The Robinson-Patman Act

This essay is published for informational purposes only.  It is not legal advice, nor is it intended as a substitute for the advice of your attorney.

The Robinson-Patman Act makes it "unlawful for any person engaged in commerce to discriminate in price between different purchasers of commodities of like grade and quality . . . where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce." The Robinson-Patman Act applies to interstate commerce when commodities, or goods, of like grade and quality are involved.

The Robinson-Patman Act prohibits sellers engaged in interstate commerce from discriminating in price when competitive injury may result.Credit professionals should be aware that Federal Courts have ruled that credit terms are part of the price of goods.  The seller should be fully aware of the provisions of the Robinson-Patman Act relating to discrimination in the terms of sale offered to a customer if any departure from standard / regular terms are being contemplated.

In a successful antitrust case (Rose Confections, Inc. v. Ambrosia Chocolate Company), the Courts decided that granting one purchaser free freight while charging freight costs to another purchaser is discriminatory. In another case, (Conoco, Inc. vs. Inman Oil Co.) the Courts said that charging one price for goods delivered to a customer and charging the same price for goods delivered f.o.b. terminal was found to be discriminatory. And, the courts said that requiring one dealer to pay COD while granting another dealer credit terms can support a price discrimination claim (Cemar, Inc. vs. Nissan Motor Corp.).

However, companies are entitled to extend different terms to competing purchasers provided that the same standards of credit worthiness are applied to all customers who compete with each. The key is to apply the same standards to determine creditworthiness for all customers. For example, if a buyer has a history of late payments and financial difficulties, that is sufficient to make the business decision to deny credit and to use prepayment terms. It is legal to alter a credit term to a particular customer provided that the decision to make that change is based on factors such as credit records, a review of the customer's financial information and your company's own position in the market.

It is also legal to adjust a price in order to meet a price being offered by a competitor - in other words when a price reduction is made to meet or match a competitor's price.  It should be noted that documentation should be maintained and preserved to support the use of adjusting terms to meet a competitor's lower price. Price differences are permitted if justified by other factors such as cost, volume or delivery schedule.

In any event, the supplier should insist that the customer meet regular terms as soon as possible. To avoid misunderstanding, companies should include their credit terms on important documents relating to the transaction, such as credit applications, price lists, purchase orders, sales contracts, and the invoice itself.         When any unusual situationis encountered, the credit manager should seek the advice of legal counsel.

Edited by Michael C. Dennis