Legality of a proposed cumulative refund plan whereby distributors would earn refunds on amounts paid to the…

ADVISORY OPINIONS WITH REQUESTS THEREFOR Legality of a proposed cumulative refund plan whereby distributors would earn refunds on amounts paid to the supplier if the distributor increases quarterly purchases over those in the corresponding quarter in the immediately preceding year.

(File No. 733 7003)
Opinion Letter
January 11, 19738
Dear Mr. Breeling:

This is in response to your letter request dated October 24, 1972, for an advisory opinion.

It is the Commission’s understanding that Scott Publishing Company has devised a cumulative refund plan. In essence, under the plan, Scott distributors would earn a refund on amounts paid to Scott if the distributor increased his quarterly purchases over those in the corresponding quarter in the immediately preceding year. All distributors of Scott’s stamp albums, album supplements and accessories would be enrolled and advised as to how the plan would operate; however, their purchases of Scott’s standard stamp catalogs and related items would not be covered under the plan.

If a distributor’s purchases from Scott increased over the corresponding quarter in the immediately preceding year, percentage refunds would be offered him on the following basis:

Quarterly Quarterly |
Increase Refund
20% 2%
380% 38%
40% 4%
50% 5%

Retail outlet customers buying direct from Scott would not be included in the plan.

It is the Commission’s opinion, based on its understanding as outlined above and the available information, that the plan

raises questions under the Robinson-Patman amendment to the Clayton Act in that the price discriminations which would necessarily result from its implementation may have the effect of substantially lessening competition among your distributors. Price discriminations which may adversely affect competition are prohibited by Section 2(a) of the Clayton Act, as amended, unless they are justified by savings in cost or unless the lower price is made in good faith to meet the equally low price of a competitor.

The Scott plan arbitrarily categorizes distributors on the basis of a percentage increase in sales bearing no. relationship to Scott’s lower cost in doing business with a distributor. For example, if competing distributors, “A” and “B,”. each purchased $1,000 worth of merchandise during a given quarter of the year and this represented a 50% increase for distributor “A” and only a 20% increase for distributor “B,” the latter would get a 2% rebate while the former would receive a 5% rebate. Such differentials between competitors, absent a cost justification, are illegally discriminatory if the requisite adverse effects on competition are found. You are advised further that the Commission is of the view that a legally inoffensive incentive program might be devised under which all resellers are treated alike, e.g., all of those with an increase in volume over a given base period receive the same percentage refund and new entrants are allowed to qualify.

By direction of the Commission.
Letter of Request and Enclosure
October 24, 1972

Dear Sir:

Enclosed is a detailed factual sketch of a proposed incentive program which Scott Publishing Company intends to initiate as soon as, and if, a favorable response to this request is issued. If any further information is needed, please contact me by telephone (collect) and I will immediately make it available to you. The plan is not presently in effect and, to the knowledge of the corporation and this office, it is not the subject of investiga ADVISORY OPINIONS WITH REQUESTS THEREFOR 1867 tion or any other proceeding by the Commission or any other

governmental agency.
Thank you.
Sincerely yours,
/s/Roy G. Breeling
CORPORATE INFORMATION