Conclusions from the Clear-Eyed Robinson-Patman Eye Drops Ruling

Entry

A recent ruling condemning price discrimination by a popular eye drop brand is another reminder that companies cannot afford to ignore antitrust risks under the Robinson-Patman Act (RPA), a long-standing law that has resurfaced in recent years. The RPA prohibits charging some customers more than others without justification. In LA International Corporation v. Prestige Brands Holdings, Inc.The plaintiff wholesaler who purchased Clear Eyes eye drops alleged that the manufacturer offered lower prices to certain “privileged” customers, but not the plaintiff wholesaler.(1) Late last year, a jury returned a six-figure verdict in favor of the plaintiff,(2) which a district court judge affirmed in May 2024.(3)

Prestigious brands offers valuable insights into the risk of price discrimination, particularly in light of the increased rhetoric from federal antitrust authorities in favor of reinstating enforcement under the RPA and the aggressive and sophisticated private plaintiffs.

Robinson-Patman Bill Returns

RPA is a New Deal-era law that has been gaining traction under the Biden administration. In March 2024, Congresswoman Mary Gay Scanlon and Senator Elizabeth Warren wrote to Federal Trade Commission (FTC) Chairwoman Lina Khan urging the agency to resume enforcement of RPA.(4) Additionally, FTC Commissioner Alvaro Bedoya(5) and Chairman Khan(6) have argued that RPA must be implemented to protect independent grocery stores and rural pharmacies. The FTC is also reportedly building RPA cases in the soft drink and alcohol distribution markets.

In simple terms, the RPA prohibits sellers of goods from charging different prices to competing buyers of those goods.(7) Antitrust concerns arise when some competing sellers gain an advantage in the marketplace that has nothing to do with their superior efficiency or service. Specifically, an infringement occurs when a company sells the same goods at about the same time at two different prices to two different competing customers, where the price difference causes competitive harm.(8) In addition, discrimination in promotional allowances—such as marketing support—may also constitute an infringement.(9) Buyers may also be liable along with the seller if the buyer knowingly solicits and receives discriminatory prices or promotional allowances.(10)

However, not all forms of price discrimination are prohibited. The RPA does not apply to services. It further permits price discrimination when the lower price is functionally available to competing customers, promotional discounts were functionally available on proportionally equal terms, the discount is a quantity discount justified by actual cost savings, downstream customers are not in competition with each other, or the discount is necessary for the seller to “keep up with the competition.”(11)

A growing trend or a drop in the ocean?

FTC scrutiny of price discrimination and Prestigious brands Litigation provides important lessons for understanding South Africa. Prestigious brands began in 2018 when nine wholesalers alleged that defendants Prestige Consumer Healthcare, Inc. and Medtech Products were providing better discounts, promotions and rebates to certain club stores that were not also offered to plaintiffs.(12) The favorable terms took the form of quarterly rebate payments that were made in exchange for various advertising and promotional services.(13) After a six-day trial, the jury ruled that the various discounts and rebates that defendants provided to club stores were not sufficiently supported by the advertising and promotional services provided by those stores.(14)

After the verdict, defendants moved for a new trial on several grounds. First, they argued that the jury instructions failed to convey that the functional discount was a complete defense to RPA liability. This defense applies when “the purchaser performs a service for the supplier” in exchange for the discount.(15) Here, defendants argued that their discriminatory pricing was justified as a functional discount in exchange for marketing services that some customers performed for Clear Eyes.(16) In rejecting this defense, the court found that the jury instructions adequately conveyed that the functional discount defense was a complete defense and upheld the jury’s finding that Clear Eyes’ discounts were not provided in exchange for a service.

Second, defendants argued that plaintiff wholesalers and favored buyers were not competing with each other because they were not “chasing the same dollar” but rather competing for different customers in different sales channels.(17) Specifically, defendants argued that they offered their own discount programs and operated as membership-based clubs, whereas plaintiffs did not.(18) The court disagreed, taking a broader perspective of the competitive landscape, finding that any differences between plaintiff wholesalers and favored wholesalers were merely immaterial “operational differences.”(19) The court followed the holding of the United States Court of Appeals for the Ninth Circuit in Innovative ventureswhich found that the club store and the wholesalers “competed with each other in the actual distribution of 5-hour Energy drinks” to convenience and grocery stores.(20) However, other courts might reach a different conclusion if the club store sold primarily to consumers rather than retailers. The ruling in this case highlights that some judges and juries may have a broader perspective on which companies compete in the same channel than previously thought.

Finally, the court rejected defendants’ argument that it was downstream customers, not defendants, who requested the rebate program.(21) The court confirmed that the RPA Act does not exonerate defendants from liability even if it is the purchaser who initiates the rebate program.(22) This is an important reminder that liability under the RPA Act applies to both upstream and downstream trading partners, regardless of who requested (or even demanded) the pricing.

Looking to the Future with a Clear Perspective: Lessons Learned and Best Practices

Companies should track whether discounts, rebates, or promotional allowances were functionally available on a proportionately equal basis to all customers or vendors. The justification for these discounts should be documented at the same time to allow a jury or judge to see how any discounts are directly related to savings or costs. Simply assuming that higher volumes mean lower costs or greater savings may not be enough. And don’t expect courts or law enforcement to take executives’ word for it years after the fact. Ordinary business records are the strongest evidence.
Even companies that sell to consumers in different ways can still “compete” under RPA. In this case, wholesalers and club stores were considered competitors despite the differences in how they buy and sell. Companies should consider expanding their RPA compliance and implementing safeguards to cover situations outside their traditional competitive set.
The greater the price discrimination, the more likely it is to raise concerns. In this case, the wholesaler plaintiff paid 17.5% to 38% more for Clear Eyes than two large wholesale clubs. While any price difference could trigger a claim, larger differences may warrant consulting an antitrust lawyer early in the pricing process.
Companies cannot avoid liability even when a customer requests (or even demands) a discount. Whenever a buyer offers a volume discount, make sure that the discount is closely related to savings or costs, or that the discount is offered to other buyers on the same functional terms.

Footnotes

(1) LA Int’l Corp. v. Prestige Brands Holdings, Inc.2024 WL 2272384, at *1 (C.D. Cal. May 20, 2024).

(2) ID. at *2 o’clock.

(3) ID. at 15 o’clock.

(4) Press release, “Warren, Scanlon, and Lawmakers Urge FTC to Resume Enforcement of Robinson-Patman Act to Promote Competition and Lower Food Prices” (March 29, 2024).

(5) Prepared Remarks of Commissioner Alvaro M. Bedoya, Federal Trade Commission, “Return to Integrity” (September 22, 2022).

(6) FTC, Open Hearing, March 21, 2024, 1:04:37 a.m.–1:05:16 a.m.

(7) 15 U.S.C. § 13(a).

(8) See Texaco, Inc. v. Hasbrouck496 U.S. 543 (1990); See also Federal Trade Commission, Price Discrimination: Violations of the Robinson-Patman Act.

(9) See Woodman’s Food Market, Inc. v. Clorox Co.833 F.3d 743 (7th Cir. 2016).

(10) Federal Trade Commission, Price Discrimination: Violations of the Robinson-Patman Act (stating that the Robinson-Patman Act “applies to goods but not to services”).

(11) Great Atl. & Pac. Tea Co. v. FTC440 U.S. 69, 77 –78 (1979) (discussing various defenses available to sellers).

(12) LA Int’l Corp. v. Prestige Brands Holdings, Inc.No. 18-6809-MWF (MRWx), ECF No. 373, at Item 3 (CD Cal. May 20, 2024) (the “Factual Findings”).

(13) Prestigious brands2024 WL 2272384, at point *11.

(14) ID. at *2 o’clock.

(15) US Wholesale Outlet & Distribution, Inc. v. Innovation VenturesLLC, 89 F.4th 1126, 1139 (9th Cir. 2023).

(16) Prestigious brands2024 WL 2272384, at *6.

(17) ID. at 8.

(18) ID.

(19) ID.

(20) US Wholesale Outlet & Distribution, Inc. v. Innovation Ventures, LLC74 F.4th 960, 977 (9th Cir. 2023).

(21) Prestigious brands2024 WL 2272384, at point *11.

(22) ID.