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.