Use of manufacturers' suggested retail prices accompanied by a disclaimer

No. 262. Use of manufacturers' suggested retail prices accompanied by a disclaimer. The Commission was requested to render an advisory opinion as to the propriety of an advertisement referring to a product as "$1.09 size, for 696" accompanied by a statement that "All regular prices are the manufacturers' suggested retaiJ prices and are furnished here to help you identify the size being offered for sale, The opinion advised that the answer to this question depended wholly upon whether or not the prices used as the basis for comparison complied with Guide III of the Guides Against Deceptive ,

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Pricing, since, in the Commission s view, the use of the phrase $1.09 size" in the body of the advertisment and the reference to manufacturers' suggested retail prices " in the statement place the representation in the category of a trade area price comparison. Therefore, the opinion added, unless the higher prices used do in fact represent the prices at which substantial sales are made by the principal retail outlets in the area, their use would be deceptive.

The Commission further stated that it was of the opinion that the capacity of such advertisements to deceive would not be relieved or removed by the statement or disclaimer proposed in situations where the prices used do not meet the test of the guides. At best, such a statement would simply render the advertisement ambiguous and leave it subject to two interpretations one of which is false. It would stil leave substantial numbers of consumers under the impression that the higher prices used were in fact the actual trade area prices within the meaning of the guides. (File /' o. 683 7136 , released July 2, 1968. o. 263. Lower price to "stocking" dea)ers. The Commission rendered an advisory opinion in which it said that it could not give its approval to a plan whereby manufacturers would give a lower price to "stocking" dealers who compete with 'Inan-stocking" dealers. The opinion was given to a trade association which represents manufacturers of a household product.

As justification for the variance in the proposed pricing schedules, the association pointed out that "stocking" dealers experience a higher cost of doing business and therefore must sell at higher prices than their competing "non-stocking" dealers. It was also contended that such a price differential would stimulate the purchase of the product in question for inventory. Expressing the view that it could not give its approval to such two price schedules if the "stocking" and "non-stocking" dealers compete and if the pricing differentials are of suffcient magnitude to adversely affect competition , the Commission concluded that the proposed plan could result in illegal price discrimination under Sec. 2 (a) of the Clayton Act, as amended. In its opinion, the Commission went on to point out that such price differences would be illegal unless they could be justified on the basis of one of the specific defenses provided in Sections 2 (a) and (b) of the statute. For example " the Commission said the law permits price differences which can be justified by provable cost differences in the manufacture, sale or deJivery of such products resulting from the differing methods or quantities in which the products are sold or delivered. Accordingly, Section 2 (a) does not preclude prices refiecting less costly and, therefore, more effcient methods of distribution provided that the standards inherent in the statute s cost justification proviso are met. Although the party seeking the advisory opinion did not raise the question, the Commission s opinion touched upon another point of interest in this type of a situation. Specifically, the Commission said:

it is conceivable that certain members may wish to compensate their customers for services which the customers may render for them in connection with the handling or resale of products manufactured by such members. The law provides a means by which this may be done , but if it is done, the manufacturer must comply the requirements of Section 2(d) of the Act. This requirement is simply that compensation for such services, if made by a manufacturer to one customer, must be made available on proportionally equal terms to other customers of that manufacturer who compete with the favored customer in the sale of the manufacturer s products. This means, among other things , that any plan or program , under which the payments are made must, if necessary, provide for alternative services or faciJities which, as a practical matter, can be provided by all competing customers. Concluding its opinion, the Commission cautioned as follows: It should be noted, however, that payments by manufacturers to their customers "to stimulate the purchase of their goods for inventory," are not payments of the type contemplated by Section 2 (d). Such a payment would merely be a reduction in price to induce the purchase of the manufacturer s customersgoods and, if given to some but not aU of the manufacturer might be unlawful price discrimination within the meaning of Section 2 (a).

DISSENTING OPINION
JliLY 9, 1968
BY ELMAN Commissioner:

What is proposed here is that manufacturer members of a trade association will furnish compensation , in the form of a lower price, to those dealers who perform "stocking" services. A supplier may lawfu11y compensate his customers for services which promote more effcient distribution, so long as he satisfies the requirement of Section 2 (d) of the Clayton Act that such compensation be available on a nondiscriminatory basis to other competing customers. The Commission s Guides for Compliance with Sections 2 (d) and (e) (adopted May 19, 1960) indicate that the services or faciJities" covered by the statute are not limited to advertising and similar promotional activities but also include the furnishing of warehouse, showroom, and "stocking" services and facilities. It is also clear that compensation lawfu11y paid a cus- ADVISORY OPINION DIGESTS 1651

tomer under Section 2(d) may, to simplify bookkeeping, be expressed in the form of a discount from invoice price. In such a , there is neithercase, if we look at substance rather than form a price discrimination nor probable injury to competition, the two essential elements of a Section 2 (a) violation. If the lower price to dealers performing "stocking)' serv.ices is bona fide compensation for the performance of distribution services desired by the manufacturer, and is available to all competing customers on a nondiscriminatory basis, it is lawful under Section 2 (a) as well as 2 (d) of the Clayton Act. In my view, the statute was not intended to prevent a manufacturer from obtaining distribution through as many functionally distinct channels as his business needs require. A bona fide functional discount or allowance to customers, offered and paid on a proportionally equal servicesbasis as compensation for warehousing and similar rendered to the manufacturer, may increase effciency, decrease and reduce prices. Suchcosts, expand serv.ice to the consumer, nondiscriminatory distribution methods promote competition, encourage innovation, benefit the consuming pubJic, and thus advance the basic goals of the antitrust laws. To require identity of treatment of customers trading on different functional levels or rendering different distribution services is to foster economic discrimination-the very antithesis of "the central purpose of 9 2 (d) and the economic realities with which its framers were v. Fred Meyer, Inc.concerned. (Fedeml Tmde Commission 390 l.. S. 341, 349 (1968).

The Commission here imposes an unreasonable and impossible burden on suppliers in meeting the requirement of "availabilty. It declares that compensation may be given only for services or facilities which all competing customers can provide. In other for any reasonwords, if some of a supplier s customers cannot including their own ineffciency-provide services or facilties which a supplier needs to promote more economical distribution he is barred from compensating other customers who are ready, wiling, and able to furnish such services or facilties. By thus reading into the statute something which is not there, the Com, in effect, thatmission turns it topsy-turvy. The Commission says a manufacturer may not grant functional compensation to customers who earn it by rendering services he needs, unless he also gives the same compensation to other customers who do not earn it and render no services at all. Here again, neither Congress nor the courts can be blamed if, through administrative interpretation, the Robinson-Patman Act is converted into an anticompeti- %).

tion, antieffciency, anticonsumer statute. I agree with Commissioner Nicholson that the time has come for the majority of the Commission to reexamine its position.

DISSEKTING OPINION
JULY 9 1968
BY XICHOLSON Commissioner:

I would not issue an advisory opinion in this matter since the Commission does not have suffcient facts to determine whether the applicant' s proposed compensation of dealers, who provide stocking services, is inimical to the purposes of the Robinson-Patman Act.

The majority follows on a long line of Commission interpretations under which eligibility for functional discounts was solely related to the functional level of the buyer. ' In all of these cases it could be said that a seller s reimbursement of a buyer for services also benefited him .in the resale of the seller s product. However, whatever competitive disadvantage may be experienced by another buyer s failure to receive such compensation may, be due not to a subterfuge by the seller to avoid the purposes of the Robinson-Patman Act but merely to the unpaid buyer s reluctance to innovate, to attempt marketing effciencies, to engage in business risks, or to move with the times. In none of these cases did the Commission carefully consider that its failure to permit compensation of the buyer for particular functions as a purchaser might hamper competition and effciency in marketing, nor did it consider the possibility that its sole concern with the resale functional level of the buyer "compels affirmative discrimination against a substantial class of distributors, and hence serves as a penalty on integration. " 2 In none of these matters did the Commission fully recognize that whiJe , at one time, distinctions between the various distribution levels American marketing had been clear-cut and the duties assigned to each level were rigidly defined, modern-day consumer needs and business response to such needs have resulted in a "proliferation of modern marketing units (whichJ defies neat nonmenclature " 3and descriptive labels.

1 See g., Agric1llt1lral Laboratories, Inc. 26 F. C. 296 (1938): Albert L. Whitin I1, Zfj G. 31Z (1938); General FoodH CO'p. 2 F. G 798 (1956): Mueller Co. v. 323 F. 2d 44 (7th Gir. 1963); Vational Parts Warehouse 346 F. 2d 311 (7th Gir. 19G5): Monrul' Auto Eq1dpment v. 347 F. 2d 401 (7th Gir . 1965) : Pllrolator Products, Inc. :1,52 F. 2d 874 (7th Cir. 1965).

Report of the Attol'ney General' s National Committee to Study the Antitrust Laws , 207

(19.
31d. at 204.
, _ .

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The majority assumes that the proposed discount wil amount to a violation of law. Commissioner Elman is certain that it wil not. I will not make either assumption. We lack the facts necessary to make the analysis suggested above-an anaJysis so necessary to the proper application of a statute not meant to "penaJize, shackJe or discourage effciency, or to reward ineffciency. '" (File No. 683 7086, released July 9, 1968.