When they begin developing their reseller pricing policies, some manufacturers worry about striking even slightly different arrangements with different retailers or wholesalers in their channel. They’ve been warned repeatedly about antitrust laws such as the Robinson-Patman Act, and they’re understandably worried that unless they treat every company in their downstream channel exactly the same, they’re walking right into some sort of illegal price-fixing trap.
So, can you legally treat different resellers in your channel differently when it comes to pricing, promotional allowances, or other concessions? The short answer: Yes. The longer answer: It’s a bit complicated. This post will walk you through the dos and don’ts.
When Can’t You Treat Two Resellers Differently?
The federal antitrust law known as the Robinson-Patman Act was designed primarily to protect smaller resellers from their larger (and presumably more powerful) competitors.
The law was written before the Internet era, when people did their shopping by visiting physical stores. The stated goal of the Act was to prevent a large reseller—say, a regional or even national department store chain with dozens of locations—from gaining an unfair edge in pricing or promotional allowances from a manufacturer that would allow it to undersell the smaller, local shops it was competing with.
Although today the Internet has largely leveled the playing field even for smaller retailers, this law is still in effect, and as a result manufacturers are still legally barred from engaging in the following types of price and promotional discrimination among their resellers.
1. When you’re selling the same inventory to competing resellers (which could result in competitive injury).
Before you worry that you’re violating antitrust law by treating one company in your distribution channel differently from others, you first need to ask yourself if these companies are in direct competition with each other. If not, then you’re probably on solid legal footing.
Here’s a key clause in the FTC’s summary of the law:
“The seller must allow all types of competing customers to receive the services and allowances involved in a particular plan or provide some other reasonable means of participation for those who cannot use the basic plan.”
Let’s say you are selling both to brick-and-mortar store owners and online-only retailers. And let’s say you want to offer discounts or promotions for any retail partner that places a large display of your products in its stores, or if the retailer requires its in-store sales reps to view your product training videos
An etailer does not have the ability to offer your brand these services, but they would if they had a physical store. In this sense, as long as you offer these promotions or discounts to all of your resale partners, you will be on solid footing to offer promotional consideration to the physical store owners who take advantage of them.
2. When you’re selling products that are of “like grade and quality.”
Another way to step over the line into Robinson-Patman violation territory is if you are selling inventory that is “like grade and quality” to different competing resellers using different terms.
If you are not actually selling the same inventory to competitive resellers—but instead a higher-end or more expensive version of a product to some resellers than to others—then you are also on solid legal footing. But you cannot sell identical products, or products of like grade and quality, using different terms to competing resellers (with a couple of exceptions listed below).
What This All Means
When you boil this all down, you can see that Robinson-Patman is the federal government’s attempt to prevent intra-brand discrimination—where a manufacturer or brand gives unfair advantage to one wholesale partner over its competitors, or to one retailer in its channel over its competitors, which could result in harming those businesses that do not receive the same treatment.
But even if you are treating different resellers differently, there are legal defenses built into the Robinson-Patman Act to protect your business. Let’s discuss those.
What Are the Exceptions?
Here are the two primary exceptions to rules against reseller price and promotional discrimination written into the Robinson-Patman Act.
1. “The price concession is given in good faith to meet a competitor’s price.”
Imagine a manufacturer were selling “like grade and quality” inventory at the same prices to all of its retailers across the country, when another manufacturer entered the market in one specific city or region and was able to sell similar products to retailers in that region for 20% less.
The manufacturer could be within its rights to lower its prices to retailers (or to give them other promotional concessions) in that one geographical area—while not offering the same discounts to its other retail partners elsewhere in the country. The idea here is, the manufacturer is treating these specific retail partners differently from the rest of its channel because they are facing a unique competitive situation in that region.
2. “The price difference is justified by different costs in manufacture, sale, or delivery.”
This is similar to the previous defense in that it applies whenever a manufacturer has to treat resellers differently because of the differences in costs to work with some resellers versus others.
For example, one reseller might agree to purchase a year’s worth of a manufacturer’s inventory upfront and store the products in its own warehouse. This would obviously create costs for that reseller: for warehousing, handling, inventory management, etc. As a result, the manufacturer might be within its rights under the Robinson-Patman Act’s “Cost Justification” defense to offer this partner different pricing or other allowances than it offers the rest of its channel.
What This All Means
As you can see, if you can demonstrate that there are material differences between one group of your resale partners versus the others, and you can establish a good-faith case that you are not intentionally trying to undermine or unfairly benefit one partner over its competitors, you might have a solid defense against any Robinson-Patman legal action.
Always Consult with the Experts
Whether you are worried that something your team has already done might have exposed you an antitrust legal problem, or you’ve just begun thinking through how to roll out a new reseller pricing policy, you should always consult first with antitrust compliance and brand protection experts. Schedule a free demo with TrackStreet.