In a 3-2 party-line vote, a divided Federal Trade Commission (FTC) moved Dec. 18 to seek a federal district court injunction against Southern Glazer’s Wine and Spirits LLC, the largest U.S. distributor of wines and spirits. The FTC complaint alleges that Southern’s discounting practices discriminated against small independent businesses, violating the Robinson-Patman Act (RPA), to the detriment of competition. The FTC requests that the court order Southern to charge the same net prices to all competing purchasers.
Unfortunately, the FTC’s suggested remedy would likely raise prices and harm consumers instead. A new FTC Republican majority may wish to rethink this case and RPA enforcement in general.
The Robinson-Patman Act in a Nutshell
Congress passed the RPA in 1936 in response to the concern of small businesses—such as “mom and pop” grocery stores—that they were losing share to larger supermarkets and chain stores and, in some cases, being forced to leave the market. Small businesses complained that they could not obtain from suppliers the same price discounts that larger businesses demanded and received.
To address this concern, the RPA prohibits sellers from offering different prices to different purchasers of “commodities of like grade and quality” where the difference injures competition. Selective discounts that are “cost-justified” or are made to meet the price of a competitor are okay. Apart from those exceptions, however, the general rule is that discounts must be made available to all competing purchasers.
Recent judicial decisions have essentially held that, when the discounting firm’s practice harms its direct competitors – “primary line discrimination” – the RPA is only violated if the discounts would also harm competition and consumer welfare – in line with modern U.S. antitrust philosophy.
Under current case law, however, when the discounter’s actions affect competition between its customers – “secondary line discrimination” – mere harm to actual disfavored rivals of the firm (or firms) receiving discounts may amount to a violation of the act. This conclusion, some argue, follows from the RPA’s reference to discounts that “injure, destroy, or prevent competition with any person”. This interpretation is in tension with the U.S. Supreme Court’s teaching that antitrust is concerned with benefiting the competitive process and consumers, not with protecting individual competitors.
For several decades, a bipartisan scholarly consensus has held that the RPA discourages economically efficient discounting, which benefits consumers and is a normal part of the competitive process. Actions by “big box” retailers and other large firms who negotiate for and receive discounts benefit countless American buyers. For instance, Total Beverage, a major client of Southern Glazer’s, provides lower-cost discounted products through its large stores and online sales.
The RPA is unnecessary. Truly predatory price-cutting that destroys competition in a market is already addressed by the Sherman Antitrust Act. Moreover, small and medium-sized businesses (not just large dominant firms) often were the target of RPA suits. Thus, discounting by competitors both small and large was chilled.
Recognizing all of this, the U.S. Justice Department (DOJ) and the FTC, under Democratic as well as Republican administrations, essentially stopped enforcing the RPA beginning in the 1980s. Private lawsuits for treble damages, which the RPA authorizes, did, however, continue.
The Antitrust Modernization Commission, a bipartisan congressionally established body of antitrust scholars and practitioners, urged repeal of the RPA in its 2007 public report. Although Congress did not respond, the federal enforcement agencies continued their decades-long policy of RPA nonenforcement until the FTC sued Southern Glazer.
The Southern Glazer Lawsuit
In announcing its suit against Southern Glazer, the FTC stated:
Since at least 2018 and continuing today, Southern has repeatedly discriminated in price between disfavored independent convenience stores, and independently owned wine and spirits shops – and favored large chain purchasers of wine and spirits, such as Total Wine & More, Costco, and Kroger, the FTC’s complaint states.
Southern’s lower prices for large national chains are not derived from differences in Southern’s cost of distributing products to larger retailers, nor do they reflect legitimate attempts to meet prices offered to chain retailers by competing distributors according to the FTC’s complaint.
Three Democrats on the commission –Alvaro Bedoya, joined by Rebecca Slaughter and Chair Lina Khan– issued a statement supporting the FTC’s suit. The majority emphasized that many of Southern’s “price differences cannot be explained by bona fide differences in the costs of ‘manufacture, sale, or delivery’ resulting from the greater quantities purchased by those larger retailers.”
The majority cited case law for their decision. They also argued that there is no formal empirical evidence to show that the RPA actually raises consumer prices. (Substantial scholarship, however, contests that, and holds that “[e]conomics and history make clear that the [RPA’s prohibitions] . . . would raise prices for consumers and reduce overall economic welfare.”)
Republican Commissioners Andrew Ferguson (recently named by President-elect Donald Trump as his choice for FTC chairman) and Melissa Holyoak dissented, issuing separate statements. Commissioner Ferguson’s opinion concluded that:
[T]he Commission must soundly exercise discretion about when to enforce a law. The Commission exercises its discretion poorly by bringing this case. The Commission is unlikely to prevail even on its own theory of the Act, and it would be an imprudent use of the Commission’s enforcement resources even if it were likely to prevail.
Commissioner Holyoak’s opinion stressed that the FTC’s complaint “condemns conduct that is plainly innocuous or even procompetitive. . . . [I]t manifestly defies logic to suggest that the mere presence of discounting is dispositive proof that there has been harm to competition.” While she noted “[t]hat is not to say that enforcement of the Robinson-Patman Act is never warranted[,]” she concluded that Southern’s conduct did not violate the terms of the RPA, properly construed.
The likely outcome of the FTC’s lawsuit is uncertain. Both the majority and the dissenters advance plausible arguments regarding the legality of Southern’s pricing practices under the RPA. Facts regarding actual harm to competitors (and determination of whether small retailers are actually “in competition with” Southern’s large customers) will be key. The reality that this prosecution is more likely to diminish rather than to enhance consumer welfare will not be legally dispositive.
What Happens Next
The Southern case may not be the last word on FTC RPA cases. The Biden administration launched an interagency taskforce on unfair and illegal pricing in March 2024, which was directed to “operationalize the administration’s revival of the” RPA. The FTC is reported to be investigating other possible RPA violations, in the soft drink and food industries. Whether new RPA cases are filed before Jan. 20 remains to be seen.
The new Trump administration may, of course, change course. In addition to naming Commissioner Ferguson as future chair, Trump recently announced he would nominate Mark Meador to be a Republican FTC commissioner when a vacancy arises. Lina Khan is reported to be leaving the commission in January, although that has not yet been confirmed.
A new Republican FTC majority could potentially vote to discontinue the prosecution of the Southern injunction action, if the matter is still in litigation. It could also choose to drop the other RPA investigations, or to discontinue prosecution of any new complaints that may be filed before Jan. 20.
The new commission majority might also chose to announce that it is discontinuing RPA enforcement, as a matter of prosecutorial discretion. It could explain that the FTC’s limited enforcement resources would be better utilized pursuing cases that are likely to substantially raise consumer welfare and benefit the American economy.
The economic arguments for shutting down the Biden administration’s RPA enforcement program are extremely solid. Even if that occurs, however, there is no guarantee that RPA enforcement would not be revived by some future administration.
The new Trump administration, led by the FTC, may therefore wish to study and report to Congress on the case for finally repealing the RPA. Such a reallocation of government legal resources to higher-valued uses might become a valuable component of sound economic reform.
