United States: US FTC Revises "Fred Meyer" Guides To Promotional Payments And Services

Last Updated: March 4 2015
Article by Richard M. Steuer

On September 29, 2014, the Federal Trade Commission issued revisions to its Guides for Advertising Allowances and Other Merchandising Payments and Services, popularly known as the "Fred Meyer" Guides, after the 1968 US Supreme Court case that prompted the Guides' creation. The FTC characterized the revisions as "modest," leaving some critics wondering whether this was a missed opportunity to change more.

The Guides were released in 1969 to help businesses comply with sections 2(d) and 2(e) of the Robinson-Patman Act, addressing discrimination in the provision of promotional allowances and other promotional support, termed "services and facilities." (Price discrimination is covered by section 2(a) of the Act.) Many of the new revisions reflect the widespread adoption of electronic commerce since the Guides were last revised in 1990. Another change reflects the Supreme Court's most recent interpretation of the Robinson-Patman Act, emphasizing that the Act is geared to prevent harm to competition more than the harm to individual competitors.1 Some changes simply correct typographical errors. The FTC made clear that it did not consider the process of reviewing its guidelines to be an appropriate occasion for making more substantive changes to the rules.

The following are some of the most significant changes.

Slotting Allowances. The Commission added an example to section 240.7 of the Guides that illustrates the services and facilities covered by the Robinson-Patman Act. The Commission did this to make clear that a payment to a retailer to add a new product constitutes a discount that is subject to the rules on price discrimination, while payment to the retailer to display the product in a prominent position within the store constitutes a promotional allowance that is subject to the rules on discrimination in providing promotional support. A claim for violation of the statutory provisions on price discrimination requires a showing of likely injury to competition, while violation of the provisions on discrimination in providing promotional allowances, services or facilities is a per se offense and does not require such a showing.

Special Packaging. The Commission added two other examples to section 240.7 to clarify that special packaging primarily designed to promote sales—such as Halloween packaging—constitutes a promotional service or facility subject to the Robinson-Patman Act, while packaging primarily designed to make stacking and shipping more efficient does not, and is therefore outside the coverage of the Act. (Within weeks of the appearance of these Guides, a lawsuit was filed in the Western District of Wisconsin claiming that Clorox's refusal to sell "club packs" to a warehouse-sized supermarket, while selling them to nearby club stores, violated sections 2(d) and 2(e) of the Act, citing the new Guides.)

Online Advertising. The Commission added "online advertising" to its list of promotional services and facilities covered by the Robinson-Patman Act, which also includes cooperative advertising, handbills, displays and special packaging. The Commission never defined "online advertising" but, if experience with other forms of advertising is any guide, presumably it would include both the actual provision of online advertising and reimbursement for the expense of online advertising, whether on the buyer's or seller's website or on third-party websites.

Alternative Arrangements. The Commission changed section 240.8, which had provided that alternative support should be made available to customers that cannot, in a practical sense, take advantage of "some" of the seller's promotional offerings. The section now provides that alternative support should be made available to customers that cannot take advantage of "any" of the seller's offerings. If a customer can take advantage of some of the offerings, there is no need to provide others.

Featured Customers. The Commission revised section 240.9, which had provided that a seller should not feature certain customers in its own advertising without making the "same service" available on proportionally equal terms to all competing customers, by changing the "same service" to the "same, or if impracticable, alternative services." The Commission recognized that featuring all of a seller's customers may be impracticable when those customers are too numerous.

Availability to E-tailers. The Commission revised its first example under section 240.10, which illustrates how sellers can make alternative promotional support available to customers that are unable to use some of the alternatives being offered. The Commission previously had instructed sellers to offer "alternative(s) on proportionally equal terms that are useable in a practical sense" by those customers that could not use the other alternatives. Now, the Commission specifically added that "some 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." Again, the term "online advertising" is not defined.

In the third example under section 240.10, the Commission added allowances for "websites" to the list of "allowances for other media and services" that may be offered to small customers as alternatives to allowances for newspaper advertising. The Commission did not specify whether "websites" refers to allowances for creating or improving the customer's own website, allowances to pay for advertising on third-party websites, both, or something else.

Notice. The Commission clarified that despite the widespread use of the Internet, the seller's obligation to provide notice to customers of the availability of promotional support may not be satisfied simply by posting notices on the seller's website. However, the Commission added that it is permissible to provide such notice on shipping containers or other packaging with directions to check the seller's website for further details.

Buyer Liability. The Robinson-Patman Act makes buyers liable for inducing unlawful price discrimination in their favor, but is silent on inducing discriminatory promotional support. However, the FTC has pursued such conduct as violating the FTC Act. This has created an issue as to whether there must be a showing of likely injury to competition to support such a claim, since the Robinson-Patman Act requires such a showing for a claim of price discrimination but not for a claim of discrimination in providing promotional support. The Commission took this opportunity to clarify that it will proceed under the FTC Act against a customer that knowingly accepts discriminatory promotional support only "where there is likely injury to competition."

Disguised Price Discrimination. The Commission clarified that, as several courts previously have held, a purported promotional allowance may be re-classified as a discount where the customer is not required to perform commensurate promotional activity in order to receive the money. Because inducement of such a payment could expose a buyer to suits for private damages for price discrimination (under section 2(f) of the Robinson-Patman Act), the Commission found it appropriate to "remedy the Guides' possible implication to the contrary." The Commission added, in section 240.13, that "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 preformed in return for the payments, or where the payments are not reasonably related to the customer's cost of providing the promotional services."

The Commission also added two references to "the Internet" in section 240.13, describing the potential liability of customers and third parties for the use of fictitious rates to induce undeserved (and therefore discriminatory) advertising allowances. The Commission added "the Internet" to its list of "advertising medium" and observed that there can be fictitious rates submitted by customers for "the purchase of advertising with a newspaper or other advertising medium, such as the Internet" and by an "advertising medium" itself, "such as the Internet, a newspaper, broadcast station, or printer of catalogues."

Section 240.13(b) now provides, "An advertising medium, such as the Internet, a newspaper, broadcast station, or printer of catalogues, that publishes a rate schedule containing fictitious rates" may violate section 5 of the FTC Act. This seems a curious use of the term "the Internet," since "the Internet" does not publish a rate schedule. Thus, although the Commission emphasized that "the emergence of the Internet as an important retail sales and communications channel" was a prime motivation for revising the Guides, its use of the assorted terms "online advertising," "Internet advertising," "website" and "the Internet" could prove confusing in application.

The comments that the Commission invited last year urged many other changes, and many of those might have made compliance easier. Instead, the Commission limited itself to "modest" corrections and clarifications, specifically rejecting some proposals and more broadly observing that the periodic review of FTC guides is not the proper occasion for a substantive rewrite. Until such an occasion presents itself, the business community will need to continue operating under the Fred Meyer playbook.

Footnote

1 Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 546 US 164 (2006).

Originally published 2 March, 2015

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