These and hundreds of other business scenarios require
business lawyers to have at least a working knowledge of
the act. In fact, Robinson-Patman is often more
important to daily business life than any other
antitrust law. Vendors make countless pricing decisions
daily. Robinson-Patman affects a substantial percentage
That doesn't mean it's a good law. Although Robinson-
Patman has its supporters, a number of lawyers,
academics, and judges have been trying to eliminate the
act for generations. The critics claim that the law
produces perverse, counterintuitive economic incentives.
But their efforts have been unsuccessful. Nearly 70
years after its passage, Robinson-Patman still strikes
unsuspecting businesses across America, exposing them to
embarrassing publicity, costly litigation and
potentially enormous treble damage awards.
Robinson-Patman is deceptively complex and largely
counterintuitive; no short magazine article can address
its every subtlety or idiosyncrasy. Accordingly,
antitrust lawyers should be a part of any business team.
But every business lawyer can and should have a basic
understanding of what the act is and how it
Congress passed the Robinson-Patman Act in 1936, in
response to claims that large chain stores like the
Great Atlantic and Pacific Tea Co. (A&P) were
injuring smaller stores by forcing suppliers to sell to
the large chains at lower prices. Conventional wisdom
held that A&P and other chains could then sell to
consumers at lower prices than the mom-'n'-pops,
eventually driving smaller stores out of
The act aimed to eliminate this "evil" by
outlawing most forms of price discrimination.
Unfortunately, the statute is hardly a model of clarity.
The basic violation is set out in a single 138-word, 12-
comma sentence. Here are the more relevant clauses
I'll discuss each italicized phrase in
It shall be unlawful
to discriminate in price
between different purchasers of commodities of like
grade and quality,
where either or any of the
are in commerce
and where the effect
of such discrimination may be substantially to lessen
competition or tend to create a monopoly in any line of
commerce, or to injure, destroy or prevent competition
with any person who either grants or knowingly receives
the benefit of such discrimination, or with the
customers of either of them
"To discriminate in price"
concept of "price discrimination" is fairly
straightforward it's essentially any difference
in price besides those subject to the defenses discussed
below. And it is difficult to avoid the price
discrimination label through creative accounting
the act is concerned with function, not form. Price
discrimination is any price difference of fees,
discounts, allowances, etc.
Clients can't avoid the law by offering different credit
terms, paying dummy brokerage fees, or furnishing
services to one customer without offering the same
services to all customers on proportionally equal terms.
In other words, price discrimination looks at the
reality behind pricing. Any net difference in price is
price discrimination. Whether it's an illegal
discrimination depends on a variety of other
applies only to sales of commodities. It does not
apply to sales of services. For "hybrid"
products, some federal courts employ a "dominant
nature" test, which requires courts or fact finders
to determine whether a transaction's
"commodity" characteristics predominate over
its noncommodity characteristics.
For example, a computer software transaction may be
subject to Robinson-Patman if its dominant
characteristic is the physical sale of computer code.
But if it is predominantly a licensing transaction
conveying only the right to use that computer code, it
probably will not be subject to the act.
As of this writing, there is no clear judicial consensus
regarding whether software is a "commodity"
courts have noted that many software
transactions have strong "commodity"
characteristics in addition to their
"services" or "license" aspects. The
"dominant nature" determination can be fairly
difficult, and wise lawyers avoid blanket pronouncements
on what is really a fact-specific analysis.
The Robinson-Patman "dominant nature" test
closely resembles tests used by some courts to determine
whether transactions are subject to the Uniform
Commercial Code. But no court has expressly equated the
two, and at least one Robinson-Patman decision expressly
rejects a UCC analogy.
"Of like grade and quality"
It's perfectly acceptable to sell different
at different prices. But as with
everything Robinson-Patman, the devil is in the
The "like grade and quality" requirement is a
tempting siren for many would-be price discriminators.
After all, doesn't different packaging or an extended
warranty make otherwise identical products legally
different? In a word, no. Courts generally reject
"like grade and quality" defenses based on
window dressing alone. As one court put it in finding
that physically identical "premium" and
cheaper-brand liquor were of like grade and quality,
"Four Roses by any other name would still swill the
In order to avoid liability on "like grade and
quality" grounds, sellers generally need to
demonstrate bona fide differences that are recognized by
the marketplace. There are exceptions to this general
rule, but if you find yourself wondering if they apply,
it's time to call an antitrust lawyer.
claim must be based on two or more roughly
contemporaneous actual sales
customers at different prices. Merely reflecting
discriminatory prices in offers,
price lists or proposals is not illegal.
Patman only applies when at least one of the purchases
crossed a state line. But many states have "baby
Robinson-Patman acts" designed to address
intrastate conduct, so the rare "purely
intrastate" business can still face
"Substantially to lessen competition"
Most Robinson-Patman claims involve
either "primary line" or "secondary
line" price discrimination. Primary line price
discriminators typically price differentially in an
attempt to injure direct competitors. In other words,
Seller A cuts his prices to Seller B's customers hoping
that Seller B will lose market share and go out of
Primary line (or "predatory pricing")
violations have been extremely difficult to prove since
a 1993 U.S. Supreme Court decision that requires primary
line plaintiffs to demonstrate that defendants priced
below cost and could reasonably expect to recoup its
losses in the future primary line. Robinson-Patman
claims are practically identical to predatory pricing
claims under the Sherman Act, which makes attempts to
monopolize illegal only if they entail a "dangerous
probability of success." Few primary line claims
meet the current standard.
By contrast, secondary line discrimination affects the
of the price discriminating seller.
Secondary line claims typically involve a
"disfavored" purchaser bringing suit against a
seller or the seller's "favored" purchaser(s)
for giving the favored purchaser a better deal.
Courts remain relatively friendly toward secondary line
claims, and generally refuse to require plaintiffs to
demonstrate actual harm to competition
whole. Instead, courts infer competitive effects from
the very fact of a sustained price difference.
To prevail on secondary line claims, plaintiffs first
must prove direct or indirect competition between the
"favored" and the "disfavored"
purchasers. If the purchasers do not compete, there is
Second, they must "prove" competitive injury
by (a) direct evidence of lost sales, (b) direct
evidence of lost profits resulting from the
discrimination, or, in most jurisdictions, (c) by
inference. Under the "Morton Salt
test," the existence of a substantial price
difference over a substantial time period in an
otherwise competitive market creates a rebuttable
inference of injury to competition. Injury to even a
single competitor may constitute "competitive
injury." If a plaintiff paid a significantly higher
price than a competitor for the same product over time,
it can usually satisfy the requirement.
The Morton Salt
test seems to violate a modern
antitrust article of faith: that antitrust laws were
designed to protect competition
, not individual
. Many business clients argue that the
rule tends to protect inefficient
competitors, to prevent suppliers from rewarding their
more successful and enthusiastic customers, and
generally to produce perverse incentives that in many
rather than increase
Although business lawyers should know the black letter
law, it's also important to understand why many business
owners think it irrational. Even the most competitive,
law-abiding clients run into secondary line problems,
usually because the law itself seems counterintuitive
and arguably anticompetitive.
Competitive businesses are interested in selling more,
rather than less, of their products, and accordingly try
to maximize distribution efficiency. No rational price-
discriminating producer would intentionally
its distribution system through its
In fact, price discrimination may actually
intrabrand distribution in certain
circumstances. For example, a producer may want to offer
discounts to one of two dealers because that dealer
competes more aggressively against other brands. This
practice would actually facilitate competition as a
whole, by providing incentives for the seller's dealers
to compete harder against other brands. But under
current law, the less aggressive dealer may have a
Robinson-Patman claim if it paid more for the seller's
product than the more aggressive dealer.
Robinson-Patman can be confusing, but if the first part
of this article has you worried, take heart. There are
It's fine to offer different
prices to different customers, so long as the seller is
acting "in good faith to meet the equally low price
of a competitor." But there are a couple of
First, it's an affirmative defense, so the burden is on
the defendant to prove facts that reasonably establish
that its lower price simply meets the equally low price
of a competitor. As a practical matter, this means you
need something more than heartfelt promises from a sales
rep that the buyer had a better offer in hand. A
of that better offer would be nice, and
sellers must make "reasonable inquiry." (An
important aside: Please do not suggest that your sales
force contact the competing seller directly. The Sherman
Act doesn't think too highly of that particular
Second, "meet" doesn't mean "beat."
that a competitor's do not qualify
for the "meeting competition" defense
this defense is available only for matching
That is particularly important in light of the current
popularity of "Most Favored Nations" (MFN)
clauses in supply contracts. If an MFN clause simply
entitles the purchaser to the lowest price the supplier
offers to any customer, it will not violate the act. But
Robinson-Patman is a potential concern if an MFN clause
entitles a beneficiary to lower
prices than any
authorizes price differentials reflecting differences in
a seller's costs. Price differentials are lawful if they
"make only due allowance" for the seller's
manufacturing, sales or delivery costs resulting from
"differing methods or quantities" of
production or delivery. But the cost justification
defense emphasizes function over form. The seller bears
the burden of proving the cost difference, and can only
discount in proportion to real cost savings. The cost
justification defense imposes a heavy burden on sellers,
and can often be difficult to sustain in
It's also acceptable to offer
discounts if they are "functionally available"
to all customers. But before your clients print out
revised "volume discount" price lists,
consider this: If an average customer buys 100 units per
quarter, and Wal-Mart buys 1 million, setting the one
and only price break at 1 million units is probably not
"functionally available" to that average
customer. Instead, the lower price must be realistically
available to the allegedly disfavored customer. If your
clients are interested in volume discounting, it's
probably time to have your friendly neighborhood
antitrust lawyer give the discount schedule a once-
Functional discounting is
a judicially created hybrid of the cost justification
and availability defenses. Simply put, it's not a
violation of the act to provide discounts corresponding
to a particular customer's distributional function. So
it's generally acceptable to charge wholesalers less
than retailers. It may also be permissible to offer a
large-volume retailer a special discount if it, for
example, stores inventory for the seller. But customers
receiving functional discounts must actually provide
It boils down to this: Your
clients can sell their remaining stock of "I'm
ready for Y2K are you?" T-shirts for
somewhat less than their December 1999 price. Ditto for
"Santa flying into a tree" novelty displays on
Dec. 26, and other out-of-date seasonal merchandise.
It's also permissible to sell perishable commodities for
less as they reach the end of their shelf life. But
again, "changing conditions" defenses must be
based on changes that actually decreased (or increased)
the value of the goods between the time of the sales at
Private suit damages issues.
Although it's not
technically a "defense," private Robinson-
Patman plaintiffs must also prove that they suffered an
"antitrust injury" (a concept confusingly
different from the "competitive injury"
requirement discussed above). It is not enough to prove
only a price difference. Instead, a plaintiff must
establish injury reflecting "the anticompetitive
effect of either the violation or the anticompetitive
acts made possible by the violation." Even if every
other defense fails, your clients can avoid liability if
the plaintiff cannot prove lost sales or lost profits
attributable to the discrimination.
disfavored purchasers to sue sellers, allegedly favored
purchasers, or both. Remember, Robinson-Patman's
drafters wanted to prevent large purchasers from
extracting "excessive" discounts from
suppliers. Regardless, clients may face liability for
a discriminatory price.
Moreover, purchasers typically will not be well-
positioned to defend a claim most of the
available defenses depend on the market realities facing
. Purchasers should always try to get
the best price possible, but should be aware that they
can sometimes face risk for sellers' activities over
which they have little or no control.
Of course, virtually every client is also a potential
of illegal price discrimination. Although
it can be relatively difficult to determine whether a
particular transaction is discriminatory, lawyers should
instruct their clients to report instances where they
believe that a competitor has "unfairly"
received a better deal from a common supplier. After
all, there's a good side and a bad side to treble
After my client asked its seemingly simple question, we
spent the next hour or so discussing both the elements
of and defenses to Robinson-Patman claims. We quickly
determined that a "disfavored" purchaser
paying list price would be able to make out a prima
facie claim. By that time, there would have been two
separate sales of the same "commodity" to
different customers at different prices, and at least
one of the sales would have crossed state lines. We
assumed a plaintiff could prove "competitive
injury" by demonstrating a significant price
difference over a significant period of time.
So we turned to the defenses. Did the discount price
meet the equally low price of a competitor? No, not
really. Was the discount justifiable on cost grounds?
No, the cost of producing the product for the favored
purchaser was identical to the cost of producing it for
list price customers.
The client wasn't interested in making the discount
functionally available to all customers, nor could we
identify any services provided by the favored purchaser
that might entitle it to a functional discount. Neither
was the product subject to a "changing
But at the end of the conversation, we still concluded
that the proposed discount was not particularly risky.
Why? Because the product my client is selling is a tiny
component of its purchasers' finished products,
constituting 1 percent or less of the purchasers' total
cost of production for the finished consumer
Even though the proposed discrimination may well
constitute a technical violation of the Robinson-Patman
Act, we concluded that it would be almost impossible for
a disgruntled purchaser to prove that the discrimination
resulted in lost sales or lost profits.
The Robinson-Patman Act is tricky. It makes little sense
to many lawyers, and even less to the business people
who actually buy and sell products. It is arguably
anticompetitive, which puts it at odds with the very
goals of the antitrust laws. And it's an extremely
complex piece of legislation with an arcane and
sometimes counterintuitive body of surrounding case law.
But it remains the law of the land nearly 70 years after
its passage, and business lawyers owe their clients a
duty to keep them informed and aware of the implications
of the law.
When in doubt, call an antitrust lawyer. We're here to
Stancil is an associate at Godfrey & Kahn, S.C.,
in Milwaukee. His e-mail is