In 1990, the Hubble Telescope was launched, Nelson Mandela was released from prison, Iraq invaded Kuwait precipitating the first Gulf war, and most importantly (at least for this blog post), the FTC last updated its “Guides for Advertising Allowances and other Merchandising Payments and Services.” The Guides, otherwise known as the “Fred Meyer Guides” after the Pacific Northwest retailer that got caught in an FTC case that ended up in the Supreme Court in the 1960s, attempt to give guidance for businesses on some specific aspects of the Robinson Patman Act. The Commission announced on November 28th that it is considering whether to revise or eliminate the Guides in light of developments in the economy and technology (for example the birth and development of the Internet), and in the case law interpreting the Robinson Patman Act.
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The Robinson Patman Act was intended to help small retailers compete against the big chain stores, and covers the sale of goods to retailers or through wholesalers to retailers. Under the Act, sellers of goods for resale (for example, manufacturers) are prohibited from discriminating against certain customers in favor of others where that discrimination might harm competition between those customers. There are a number of prohibitions in the Robinson Patman Act, principally prohibitions against charging different prices to different buyers. The Fred Meyer Guides were drafted by the Commission to help businesses comply with the two provisions in the law that cover advertising allowances or other merchandising payments that a manufacturer might use to help favor some retailers over others.
Under sections 2(d) and 2(e) of the Robinson Patman Act, sellers of goods cannot provide discriminatory advertising or promotion allowances or services to help some customers resell the goods to the disadvantage of other customers. These prohibitions extend to any allowances that directly or indirectly support resale of any good. Sticky questions can arise when a manufacturer has a mixed distribution system where it sells both directly to some retailers and indirectly, through wholesalers, to other retailers. In that case, the manufacturer can provide allowances to the retailers that it deals with directly as long as it ensures that other retailers get benefits that are “proportionate” to the allowances that the direct retailers get. Manufacturers can even use their wholesalers to administer its allowance program. These were some of the issues in the Fred Meyer case and that led to the Guides.
What’s interesting about all this, other than a trip down memory lane (top grossing movie in 1990: “Home Alone”), is that the Commission is making the effort to update the Guides now. Why now? The Commission has done little to enforce the Act since a case against McCormick in 2000. And even though the Department of Justice has the authority to enforce the Act as well, it has been many years since Justice has done anything. Right now, most of the enforcement of the Act is the result of private litigation that occurs when a distributer believes that it has been harmed as a result of a distribution model by an upstream firm. In that event, the Guides may assist the courts in evaluating the standards for enforcing the provisions of the law relating to advertising allowances.
The Commission’s interest in reviewing the Guides may simply be good government: Commission staff may be combing through all the guides and rules that have built up over the years to make sure that they are all relevant to today’s economy. In any event, the Commission’s press release notes that although the request for comment includes fourteen questions, the Commission is particularly interested in:
1) whether there is a continuing need for the Guides; 2) whether there have been changes in the case law that should now be reflected in the Guides; 3) how, if at all, the Guides should be revised to account for new developments in commercial practices since 1990, such as the growth of the Internet as a means of promoting products; 4) what costs and benefits the Guides provide to business; and 5) what costs and benefits the Guides ultimately have for consumers.
The press release includes a link and instructions for submitting comments. The Commission will accept comments until January 29, 2013.