Guides For Advertising Allowances And Other Merchandising Payments And Services; Compliance With Sections 2(d) And 2(e) Of The Clayton Act, As Amended By The Robinson-Patman Act
16 CFR Part 240 · Guides · in the Code of Federal Regulations 1968-1969 (2 annual editions)
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Latest edition: Library of Congress, 1969 CFR · Earliest edition: 1968 CFR
Text (1969 edition, OCR)
§ 240.1
PART 240—GUIDES FOR ADVERTIS-
ING ALLOWANCES AND OTHER
MERCHANDISING PAYMENTS AND
SERVICES; COMPLIANCE WITH SEC-
TIONS 2(d) AND 2(e) OF THE CLAY-
TON ACT, AS AMENDED BY THE
ROBINSON-PATMAN ACT
Sec.
240.1 When does the law apply?
240.22 Whois a seller?
240.3 Whois a customer?
240.4 What is interstate commerce?
240.6 What are services or facilities?
240.6 Need fora plan.
240.7 Proportionally equal terms.
240.8 Seller’s duty to inform.
240.9 Covering all competing customers.
240.10 Need to understand terms.
240.11 Checking customer’s use of pay-
ments.
240.12 Competing customers.
240.18 Indirect payments.
240.14 Meeting competition In good faith.
240.15 Cost justification.
240.16 Customer’s liability.
AvuTHoRITY: The provisions of this Part 240
issued under secs. 5, 6, 38 Stat. 719, as amend-
ed, 721; 15 U.S.C. 45, 46: 49 Stat. 1526; 15
U.S.C, 18, as amended.
Source: The provislons of this Part 240
appear at 32 F.R. 15542, Nov. 8, 1967, unless
otherwise noted.
§ 240.1 When does the law apply?
Sections 2 (d) and (e) apply to a seller
of products in interstate commerce, if he
either (a) pays for services or facilities
furnished by his customers in connection
with the distribution of his products
(section 2(d)), or (b) furnishes such
services or facilities to his customers
(section 2(e)). (Guide 1.)
§ 240.2 Whoisa seller?
“Seller” includes anyone who sells
products for resale, with or without fur-
ther processing. Selling corn syrup to a
candy manufacturer is an example of a
sale for resale with processing (Guide 2.)
§ 240.3 Whois a customer?
A “customer” is someone who buys
directly from the seller or his agent or
broker. Sometimes someone who buys
from the customer may have such a rela-
tionship with the seller that the law also
makes him a customer of the seller. In
this part, the word “customer” which is
used in section 2(d) of the law includes
“purchaser” which is used in section 2(e).
(Guide 3.)
Title 16—Chapter |
§ 240.4 What is interstate commerce?
This is something that whole law books
have been written about; you cannot de-
fine it in a few words. Legal decisions
tend to interpret the term quite broadly.
If there is any part of a business which
is not wholly within one State (for ex-
ample, sales or deliveries of products,
their subsequent distribution or pur-
chases or deliveries of supplies or raw
materials), the business may be subject
to the Robinson-Patman Act. Sales in the
District of Columbia are also covered by
the law. (Guide 4.)
§ 240.5 What are services or facilities?
This term has not been exactly defined
by the statute or in decisions. The fol-
lowing are merely examples—the law also
covers other services and facilities.
(a) The following have been held to be
services or facilities covered by the law
where the seller has paid the buyer for
furnishing them:
Any kind of advertising,
Handbills,
Window and fioor displays,
Special sales or promotional efforts for
which “push money” ts paid to clerks, sales-
men, and other employees of the customers,
Demonstrators and demonstrations,
Collecting of orders from individual stores,
Furnishing complete distribution of seller’s
line,
(b) Here are some examples that have
been held to be services or facilities cov-
ered by the law when the seller furnished
them to a customer:
Any kind of advertising,
Catalogs,
Demonstrators,
Display and storage cabinets,
Display materials,
Special packaging, or package sizes,
Warehouse facilities,
Accepting returns for credit,
Prizes or merchandise for conducting pro-
motional contests.
Note: In this Part 240, the term “sery-
ices” is often used as short for “services and
facilities.” (Guide 5.)
§ 240.6 Need fora plan.
If a seller makes payments or fur-
nishes services that come under these
sections, he must do it under a plan that
meets several requirements. Although
this plan need not be written or formal,
this may be advisable, particularly if
there are many competing customers to
be considered or if the plan is at all com-
plex. Briefiy, the requirements are:
388
: Title 16—Chapter !
(a) The payments or services under
the plan must be available on a propor-
tionally equal basis to all competing cus-
tomers, (See § 240.7.)
(b) The seller should take some action
to inform all of his customers who com-
pete with any participating customer
that the promotion is available. See
§ 240.8.)
(ec) The plan must either allow all
types of competing customers to partici-
pate or provide some other means of par-
ticipation for those who cannot use the
basic plan. (See § 240.9.)
(d) The seller and customer should
have a clear understanding about the
exact terms of the offer and the condi-
tions upon which payments wlll be made
for services and facilities furnished.
(See § 240.10.)
(e) The seller must take reasonable
precautions to see that the services are
actually furnished and also that he is not
overpaying for them. (See § 240.11.)
(Guide 6.)
§ 240.7 Proportionally equal terms.
The payment or services under the
plan must be made available to compet-
ing customers on proportionally equai
terms. This means that payments or
services must be proportionalized on
some basis that is fair to all customers
who compete. No single way to propor-
tionalize is prescribed by law. Any
method that treats competing customers
on proportionally equal terms may be
used. Generally, this can best be done by
basing the payments made or the services
furnished on the dollar volume or on the
quantity of goods purchased during a
sbecified time.
Example 1, A seller may properly offer to
pay a specified part (say 50 percent) of the
cost of local newspaper advertising up to an
amount equal to a set percentage (such as
5 percent) of the dollar volume of purchases
during a specified time.
Example 2. A seller may properly place
in reserve a specified amount of money for
each unit purchased, and use it to reim-
burse customers for newspaper advertising
when they prove they have advertised.
Example 3. A seller may not select one or
a few customers to receive special allow-
ances to promote his product, because of
their special reputation, without making
those allowances available on proportion-
ally equal terms to other customers who
compete with them.
Example 4. A seller’s plan may not provide
an allowance on a basis that has rates grad-
uated with the amount of goods pur-
chased, as, for instance, 1 percent of the
§ 240.9
first $1,000 purchases per month, 2 percent
of second $1,000 per month, and 3 percent
of all over that. (Guide 7.)
§ 240.8 Seller’s duty to inform.
The seller should take some action to
inform all his customers competing with
any participating customer that the plan
is available. He can do this by any means
he chooses, including letter, telegram,
notice on invoices, salesmen, brokers,
etc. However, if a seller wants to be
able to show later that he did make an
offer to a certain customer, he is in a
better position to do so if he made it in
writing. (Guide 8.)
§ 240.9 Covering all competing custom-
ers.
The plan must allow all types of com-
peting customers to participate. It must
not be tailored to satisfy the needs of a
favored customer or class, but must be
sultable and usable under reasonable
terms by all competing customers. This
may require offering all customers more
than one way to participate in the plan.
The seller cannot either expressly, or by
the way the plan operates, eliminate
some competing customers. Where the
seller has alternative promotional plans,
his customers must be given the op-
portunity to choose among the plans,
Example 1.8 offers a plan for cooperative
advertising on radio, television or in a news-
paper. Some of his customers who compete
with those who receive the allowance are
too small to use the offer. He must offer
them some usable and proportional alterna-
tive, such as advertising in a neighborhood
paper, handbllls, etc. (See § 240.7.)
Example 2. The seller’s plan provides for
furnishing demonstrators to large depart-
ment store customers. He must provide us-
able alternatives to his customers who run
other types of stcres and compete with these
customers but cannot use demonstrators.
The alternatives might be services of equiva-
lent value that the competing customers
could use, or payments of like value for ad-
vertising or displays furnished by the cus-
tomers. (See also § 240.7.)
Example 3. A seller of appliances makes
his plan available only to those customers
purchasing at least some minimum number
(such as eight) of his appliances in a single
order or a stated period. If this requirement
is beyond the reach of some custcmers com-
peting with those participating in the pro-
motion, it may he illegal.
Example 4, A seller should not refuse ad-
vertising allowances to those who advertise
the seller’s products at prices below a given
figure, where this may be a means of fixing
prices illegally. (Guide 9.)
389
§ 240,10
§ 240.10 Need to understand terms.
There should be a clear understanding
‘between the seller and each participating
customer as to the exact terms of the
offer and the conditions upon which pay-
ments will be made for services and fa-
cilities furnished. (Guide 10.)
§ 240.1] Checking customer’s use of
payments,
The seller must take reasonable pre-
cautions to see that the services he is
paying for are furnished and also that he
is not overpaying for them. Moreover, the
customer must expend the value received
in full solely for the purpose for which
the allowances were given. If the seller
knows or should know that what he pays
or furnishes is not being properly used,
the payments or services must be dis-
continued. It should be noted that pay-
ments by the seller where the customer
performs no services may result in legal
action against the seller under section
2(a) of the Robinson-Patman Act and
against the custoiner under section 2(f)
of that law. Likewise, a seller may not
properly pay, nor may a customer prop-
erly receive and retain, any amount in
excess of that actually used by the
customer to perform the service. (Guide
11.)
§ 240.12 Competing customers.
The seller is required to provide in his
plan only for those customers who com-
pete in the distribution of the promoted
product with the customer who is par-
ticipating in the promotion. Therefore,
the seller can limit the area of his pro-
motion to that in which participating
customers sell.
Example i. Manufacturer A, located in
Wisconsin and distributing shoes nationally,
sells shoes to three retallers who sell only
in Roanoke, Virginia, and compete with each
other there. He has no other customers sell-
ing in Roanoke or its vicinity. If he offers
his promotion to one Roanoke customer he
must include all three, but can limit it to
them.
Example 2, Manufacturer A distrlbutes his
products nationally. He may lawfully engage
in a special promotional campaign in the
New England states without making the
same program available to customers in the
remainder of the country who do not com-
pete with New England customers.
Nore: The seller must be careful here not
to discriminate against customers located
on the fringes but outside the area selected
for the special promotion, since they may be
actually competing with those participating.
(Guide 12.)
Title 16—Chapter |
§ 240.13 Indirect payments.
(a) Promotional assistance plans are
sometimes devised and/or administered
by third parties who are neither sup-
pliers nor customers. The fact that a pro-
motional assistance plan is thus devised
and/or administered in no way insulates
suppliers or customers from the require-
ments of the statute. Furthermore, the
third party or intermediary may him-
self be liable if the use or administration
of the plan results in violation of the
law.
Example. A seller may not buy advertising
time from a radio station that is furnishing
free radio time to certain favored customers
of the seller because the customers run an
in-store promotion of the seller’s goods.
(b) Sellers or intermediaries contem-
plating the use of such tripartite promo-
tional plans may obtain an advisory
opinion concerning the legality of a spe-
cific, proposed plan by submitting a re-
quest, together with complete details of
the proposed plan, to the Secretary, Fed-
eral Trade Commission, Washington,
D.C. 20580. Assistance with respect to
existing plans may be obtained by writ-
ing to the Commission’s Bureau of Indus-
try Guidance. (Gulde 13.)
§ 240.14 Meeting competition in good
faith.
A seller charged with discrimination
in violation of section 2(d) or section
2(e) may defend his actions by showing
that the payments were made or the serv-
ices were furnished in good faith to ineet
equally high payments or equivalent
services paid or furnished by a compet-
itor. However, this is a very technical
defense subject to important limitations.
(Guide 14.)
§ 240.15 Cost justification.
It is no defense to a charge of unlawful
discrimination in the payment of an al-
lowance or the furnishing of a service
for a seller to show that such payment,
service, or facility, could be justified
through savings in the cost of manufac-
ture, sale or delivery. (Guide 15.)
§ 240.16 Customer’s liability,
Sections 2 (d) and (e) apply only to
sellers and not to customers. However, a
customer who knows or has reason to
know that he is receiving payment or
service granted or furnished when the
seller violates section 2 (d) or (e) may
also be proceeded against by the Com-
390
Title 16——Chapter !
mission under section 5 of the Federal
Trade Commission Act, which prohibits
unfair methods of competition.
Example. Buyer “A” actively solicits his
suppliers to purchase advertising In connec-
tion with an anniversary sale or new store
opening knowlng or having reason to believe
that such payments are not made under the
seller’s regular cooperative advertising pro-
gram and that they are not offered to com-
peting customers. (Guide 16.)
PART 242-—-GUIDE AGAINST DECEP-
TIVE USE OF THE WORD “FREE” IN
CONNECTION WITH THE SALE OF
PHOTOGRAPHIC FILM AND FILM
PROCESSING SERVICE
§ 242.1 The guide.
(a) A common form of bargain adver-
tising used to promote the sale of photo-
graphic film processing service is the
offer of a roll of film, represented as being
free to consumers who purchase a par-
ticular advertiser’s service.
(b) Film processors should avoid rep-
resenting film as “free” when their
quoted price for processing is not their
regular price for such service, or, when
the price charged for processing in con-
nection with the “free” film representa-
tion is in excess of the price regularly
charged by them for processing alone. A
regular price is the price at which an
article or service is openly and actively
sold by the advertiser to the public on a
regular basis for a reasonably substantial
period of time in the recent and regular
course of business. A price which (1) is
not the advertiser’s actual] selling price,
(2) is a price which was not used in the
recent past but at some remote period in
the past, or (3) is a price which has been
used only for a short period of time, is
not a regular price. Consequently, use of
any price or amount, other than the ad-
vertiser’s own bona fide regular price, in
connection with a “free” film representa-
tion is deceptive.
(c) “Free” film offers are understood
by consumers to mean that the price
charged by the advertiser is for process-
ing alone and has not been raised to in-
clude any payment for the film. In other
words, they understand that the film, in
fact, is a gift to the consumer given by
the advertiser in return for the process-
ing business he receives. In such circum-
stances, if any portion of the represented
price charged for processing includes any
§ 249.1
payment for the film to the processor, the
“free” film offer is deceptive and con-
sumers are misled.
(a) Where a processor has not estab-
lished a regular price for processing serv-
ice by itself, he has no basis, except in the
case of introductory offers, upon which
to make a “free” film representation.
Likewise, a processor may not justify
“free” film offers, whether advertised
with or without qualification, on the
ground that his price for processing and
film is equal to or less than the price
charged by loca] developers for process-
ing alone, in a given trade area. Only the
processor’s own regular processing price
may be used as a basis for the “free” film
representation.
(e) Continuous free film offers or the
repetition of such offers with great fre-
quency should be avoided. Continuous
or frequent offers of free film made in
connection with the sale of processing
service are false and misleading since the
processor’s price for his service alone will,
by lapse of time, become his regular price
for processing service and film in com-
bination. The film, m such circum-
stances, would therefore no longer be
“free”,
(f{) Introductory (temporary) offers
of “free” film should not be advertised
where processors do not, in good faith,
expect to discontinue the offer after a
limited time and commence selling proc-
essing service separately at the same
price at which the offer of such service,
together with the “free” film, was made.
(g) The guide does not preclude the
use of nondeceptive “combination” offers
in which film and processing are offered
for sale as a single unit at a single stated
price, and where no representation is
made that the price is to be paid for one
item and the other is “free”. Similarly,
film processors are not precluded from
setting a price for processing which also
includes furnishing the purchaser with
a replacement roll of film at one inclu-
sive price—again, where no representa-
tion is made that the latter is ‘“‘free’’.
Notre: On December 1, 1953, the Commis-~
sion approved a trade practice rule on use of
the word “Free”. The provislons of the guide
set forth above are advisory in nature and
are not to be construed as replacing or modi-
fying any of the provisions of the afore-
mentloned trade practice rule.
(38 Stat. 717, as amended; 15 US.C. 41-58)
[33 F.R. 8336, June 5, 1968] :
391,