Home > Legal and Reg Issues > NAPAA Bulletin August 22, 1990

TPMA Bulletin: FTC Revises Guidelines for Promotional & Advertising Allowances
August 22, 1990

On August 17, 1990, the Federal Trade Commission published in the Federal Register revised the Guides for Advertising Allowances and Other Merchandising Payments and Services. These Guides interpret Sections 2(d) and 2(e) of The Robinson-Patman Act. The changes, in substance, bring the Guides into conformity with the case law and also eliminate nonessential requirements since they were last revised in 1972. The Guides are not binding regulations, but are advisory interpretations providing assistance to businesses seeking to comply with these sections of the Act.

Although numerous changes were made in the Guides, it appears unlikely they will have a substantial effect upon most of the promotional and co-operative advertising programs being offered today.

TPMA Legal Counsel has prepared a summary of what they consider to be the principal changes made. The following eleven points may be helpful to you in evaluating your company's promotional and advertising allowance programs.

There are many other comments made in these Guides by the Commission concerning the reasons for the revision or the decision not to modify the Guides. They should be reviewed thoroughly before a company decides to make specific changes in its cooperative advertising or promotional allowance programs.

Summary of Changes to the "Guides for Advertising Allowances and Other Merchandising Payments and Services," dated August 17, 1990.

1. The Commission rejected former Chairman Oliver's broad "value" standard for defining proportional equality. Instead, it stated that besides using customer's cost for measuring proportional equality, "payments or services [based] at the same rate per unit or amount purchased," will also be permitted. Thus, the seller's payment can be used to satisfy the proportional equality requirement.
   
   For example, offering a promotional allowance of $1.00 per case to all competing customers is now authorized under the revised Guides. Furthermore, it should be noted that the Guides specifically state that "no single way...is prescribed by law," for making promotional services and allowances available on proportionally equal terms. "Any method that treats competing customers on proportionally equal terms may be used," providing such proportional equality can be objectively demonstrated.
   
   
2. The Commission has now made it clear that for a violation of Sections 2(d) and (e), there must be a close connection between the promotional allowance or service and the resale of the product. If the allowance pertains to the initial sale, not the resale, between the seller and the customer, Section 2(a) of the Act would apply, which sets a higher legal standard for liability.
   
   For example, giving a promotional allowance for certain kinds of trade shows would not likely be considered closely related to the resale of the product and, thus, Sections 2(d) and (e) would not be applicable. Similarly, returns for credit would no longer be considered an example of representative services or allowances covered by Sections 2(d) and (e). However, special packaging would still be subject to 2(d) and (e) because that would likely relate to the resale of the product.
   
   
3. In defining "competing customers," the Guides clarify that a manufacturer must make his programs available to all competing classes of trade. The Guides, for example, state that a manufacturer selling laundry detergent for home use must make its program available on proportionally equal terms not only to grocery stores but also to competing mass merchandisers who also purchase and sell the detergent.
   
   
4. Although sellers are required to notify all competing customers of their promotional programs, the revised Guides have eliminated the requirement of making spot checks at least every 90 days to ensure the effectiveness of the seller's notification procedures. The revised Guides also state that providing information on shipping containers or product packages concerning the availability and essential features of a promotional program, and identifying a specific source for further information, is one of the acceptable methods for notification, providing it can be shown that the method is effective.
   
   
5. Regarding the "meeting competition defense," the revised Guides make clear that this defense is available not only when meeting a competitive offer to an individual account, but also applies to offers made on an "area-wide basis," and to old as well as new customers. Previously, the Guides limited the defense to meeting a competitive offer to a particular customer and did not specify whether it was applicable to old as well as new accounts.
   
   
6. Concerning "functional availability," the revised Guides clarify that if a seller offers to competing customers alternative services or allowances that are proportionally equal and at least one such offer is usable in a practical sense by all competing customers, it has satisfied its obligation to make services and allowances "functionally available" to all customers. Thus, it appears that all alternative programs are not required to be made available to all competing customers if each such customer can avail itself of at least one of such alternative programs.
   
   
7. Regarding "unauthorized deductions," the Guides state that a buyer may be liable under Section 5 of the Federal Trade Commission Act if it knowingly receives a discriminatory allowance or service either directly or "indirectly through deductions from purchase invoices or other similar means." The Commission also commented that "unauthorized deductions are, thus, forbidden if they result in proportionally unequal treatment of competing buyers." However, it added that "unauthorized deductions that do not cause preferential treatment presumably are not a matter of concern for the Guides. Instead, they reflect a contract dispute between private parties (emphasis added)."
   
   
8. The revised Guides have eliminated the prior view of the Commission that a seller's conditioning of paying cooperative allowances on a buyer's use of the seller's suggested price in cooperative advertising constituted a per se violation of the antitrust laws. The Guides are now silent on this question, and the legality of this type of conduct is presently determined by a "rule of reason" approach.
   
   
9. With respect to the proposal by former Chairman Oliver to eliminate the per se illegality of "buyer inducement," the Commission commented that the case law does not support this position. It , therefore, rejected the former Chairman' position.
   
   
10. Regarding the issue of "slotting allowances," the Commission commented under the heading, "Purchase of Shelf Space," that, instead of deleting the entire footnote in the former Guides concerning this matter, it would retain a portion thereof, "because of the intense interest in the subject."
    
    The new footnote has been edited to be limited to discriminatory purchases of shelf space, and now reads as follows:

    The discriminatory purchase of display or shelf space, whether directly or by means of so-called allowances, may violate the Act, and may be considered an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act.

11. The revised Guides now explicitly state that they are "guidelines for compliance with the law. They do not have the force of law."

Prepared by Gerald Guttman, Esq., August 22, 1990