|Business Credit Law and Regulations
Relevance to Business Credit Professionals
The Robinson-Patman Act is a federal law that makes it unlawful for any person or firm engaged in interstate commerce to discriminate in price to different purchasers of the same commodity when the effect would be to lessen competition or to create a monopoly. There are exceptions and special circumstances a credit manager should be aware of. This may require legal advice. The key is to raise issues within your company and to know what you are talking about or where to seek advice.
The Robinson-Patman Act requires sellers to sell to like customers purchasing like quantities at the same price. Of interest and concern to credit managers is one section of the Robinson Patman Act dealing with rebates, allowances and discounts. Specifically, Title 15, Chapter 1, Section 13(a) of the United States Code states:
"It shall be unlawful for any person engaged in commerce, in the course of such commerce, to be a party to, or assist in, any transaction of sale, or contract to sell, which discriminates to his knowledge against competitors of the purchaser, in that, any discount, rebate, allowance, or advertising service charge is granted to the purchaser over and above any discount, rebate, allowance, or advertising service charge available at the time of such transaction to said competitors in respect of a sale of goods of like grade, quality, and quantity; to sell, or contract to sell, goods in any part of the United States at prices lower than those exacted by said person elsewhere in the United States for the purpose of destroying competition, or eliminating a competitor in such part of the United States; or, to sell, or contract to sell, goods at unreasonably low prices for the purpose of destroying competition or eliminating a competitor. Any person violating any of the provisions of this section shall, upon conviction thereof, be fined not more than $5,000 or imprisoned not more than one year, or both."
I have heard of companies offering different prices, different terms of sale, different cash discounts, an/or different allowances and rebates to "like" customers...which appears to be a violation of the Robinson Patman Act as codified in the United States Code.
We urge caution. We do not suggesting or encourage credit professionals to take unilateral action, or to become self-appointed whistle blowers. If you are concerned about your company's actions in this area, speak privately with your manager or your company attorney about this subject. There may be a perfectly legitimate and entirely lawful reason for offering certain customers different prices, terms, discounts, rebates, allowances, etc.
A credit manager should understand the requirements of the Act and how it affects his/her company. With this understanding the legal restrictions in the Act can be used to good advantage. In the real world, there can be a clashing of priorities between the Sales and Credit Departments. When that eager sales person or aggressive customer, comes to you requesting unique terms or pricing, remind the inquirer that it is not your company's policy to do business illegally. Also, your company abides by these requirements with all its customers. The customer asking for a "special deal" should appreciate the fact that its competitors will be treated with the same set of rules.
On the other hand, creditors should be aware that there are a number of defenses to claims of illegal price discrimination under federal law. Two of the more common defenses are the "cost justification" defense and the "meeting competition" defense. The cost justification defense allows a seller to discriminate in prices where the difference makes "only due allowance for differences in cost of manufacture, sale or delivery resulting from the differing methods or quantities" purchased. For example, price adjustments may be made for higher or lower manufacturing costs, selling costs, or delivery costs.
The meeting competition defense allows that a seller acting in good faith to meet an equally low price of the competitor may legally discriminate in price.
We wish to emphasize that credit professionals may want to discuss this complex issue with their manager, or their company attorney as they deem appropriate.
Reprinted with permission from the Covering