FTC leans on Robinson-Patman Act to curb anticompetitive conduct: the commission’s explanation

Over the past year, the Federal Trade Commission (FTC) has indicated an increased willingness to pursue possible anticompetitive conduct involving price discrimination. As one example, the FTC issued a policy statement in June 2022 announcing its intent to analyse the “rebates and fees paid by drug manufacturers to pharmacy benefit managers and other intermediaries”. According to the FTC, these “rebates and fees may shift costs and misalign incentives in a way that ultimately increases patients’ costs and stifles competition from lower-cost drugs”.

One mechanism at the FTC’s disposal involves increased enforcement of the Robinson-Patman Act, a 1930s antitrust law that largely fell out of use in the late 1970s. The act aims to prevent preferential treatment of certain wholesalers to the potential detriment of others, a concern when the act was initially passed due to rapid growth in large grocery chains’ presence and market share, which in turn encouraged manufacturers to offer them lower prices regardless of lower production or distribution costs. The act breaks down allegations of “injury to competition” into primary and secondary lines: the former applies when manufacturers “reduce prices for one geographic market”, while the latter covers situations when a preferred customer receives lower prices than its competitors (barring some exclusions).

The FTC’s June 2022 policy statement indicated that it would leverage the act in cases involving possible unfair pricing discrimination in the pharmaceutical industry. The statement contended that “when dominant drug manufacturers or intermediaries stifle or foreclose competition from significantly less expensive generic and biosimilar alternatives, the commission has the legal authority to investigate these practices and take enforcement action against unlawful conduct”. As explained by the FTC, “paying or accepting rebates or fees in exchange for excluding lower-cost drugs may violate Section 2(c) of the Robinson-Patman Act”.

After its June 2022 statement, the FTC reaffirmed a commitment to curbing potential anticompetitive conduct by enforcing the act. Commissioner Bedoya, for example, equated its enforcement with protections for small businesses.  Then, in January 2023, the FTC launched probes into Coca-Cola and PepsiCo to investigate potential price discrimination in the beverage market. According to an FTC report on the initial probe, the commission inquired about purchase practices for said soft drinks from large retailers such as Walmart.

Depending on what that inquiry finds, there is the potential for possible indirect purchaser class actions, alleging that the results of the investigated conduct were higher prices for consumers of Coke and Pepsi products at certain retail outlets. If, for example, the conduct had the effect of raising prices at certain retail outlets relative to others, consumers at the higher-priced outlets might spy a path forward for a suit.

However, for some economists and antitrust experts, the Robinson-Patman Act sits uncomfortably among other antitrust laws. Herbert Hovenkamp, for example, specifically notes that “businesses have often complained that they can comply with the Robinson-Patman Act only by violating the other antitrust laws, or vice-versa”. Critics of the act also argue that by protecting small businesses from “larger, more efficient businesses”, the potential result would be higher prices for everyday consumers. However, Commissioner Bedoya argued against that criticism in a September 2022 speech: “[T]o my knowledge, some 86 years after its passage, there is not one empirical analysis showing that Robinson-Patman actually raised consumer prices.”