides' recommendation for a written promotional plan be satisfied by a plan contained on a seller's website. The FTC rejected this suggestion, which clearly would have provided an easier avenue for suppliers. The FTC similarly rejected the ABA's proposed revision that a seller may provide competing distributors notice of available promotional services and facilities if it directs "customers to the seller's website for details of the offer," reasoning that the burden is on the seller to communicate the essential features of an offer and that existing language in the Guides currently and accurately reflects that burden.

The FTC also did not revise the definition of a "competing customer" under the RPA, notwithstanding the modern proliferation of internet commerce. The FTC acknowledged that internet retailers are more likely to be considered competing customers of traditional brick-and-mortar stores if they (1) purchase similar goods from the same seller for resale and (2) market those goods to the same or similar prospective purchasers. Reasoning that current case law does not provide detailed guidance as to how sellers should make promotional allowances or services "available across reseller formats, "the FTC simply cautioned that" common sense and good faith" are relevant in determining what is proportional across different sales formats.

The FTC did make some modest revisions. The Guides added language to clarify how slotting allowances should be viewed under sections 2(d) and 2(e). Slotting allowances are payments by suppliers to retailers for product placement on a retailer's store shelves or access to a retailer's warehouse space. If these allowances relate to the initial sale, the FTC suggests they are covered under section 2(a) of the RPA. Alternatively, payments "used primarily to promote the resale" of the product are covered by sections 2(d) and 2(e). As noted above, this distinction is important because sections 2(d) and 2(e) do not require proof of a competitive injury; Section 2(a) does. The FTC added an example to the Guides to illustrate this distinction: a fee paid to a retailer to place product on prime display space after the retailer has already stocked the product is covered by sections 2(d) and 2(e); fees paid to initially stock a product are covered by section 2(a).

The FTC also revised the Guides to acknowledge that sections 2(a) and 2(f) of the RPA apply to a purchaser's knowing inducement of greater-than-proportional promotion assistance where no promotional services are performed in return for the payments.

Conclusion

While the Fred Meyer Guides remain an important tool for businesses seeking to comply with the RPA's requirements, the FTC's recent action does little to increase their utility or, more importantly, to address the fundamental problems posed by this troublesome statute. Businesses wishing to offer promotion services and allowances still must tread carefully and rely on the advice of experienced counsel when planning promotional activities subject to the RPA.

The FTC's description of the final amendments can be read on the FTC's website.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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