The Next Phase of Robinson-Patman Litigation
Michael Giannasca, an Italian restaurant owner in Chelsea, MA, could purchase Pepsi products for less at Walmart than he could buy them wholesale, direct from Pepsi. Earlier this month, he sued Pepsi for offering special discounts to Walmart that he could not access.
Giannasca’s case largely mirrors a federal lawsuit that the Biden administration brought against Pepsi under a rarely enforced statute called the Robinson-Patman Act (RPA). Although the Trump administration subsequently dismissed the case, the fact that private actors are bringing similar RPA lawsuits to challenge unfair pricing norms in the food industry could have wide-ranging consequences for food processors, retailers, and ultimately consumers.
The RPA bans large buyers like Walmart from using their market power to extract special discounts from suppliers like Pepsi. Pepsi can legally offer Walmart volume discounts if these reflect real cost savings, such as a lower per-unit shipping cost on a larger order. But the RPA forbids price discrimination between customers based solely on who dominates whom in the marketplace. Lawmakers passed the RPA in 1936 to protect independent “Mom and Pop” retailers from emerging chain stores.
Starting in the 1970s, legal scholars and enforcers began to argue that the RPA was inefficient and prevented retailers from securing the lowest possible prices. Notably, no empirical study has ever found that the RPA increased prices for consumers. Nonetheless, the Department of Justice decided to stop enforcing the Robinson-Patman Act in 1977, and the Federal Trade Commission largely shelved the law except for a few isolated cases. In 2007, a congressionally chartered commission even recommended repealing the RPA entirely.
Private litigation also declined, but it never completely went away. Most private RPA claims were tacked on to other commercial disputes. About 100 RPA claims have been filed in the last few years, and roughly half of them were dismissed.
Without RPA enforcement, dominant retailers like Walmart have been able to use their market power to extract exclusive discounts from suppliers and drive smaller competitors out of business. For example, Pepsi relies on Walmart for 11% of its global net revenue. Losing these sales would devastate Pepsi, so it has an incentive to offer Walmart whatever it takes to stay on its shelves, even if that means it has to charge its less powerful customers more to make up the shortfall.
RPA opponents argue that large buyers deserve these special prices and services because they operate more efficiently. However, this logic ignores market power. Large chains can operate inefficiently and still use their market power to demand discounts, whereas independents can achieve economies of scale through vehicles such as purchasing co-ops and still pay more for the same truckload of goods.
The pricing gaps between independents and large chains are substantial. Like Giannasca, independent grocers report that their wholesale prices are higher than what Walmart charges for the same products at full retail markup. Research by the Institute for Local Self-Reliance suggests that Big Box stores’ unfair pricing advantage contributes to the rise of food deserts. Less regional grocery competition also gives large chains more power to raise prices and keep supplier discounts for themselves.
Biden officials at the FTC aspired to level the playing field for independent retailers by bringing two RPA cases. One against the alcohol distributor Southern-Glazers, which survived a motion to dismiss, and the second against Pepsi. The Trump administration dropped the Pepsi case in May, arguing that it was weak because the Biden administration rushed to file it in their final days.
The Institute for Local Self-Reliance recently filed a motion to unseal the FTC’s heavily redacted Pepsi complaint. “It’s important to have the full depiction of the allegations in the lawsuit part of the public record,” says ILSR senior researcher, Ron Knox. “We think the public deserves to see the full picture of what the government found in their two-year investigation.”
Unsealed information could help the private lawsuits carrying on the FTC’s claims. In addition to Giannasca’s class action, a group of convenience stores brought a class-action lawsuit against Pepsi in February, alleging that Pepsi offered large chain stores special discounts, rebates, and marketing programs that were not available to convenience stores.
Manufacturers could start to see more private RPA lawsuits. In May 2024, a group of eye drop wholesalers won an RPA case. Earlier this summer, three former senior FTC officials formed a new law firm, Simonsen Sussman LLP, to fill gaps they see in antitrust and fair competition enforcement, including Robinson-Patman litigation. While the courts have made it challenging to bring certain RPA claims, one of the founding partners at Simonsen Sussman, Nicolas Stebinger, sees openings to challenge conduct under different sections of the law.
“Congress meant for this law to have a real, tangible effect, to protect small businesses from big ones. So they wrote the statute broadly,” says Stebinger. “As you have more people thinking in the Robinson-Patman context, you’re going to see more of these cases, because the statute really does apply in a variety of situations and there are pathways to liability that still exist.”
For instance, the Pepsi lawsuits challenge Pepsi’s special in-kind services and promotional payments to retailers, rather than just its different product prices. Food corporations pay large retailers for in-store marketing, coupons, and special placement, as well as rebates for hitting certain sales goals or giving their products a large portion of their shelf space. They also offer free or heavily discounted services, like stocking the shelves or designing entire sections of the store (conveniently, this lets big brands decide where their competitors sit on the shelf).
These marketing payments and services are an increasingly important part of the grocery business model, driving both profits and sales. The class action lawsuits and the FTC’s case all claimed that Pepsi offered large buyers especially favorable product placement or marketing payments and services that were not available to competitors on “proportionally equal terms.” Under the RPA, these programs qualify as a type of illegal price discrimination, especially since suppliers may utilize schemes like rebates to obscure a discount.
Businesses have not brought lawsuits challenging discriminatory marketing payments and services under the RPA for a long time. This means there are fewer legal precedents to work from, but also less obstructive case law that would prevent suits from going forward. Further, because these marketing schemes tend to be a matter of company-wide policy, Stebinger says that makes it easier and less costly to prove an RPA violation, which could spur more litigation.
“Some of the bigger retailers, resellers, sometimes wholesalers, have these really explicit and intentional policies either to favor one business partner over another or to demand from suppliers that they get special benefits,” he explains. “Where you have systemic policies like that from big businesses, that makes it a lot easier to prove the actual discrimination. I think we will see more Robinson-Patman Act cases alleging those kinds of broader schemes, rather than one-off, this guy received a better deal than I did.”
Private litigation plays an essential role in advancing antitrust enforcement overall. Because of resource constraints, even aggressive public antitrust enforcers are more likely to pursue legal claims that private law firms have already tested and brought through the courts. Private firms can also carry forward federal allegations that get dropped due to changing political priorities, such as the Pepsi case.
What We’re Reading
U.S. military commissaries provide a good model for public option grocery stores, argue Errol Schweizer and Raj Patel. Their exclusive analysis in Civil Eats estimates that it would cost New York City north of $400 million a year, or 0.36% of the city’s annual budget, to run 20 public grocery stores that offer union jobs and sell food at a low markup, like a commissary does. (Civil Eats)
11 state attorneys general joined an amicus brief in support of ranchers challenging packers for selling foreign-sourced beef with a “Product of USA” label. (Press Release)
Italian candy maker Ferrero wants to buy cereal giant WK Kellogg. (New York Times)
Rep. Rashida Tlaib introduced a bill to ban surveillance pricing in food retail stores and strengthen grocery price gouging prohibitions. (Press Release)