FTC knocks out key anti-price fixing rule - Federal Trade Commission

Discount Store News, Sept 3, 1990 by Ken Rankin

FTC Knocks Out Key Anti-Price Fixing Rule

WASHINGTON -- Turning a deaf ear to the pleas of discount chains, the Federal Trade Commission removed a key legal roadblock which has discouraged suppliers from using co-op ad programs to enforce illegal resale price maintenance schemes against retailers.

At the same time, however, the agency rejected proposals from former FTC chairman Dan Oliver who had called for relaxing long-standing restrictions on the ability of "power-buying" chains to induce manufacturers to offer them discriminatory rebates.

Additionally, FTC voted to retain existing requirements that co-op ad allowances be extended to all competing retailers on a "proportionally equal" basis.

The focus of these maneuvers, FTC's controversial "Fred Meyer" co-op ad guides, were adopted nearly 20 years ago in an effort to prevent manufacturers from using co-operative advertising allowances and other forms of promotional or merchandising assistance to avoid the Robinson-Patman Act ban on price discrimination.

The guides were adopted during the early 1970s following an FTC investigation of charges that Oregon's Fred Meyer chain accepted discriminatory co-op advertising rebates not available to other competing retailers. At that time federal antitrusters were concerned that large "power-buying" chains were using manufacturer co-op ad programs to secure thinly-disguised discounts which would not be available to smaller retailers unable to afford newspaper or broadcast advertising.

The guides issued by FTC prohibited suppliers from offering promotional or advertising allowances to any of their retail customers unless they are made available on a "proportionally equal" basis to all competing retailers. Competing retailers who were too small to engage in print or broadcast advertising would have to be offered "proportionately equal" rebates for alternative types of promotion (e.g., displaying the manufacturer's POP materials or distributing handbills to shoppers).

Significantly, however, the guides also address the prospect of using ad allowances as a vehicle to facilitate anti-discounter resale price maintenance conspiracies. To discourage such illegal activity, the original guides warn manufacturers that they "should not refuse to reimburse a [retail] customer for expenditures on a cooperative advertisement because it features a price other than the [manufacturer's] suggested price."

This 20-year-old standard was reinforced in 1981 by a separate FTC "enforcement policy statement" designed to prevent a resurgence of "Fair Trade" conspiracies. That policy statement specifically warned suppliers that efforts to dictate retailer prices in co-op ads may well lead to a federal antitrust complaint.

Three years ago, however, the agency rescinded this RPM policy statement under the theory that not all resale price maintenance conspiracies are anti-competitive. In announcing plans to delete all RPM restrictions from the "Fred Meyer" co-op ad guide, FTC staffers said such a move would be "consistent" with the agencies earlier policy statement reversal.

That proposal drew sharp protests from discount industry leaders who argued that the FTC's plan would be viewed by some as a signal to resume using co-op advertising programs as a vehicle for policing price fixing schemes.

K mart chairman Joseph Antonini, for one, warned the FTC that the proposed guide changes would seriously undercut the regulatory structure that enforces federal law prohibiting vertical price-fixing, or "resale price maintenance."

Those views were echoed by representatives from a variety of industry lobbying groups including the National Association of Catalog Showroom Merchandisers, the International Mass Retail Association, and the Small Business Legislative Council.

Significantly, K mart officials argued that the FTC's proposal has already prompted some manufacturers to halt co-op ad payments to discounters.

Without identifying either the manufacturer or the wholesaler involved, K mart supplied FTC with a letter from a distributor of home electronic products stating that "the only ads that we can participate in, on a co-op basis are those that advertise [manufacturer X's] products at prices that are no lower than the minimums established by" that manufacturer.

This letter represents "further demonstration of manufacturers' improper implementation of resale price maintenance measures adopted in apparent anticipation of FTC staff proposals" to alter the co-op ad guides, chain officials told the agency.

In rejecting those appeals, the FTC concluded that it would be "misleading to the public" to forbid "the conditioning of payment for co-op ads on the featuring of suggested prices."

Moreover, the agency defended its decision to drop provisions at blocking resale price fixing by the need to "conform the [co-op ad] guides to the case law and the Commission's present position" on RPM.

In a separate move, FTC officials scrapped plans to radically alter the long-standing requirement that advertising and promotional allowances be offered to all competing retailers on proportionally equal terms.