Robinson-Patman Act

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The Robinson-Patman Act of 1936, also referred to as the “Anti-Price Discrimination Act,” is a part of United States federal law that prohibits producers of products from participating in anticompetitive practices. The act specifically limits price discrimination and it is an amendment to the Clayton Antitrust Act, which was the first law of its kinds to prevent unfair price discrimination. To explore this concept, consider the following Robinson-Patman Act definition.

Definition of Robinson-Patman Act

Noun

  1. An amendment to the Clayton Act that prohibits producers of products from engaging in anticompetitive practices.

Origin

Adopted into Federal Law in 1936

History of Antitrust Legislation in the U.S.

Congress took its first action for the purpose of preserving “economic liberty “aimed at preserving free and unfettered competition as the rule of trade” with the Sherman Act of 1890. Following that action, the Clayton Antitrust Act of 1914 was enacted, which provided detailed prohibitions against various forms of anticompetitive price discrimination. Together these acts addressed the issue of breaking up and preventing monopolies. In addition, the Clayton Antitrust Act gave consumers the right to file civil lawsuits to sue for damages resulting from unfair pricing practices.

In 1936, Congress passed additional antitrust legislation in the Robinson-Patman Act (“the Act”), which banned any individual or business engaged in interstate commerce to sell the same products to different consumer groups, with the goal or effect of lessening competition, or creating a monopoly.

Overview of the Robinson-Patman Act

Sometimes referred to as the “Anti Chain Store Act,” the Robinson-Patman Act was spearheaded by Congressman Wright Patman. A primary goal of the Act was to protect independent retailers from unfair competition by large chain stores. Wholesalers eagerly got on board as the Act stopped the ability of large chain stores from purchasing products directly from the manufacturers at deep discounts, cutting them out completely. As the Act applies solely to tangible goods of similar quality, it prevents retailers purchasing products in large volumes from gaining too large an advantage over small buyers of the same products.

For example, JR’s Wholesale Company sells 1000 crates of party favors to a major retailer for $5.00 per item each year. The Robinson-Patman Act requires JR’s to sell the same products to a local mom and pop store for the same price, even though the smaller retailer cannot purchase in such large volume. If JR’s were to sell the product at a higher price to the local mom and pop store, the company would be found in violation of the Act.

Sections in the Robinson-Patman Act

The Sherman and Clayton Acts provided somewhat ambiguous language that sometimes could only be interpreted by a court of law. The Robinson-Patman Act, enacted as an amendment to the Clayton Act’s section 2, is composed of very specific language, leaving no question as to the meaning of the six subsections.

Section:

2(a)   Prohibits price discrimination to avoid causing injury to competition on the market

2(b)   Provides affirmative defense to this discrimination meaning that sellers have a defense to the discrimination if they offer products at a lower price to meet an equally low price offered by another seller

2(c)   Limits or prohibits certain brokerage fees

2(d)   Prohibits sellers from offering different prices to competing customers

2(e)   Prohibits sellers from promoting the resale based on discriminatory prices

2(f)    Prohibits sellers from encouraging buyers to violate the Act

The Act also outlines certain exemptions. For example, some sales involving the Government, non-profit entities, or cooperative associations are exempt from provisions of the Act. Also specified in the Act are criminal penalties to be imposed when an entity is found in violation of the Act.

Notable Cases

Since the Act became law in 1936, several cases have made their way to the Supreme Court, as retailers and other entities have alleged that manufacturers violated the Act. The first major cases came a little more than 10 years after the Act was put into place.

FTC v Morton Salt

In the 1940s, the Federal Trade Commission found Morton Salt to be in violation of the Robinson-Patman Act when it sold its “Blue Label” salt at a discount purportedly available to all customers who purchased a certain quantity. In truth, the discount was only made available to five large chain stores that purchased in sufficient quantities to obtain the discount.

Morton Salt took the decision to the U.S. Supreme Court in 1948, claiming the discount was standard and available to all customers. The Supreme Court upheld the FTC’s decision, stating that the Act makes it clear that “Congress considered it to be an evil that a large buyer could secure a competitive advantage over a small buyer solely because of the large buyer’s quantity purchasing ability.”

Lewis v Texaco

In 1976, the FTC heard another case pertaining to the Act when 12 Washington Texaco retailers sued the Texaco corporation. The plaintiffs claimed that Texaco, which sold gasoline at one price to wholesalers and another price to retailers, continued to offer the discount price to wholesalers that went into the retail business, giving those retail stations an unfair price advantage. In 1990, the Supreme Court upheld the FTC’s decision on this matter, awarding the plaintiffs nearly $450,000 in damages.

Related Legal Terms and Issues

  • Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property, or an injury.
  • Discrimination – The practice of unfairly treating different categories of people, especially on the grounds of ethnicity, national origin, gender, race, religion, and sexual orientation.
  • Federal Trade Commission – An agency established in 1914 to ensure consumer protection and to prevent unfair competition in the marketplace.
  • Monopoly – Control or advantage held by one entity over the commercial market in any specific geographical region.
  • Plaintiff – A person who brings a legal action against another person or entity, such as in a civil lawsuit, or criminal proceedings.
  • Retailer – A business that sells goods directly to individuals.
  • Wholesaler – A company that buys goods from the manufacturer and sells them to retailers or dealers.
  • Tangible Goods – Items that can be felt or touched, as opposed to non-tangible items such as rights, copyrights, or patents.