[Federal Register Volume 79, Number 188 (Monday, September 29, 2014)]
[Rules and Regulations]
[Pages 58245-58256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23137]


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FEDERAL TRADE COMMISSION

16 CFR Part 240


Guides for Advertising Allowances and Other Merchandising 
Payments and Services

AGENCY: Federal Trade Commission.

ACTION: Final changes to guides.

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SUMMARY: The Federal Trade Commission (``the Commission'') previously 
published in the Federal Register a request for public comments on the 
overall costs and benefits of and the continuing need for its Guides 
for Advertising Allowances and Other Merchandising Payments and 
Services (``the Guides''). The Commission issued this request as part 
of its program for periodic review of its rules and guides to ensure 
they are up-to-date, effective, and not overly burdensome.

DATES: This action is effective as of November 10, 2014.

FOR FURTHER INFORMATION CONTACT: Michael J. Bloom, 202-326-2475, or 
Julie A. Goshorn, 202-326-3033, Federal Trade Commission, Washington, 
DC 20580.

SUPPLEMENTARY INFORMATION: 

Background

    The Commission originally issued the Guides in 1969 to help 
businesses comply with sections 2(d) and 2(e) of the Robinson-Patman 
Act (``R-P Act'' or ``the Act''). The Guides were last revised in 1990, 
to bring them into conformity with then-current legal developments and 
to eliminate nonessential requirements. See 55 FR 33651 (Aug. 17, 
1990). The changes published in this document reflect more recent legal 
developments as well as changes in technology and methods of marketing 
that have occurred since the Guides were last reviewed, such as the 
emergence of the Internet and widespread online marketing.\1\
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    \1\ See 77 FR 71741 (Dec. 4, 2012) (request for public 
comments).
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    As the name suggests, the Guides are not binding regulations, but 
are advisory interpretations providing assistance to businesses seeking 
to comply with sections 2(d) and 2(e) of the R-P Act.\2\

[[Page 58246]]

These sections generally prohibit a seller from paying allowances or 
furnishing services to promote the resale of its products unless the 
allowances or services are offered to all competing customers on 
proportionally equal terms. Sections 2(d) and 2(e) relate to the resale 
of a firm's products, as opposed to section 2(a) of the Act, which 
relates to the original or first sale.
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    \2\ 15 U.S.C. 13(d) (section 2(d) of the R-P Act) reads: ``[I]t 
shall be unlawful for any person engaged in commerce to pay or 
contract for the payment of anything of value to or for the benefit 
of a customer of such person in the course of such commerce as 
compensation or in consideration for any services or facilities 
furnished by or through such customer in connection with the 
processing, handling, sale, or offering for sale of any products or 
commodities manufactured, sold, or offered for sale by such person, 
unless such payment or consideration is available on proportionally 
equal terms to all other customers competing in the distribution of 
such products or commodities.''
    15 U.S.C. 13(e) (section 2(e) of the R-P Act) reads: ``[I]t 
shall be unlawful for any person to discriminate in favor of one 
purchaser against another purchaser or purchasers of a commodity 
bought for resale, with or without processing, by contracting to 
furnish or furnishing, or by contributing to the furnishing of, any 
services or facilities connected with the processing, handling, 
sale, or offering for sale of such commodity so purchased upon terms 
not accorded to all purchasers on proportionally equal terms.''
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    The R-P Act is the principal federal statute directed at price 
discrimination. The principal provision of the Act is section 2(a), 
which bans direct or indirect discrimination in price when competitive 
injury might result. Certain defenses are allowed, notably that the 
difference in price is justified by cost differences or that the lower 
price is given to meet an offer of a seller's competitor.
    Sections 2(d) and 2(e) are complements to section 2(a). Their 
purpose is to prohibit disguised price discriminations in the form of 
promotional payments or services. Sections 2(d) and 2(e) thus attempt 
to prevent evasions of section 2(a). In contrast to section 2(a), 
sections 2(d) and 2(e) do not require proof of likely adverse 
competitive effects, nor do they permit a cost-justification defense. 
They do, however, permit a meeting-competition defense. The Commission 
has observed that the per se unlawful characteristics of sections 2(d) 
and 2(e) impose an obligation on the FTC and the courts ``to ensure 
that the jurisdictional prerequisites of these sections are reasonably, 
and not expansively, construed.'' Herbert R. Gibson, Sr., 95 F.T.C. 
553, 726 (1980), aff'd sub nom. Gibson v. F.T.C., 682 F.2d 554 (5th 
Cir. 1982), cert. denied, 460 U.S. 1068 (1983).
    The Commission issued the Guides in 1969 at the invitation of the 
Supreme Court in F.T.C. v. Fred Meyer, Inc., 390 U.S. 341 (1968). The 
Guides address the main issues of sections 2(d) and 2(e)--the 
measurement of proportionally equal treatment, the concept of 
availability of offers to competing customers, the notification of 
offers required to be given to customers, and other issues such as the 
interstate commerce requirements of section 2(d) and 2(e).
    Developments in technology, methods of commerce, and the law since 
the last revision of the Guides suggest that certain provisions of the 
Guides might usefully be revised. As identified in the Commission's 
request for public comments, these developments include the emergence 
of the Internet as an important retail sales and communications 
channel. They also include a jurisprudential development: some courts 
have discussed the possibility that under some circumstances an 
apparent promotional allowance may constitute an indirect price 
discrimination, for which an action against the recipient for knowing 
inducement or receipt of a discrimination in price might lie under 
Sec.  2(f) of the R-P Act. See, e.g., American Booksellers Ass'n v. 
Barnes & Noble, 135 F. Supp. 2d 1031 (N.D. Calif. 2001). These cases 
signal a heightened risk of liability in connection with promotional 
allowances and services of which businesses and their counselors may 
wish to take account. These developments in technology, methods of 
commerce, and the law have influenced the changes to the Guides set 
forth here. The legislative history of the Act and the case law 
pertinent to each issue also have been considered.
    In response to the Commission's request for public comments, the 
Commission received and considered seven submissions. These were 
submitted by the American Antitrust Institute (``AAI''); the Section of 
Antitrust Law of the American Bar Association (``the Antitrust 
Section''); the Food Marketing Institute (``FMI''); the National 
Automobile Dealers Association (``NADA''); the National Community 
Pharmacists Association (``NCPA''); Richard Steuer, Esq.\3\; and the 
National Grocers Association (``NGA''). The Commission has considered 
each of these comments in its entirety. The following discussion 
summarizes comments relating to the continuing need for and cost-
effectiveness of the Guides. It then addresses certain specific 
recommendations of commenters, as well as the Commission's actions with 
respect to those recommendations.
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    \3\ Mr. Steuer's comment was in the form of an article published 
elsewhere and submitted for the Commission's consideration in 
connection with its review of the Guides.
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Continuing Need for the Guides

    The Guides are intended to assist businesses seeking to comply with 
sections 2(d) and 2(e) of the R-P Act. To determine whether the Guides 
continue to do so, the Commission asked about the continuing need for 
the Guides. In addition, the Commission asked about the benefits and 
costs of the Guides, and changes, if any, that might increase the 
Guides' benefits or reduce their costs.
    Every comment that addressed the question concluded that there is a 
continuing need for the Guides. The Antitrust Section noted that 
``lawyers, industry, and the courts have generally relied on [the 
Guides] as accurate statements of the law.'' FMI stated that ``the 
Guides serve a useful purpose and should be retained.'' NADA concluded 
that the Guides ``provide a great deal of certainty for manufacturers 
and dealers alike.'' NGA reported that it ``has strongly supported the 
Fred Meyer Guides because of the assistance and guidance they provide 
to buyers, sellers, and their counsel in assuring voluntary compliance 
with Sections 2(d) and (e) of the Act.''
    None of the comments identified a need for a major overhaul to the 
Guides to improve the balance between benefits and costs. Rather, some 
comments urged various changes to update the Guides in keeping with the 
commenters' view of legal, technological, and commercial developments. 
For example, the Antitrust Section recommended that ``the Commission 
should revise the Guides to bring them into conformity with current 
case law and technology.'' NADA agreed, noting that ``[s]ensible, 
limited changes to reflect modern market conditions'' should be made, 
while urging the Commission ``to reject calls to make significant 
changes to the Guides where there is no pressing need'' to do so. FMI 
suggested that the Guides should be revised ``to reflect developments 
in the law and changes in distribution and marketing practices.''
    For these reasons, the Commission will retain the Guides in their 
current form, making specific changes as discussed below. (Section 
numbers below starting with 240 refer to sections of the Guides.)

Discussion of Public Comments and Changes to the Guides

Section 240.2--Applicability of the Law

    Several comments are relevant to this section of the Guides, which 
identifies the essential elements of section 2(d) and 2(e) violations.
    Three of the comments--those of the Antitrust Section, AAI, and 
FMI--urged the Commission to modify the 1990 Guides in ways that 
seemingly would add an ``injury to competition'' element to sections 
2(d) and 2(e). For example, the Antitrust Section urged the

[[Page 58247]]

Commission to ``ma[ke] clear at the outset of the Guides'' that 
sections 2(d) and 2(e) are ``aimed at significant harm to 
competition.'' An FMI comment was to similar effect. And AAI noted its 
continued adherence to the proposition that a plaintiff ``challenging 
favoritism in promotional allowances or services . . . should be 
required to prove that the discrimination is likely to cause 
competitive injury . . . '' One of the seven comments received, that of 
NGA, opposed any change that would, in effect, engraft an ``injury to 
competition'' element onto sections 2(d) and 2(e).
    The Commission noted in its 1990 review of the Guides that sections 
2(d) and 2(e) are complements to section 2(a), which bans certain 
discriminations in price ``when a specified competitive injury might 
result.'' Sections 2(d) and 2(e) are intended ``to prohibit disguised 
price discriminations in the form of promotional payments or 
services''; they ``attempt to prevent evasions of section 2(a).'' 55 FR 
33651. And ``in contrast to section 2(a), they do not require proof of 
likely adverse competitive effects.* * *'' Id. No comment pointed to 
any court decision calling these principles into question. Volvo Trucks 
North America v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006) (holding 
that a manufacturer may not be liable under the R-P Act without a 
showing that it discriminated between dealers competing to sell to the 
same customer), cited in the Antitrust Section comment and others, was 
decided under section 2(a) of the Act and did not address the standards 
for proving a violation of sections 2(d) or (e).
    Revising the Guides to suggest that sections 2(d) and 2(e) 
plaintiffs must prove likely injury to competition therefore would not 
be supportable in the case law, even though requiring proof of likely 
injury to competition is sound enforcement policy. Accordingly, stating 
that sections 2(d) and 2(e) require such a showing might not provide 
accurate guidance to the business community about the risks of private 
litigation. Therefore, the Commission did not revise the Guides to 
suggest that a competitive injury element to section 2(d) or 2(e) of 
the Act can be fairly implied based on the current state of the law. 
However, consistent with the Supreme Court's expressed view in Volvo 
Trucks, 546 U.S. at 181, that the Robinson-Patman Act should be 
construed to be consistent with the antitrust laws generally, the 
Commission has modified section 240.13 of the Guides, which relates to 
Section 5 of the FTC Act, to reflect its own view that Section 5 should 
be used only in cases of likely harm to competition.
    In another comment, Richard Steuer urged that the Act be 
interpreted such that it would be ``lawful to charge different prices 
and provide different promotional assistance, if the combined value of 
the discounts and promotional assistance to each retailer is of equal 
value.'' Mr. Steuer asserted that this would resolve a quandary created 
by the Act as conventionally interpreted, because ``[d]ealers more 
often treat money as fungible, whether it is in the form or a discount, 
a rebate, or a credit, and whether earmarked for advertising and 
promotion or not.'' The Commission is unaware of any court that has so-
interpreted the R-P Act, however, and such an interpretation seemingly 
conflicts with the explicit terms of the Act, in which Congress 
separately, and differently, addressed discrimination in price (in 
section 2(a)) and discrimination in the provision of promotional 
allowances and services (in sections 2(d) and 2(e)). Revision of the 
1990 Guides to reflect Mr. Steuer's premise would be inconsistent with 
the purpose of the Guides, which is to assist businesses in complying 
with the Act as it is currently understood.

Section 240.4--Definition of Customer

    A Note appended to the definition of ``customer'' in the 1990 
Guides provides that, ``a retailer or [sic] purchasing solely from 
other retailers . . . will not be considered a `customer' of the seller 
unless the seller has been put on notice that such retailer is selling 
its product.'' The Antitrust Section urged the Commission to delete the 
limiting phrase, ``unless the seller has been put on notice that such 
retailer is selling its product.'' According to the Antitrust Section, 
that revision would better conform to the congressional intent 
underlying the Act as reflected in Falls City Indus. v. Vanco Beverage, 
Inc., 460 U.S. 428 (1983) and reduce ``unnecessary'' compliance costs.
    The Commission believes that the Note as currently written is 
consistent with the intent underlying the Act and does not impose 
unreasonable compliance costs. The Commission does not read Falls City, 
which pre-dated the 1990 review of the Guides, to the contrary. 
Sections 2(d) and 2(e) of the Act require that competing purchasers be 
treated similarly. The Note already recognizes an exception to this 
principle when the seller is unable to identify the purchaser to 
provide it with promotional allowances or services. Where, however, the 
seller does know the identity of a purchaser, there is no appropriate 
basis for denying similar treatment. Therefore, the Note appended to 
section 240.4 remains substantively unchanged.\4\
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    \4\ The Commission has corrected a nonsubstantive error in the 
text. In the phrase quoted at the beginning of this section, the 
word ``or'' appearing immediately before ``purchasing'' has been 
deleted.
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Section 240.5--Definition of Competing Customers

    In its request for public comments on the Guides, the Commission 
asked whether and how the 1990 Guides should be revised to take into 
account new methods of commerce associated with the growth of the 
Internet since 1990. Every commenter that addressed this question 
agreed that the growth of Internet commerce is an important 
development, and that the Guides should be understood to apply to 
Internet commerce. In response, the Commission has added references to 
the Internet to the lists of promotional media dispersed throughout the 
Guides.
    AAI noted that online retail sales in the United States are 
expected to reach $155 billion by 2014, and that, ``[f]or a particular 
brand, . . . Internet-based resellers may compete with their brick and 
mortar counterparts.'' AAI concluded that differences in reseller 
formats, consumer demand, and other things ``will affect this 
determination.'' Similarly, the Antitrust Section observed that 
``Internet retailers . . . are potential competitors of every other 
retailer that sells the same or comparable products.'' More 
specifically, AAI observed that in the past two decades some reseller 
formats have increased in sophistication and others have newly emerged, 
including ``company-owned stores, interactive kiosks, vending machines, 
and home shopping networks.'' According to AAI, ``[d]epending on the 
circumstances, these new formats may compete with one another and more 
traditional reseller formats and accordingly be considered competing 
customers'' for purposes of the Robinson-Patman Act. These commenters 
requested that in reviewing and revising the 1990 Guides, the 
Commission consider the implications of retailers increasingly selling 
online and through these other formats.
    The Commission agrees that retailers, whether operating through 
brick-and-mortar stores, online, or through other formats, may be 
competing customers of a seller under the Act, and might therefore be 
entitled to proportionally equal promotional allowances and services. 
Such retailers are more likely to be deemed competing customers to the 
extent that they: purchase goods of

[[Page 58248]]

like grade and quality from the same seller for resale; and 
contemporaneously market those goods to the same or similar prospective 
purchasers (among others). In determining whether retailers using 
different retail formats should be deemed ``competing customers in the 
distribution of such products or commodities,'' it will be relevant to 
consider the particular characteristics of the retailers' formats, the 
location and characteristics of the retailers' target and actual 
customers, and other factors.
    To the extent that retailers are competing customers of a seller, 
they may be entitled to proportionally equal promotional allowances and 
services. Neither the developed law nor commenters on the Guides have 
provided any detailed guidance as to how sellers should, or currently 
do, make their promotional allowances and services available on 
proportionally equal terms across reseller formats, such as brick-and-
mortar and online sales. No single means of doing so is required, and a 
seller's application of common sense and good faith will be relevant in 
assaying efforts to proportionalize promotional allowances and services 
across different sales formats.

Section 240.6--Interstate Commerce

    The 1990 Guides suggest that the ``interstate commerce'' 
requirement for application of sections 2(d) and 2(e) ``may be'' 
satisfied ``if there is any part of a business which is not wholly 
within one state (for example, sales or deliveries of products, their 
subsequent distribution or purchase, or delivery of supplies or raw 
materials).'' The Antitrust Section commented that the greater weight 
of judicial authorities supports a narrower ``interstate commerce'' 
requirement, and urged that the Commission revise the 1990 Guides to 
apply only to promotional allowances and services ``relating to 
transactions as to which at least one of the sales crosses state 
lines.'' An FMI comment was to similar effect. The Commission 
considered and rejected similar suggestions in its 1990 review of the 
Guides, and none of the current commenters has provided new authority 
in support of a different conclusion now.
    The Commission agrees that sections 2(d) and 2(e) may be 
interpreted to require sales that cross state lines, as described by 
the Antitrust Section and FMI. See, e.g., Zoslaw v. MCA Distrib. Corp., 
693 F.2d 870 (9th Cir. 1983), cert. denied 460 U.S. 1085 (1983). But 
the authorities are not of one mind. For example, in Shreveport 
Macaroni Mfg. Co. v. FTC, 321 F.2d 404, 408 (5th Cir. 1963), cert 
denied, 375 U.S. 971 (1964), the court held that the ``interstate 
commerce'' requirement of section 2(d) is satisfied where a promotional 
allowance moves in interstate commerce, even if no sale crossed state 
lines.\5\ The Guides do not purport to settle the question. Rather, 
they purposefully note that sections 2(d) and 2(e) ``may be'' 
applicable in certain circumstances in addition to those in which one 
of the sales was itself in interstate commerce. That is appropriate 
given the uncertain law and the fact that the Guides seek to demarcate 
a safe path for businesses seeking to navigate the Act.
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    \5\ There also are several decisions arising under section 2(c) 
of the Act finding the ``commerce'' requirement to be satisfied 
where both parties to an intrastate transaction are otherwise 
engaged in interstate commerce. See, e.g., Fitch v. Kentucky-
Tennessee Light & Power Co., 136 F.2d 12 (6th Cir. 1943).
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Section 240.7--Services or Facilities

    Section 240.7 of the Guides identifies the types of services and 
facilities covered by sections 2(d) and 2(e) of the Act. As section 
240.7 currently explains, only services and facilities ``used primarily 
to promote the resale of the seller's product by the customer'' are 
covered, whereas services and facilities used primarily to promote a 
product's initial sale are covered by section 2(a) of the Act. Some 
commenters suggested that differentiating between a product's initial 
sale and its resale has at times been difficult in practice, and that 
the Commission should try to provide additional guidance. In 
particular, AAI suggested that further guidance be provided with 
respect to the classification of the diverse fees and allowances that 
have come to be referred to as slotting allowances.\6\ FMI similarly 
urged that the Commission clarify the applicability of the Act to 
``shelf-space'' allowances.
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    \6\ ``Slotting fees and allowances'' initially referred to one-
time payments made by a supplier to a retailer as a condition for 
the initial placement of the supplier's product on the retailer's 
store shelves or for initial access to the retailer's warehouse 
space. See, e.g., ``Slotting Allowances in the Retail Grocery 
Industry,'' FTC Staff Study (November 2003), http://www.ftc.gov/os/2003/11/slottingallowancerpt031114.pdf. The use of the term has 
since broadened to include a variety of product placement 
arrangements. See, e.g., AAI comment at 8.
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    The Commission agrees that additional guidance would be helpful.\7\ 
To that end, the Commission has added an Example following the list of 
examples of promotional services and facilities at the end of section 
240.7 of the Guides. It provides: ``Example 1: A seller offers a 
supermarket chain an allowance of $500 per store to stock a new 
packaged food product and find space for it on the supermarket's 
shelves and a further allowance of $300 per store for placement of the 
new product on prime display space, an aisle endcap. The $500 allowance 
relates primarily to the initial sale of the product to the supermarket 
chain, and therefore should be assessed under section 2(a) of the Act. 
In contrast, the $300 allowance for endcap display relates primarily to 
the resale of the product by the supermarket chain, and therefore 
should be assessed under section 2(d).''
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    \7\ The Commission briefly discussed discriminatory purchase-of-
shelf-space requirements in the Federal Register notice publishing 
the 1990 Guides: ``Section 2(d) applies more readily'' to payments 
for ``a preferential position within the store that would enhance 
resale,'' than to ``payments for admittance to a store.'' 55 FR 
33662 (Aug. 17, 1990). The only reference to this subject in the 
Guides themselves is in footnote 1 to Example 5 following section 
240.9. That footnote provided minimal guidance, stating only that, 
``[t]he discriminatory purchase of display or shelf space, whether 
directly or by means of allowances, may violate the Act . . . .'' 
With the addition of the new example described in the text, footnote 
1 becomes superfluous, and the Commission has deleted it.
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    Section 240.7 contains a list of ``some examples . . . of 
promotional services and facilities covered by sections 2(d) and 2(e), 
such as cooperative advertising, catalogues, displays, and special 
packaging or package sizes.'' The Antitrust Section urged that 
``special packaging and package sizes'' be deleted from the list 
because ``the established law is now clear that partial refusals to 
deal with particular resellers, including refusals to sell them 
particular products in a product line, are not covered by the [R-P 
Act].'' NGA opposed that suggestion, stating that the discriminatory 
provision of special packaging and package sizes continues to be used 
to advantage ``power buyer[s]'' when they are given the option to 
purchase special packaging or package sizes and competing customers are 
not, thereby creating ``class of trade distinctions.''
    All of the decisions cited by the Antitrust Section predate the 
Commission's 1990 revision of the Guides, and none of them squarely 
addressed the question of whether the provision of special packaging or 
package sizes to only some competing customers may violate section 2(e) 
of the Act. For example, Purdy Mobile Homes v. Champion Home Builders, 
594 F.2d 1313 (9th Cir. 1979), cited by the Antitrust Section, held 
that the refusal of a mobile home manufacturer (Champion) to sell two 
additional lines of mobile homes to a retailer (Purdy) to which it had 
sold another line did not constitute discrimination in the provision of 
services or facilities

[[Page 58249]]

connected with the resale of the line of mobile homes that Champion did 
sell to Purdy. Champion's refusal to sell additional lines of products 
is quite different from a hypothetical seller's refusal to provide 
special packaging or package sizes of the same product. The other 
decisions cited by the Antitrust Section also are distinguishable.\8\
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    \8\ Black Gold, Ltd. v. Rockwool Indus. Inc., 729 F.2d 676 (10th 
Cir. 1984), cert. denied 469 U.S. 854 (1984), concluded that a 
refusal to deal in a different product line was not a discriminatory 
sale under section 2(a) of the R-P Act . L&L Oil Co. v. Murphy Oil 
Corp., 674 F.2d 1113 (5th Cir. 1982), held that a fuel oil refiner's 
imposition on a customer of unfavorable allotments and delivery 
terms did not violate sections 2(a) and 2(e) of the R-P Act because 
delivery was neither a covered service nor one promoting the 
customer's resale of the fuel oil. Finally, Mullis v. Arco 
Petroleum, 502 F.2d 290 (7th Cir. 1974), addressed the question 
whether sections 2(a) and 2(d) of the R-P Act or the Sherman Act 
protected a local jobber from otherwise lawful termination, and 
concluded that neither did.
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    ``Special packaging, or package sizes'' are retained in the Guides' 
list of covered promotional services or facilities. However, the 
Commission has concluded that additional guidance may be helpful to 
users of the Guides, to underscore that special packaging or package 
sizes are covered only insofar as they primarily promote a product's 
resale. Accordingly, the Commission has added two Examples following 
the list of examples of promotional services and facilities. The first 
new Example states: ``Example 2: During the Halloween season, a seller 
of multi-packs of individually wrapped candy bars offers to provide 
those multi-packs to retailers in Halloween-themed packaging. The 
primary purpose of the special packaging is to promote customers' 
resale of the candy bars. Therefore, the special packaging is a 
promotional service or facility covered by section 2(d) or 2(e) of the 
Act.'' The second new Example states: ``Example 3: A seller of liquid 
laundry detergent ordinarily packages its detergent in containers 
having a circular footprint. A customer asks the seller to furnish the 
detergent to it in special packaging having a square footprint, so that 
the customer can more efficiently warehouse and transship the 
detergent. Because the purpose of the special packaging is primarily to 
promote the original sale of the detergent to the customer and not its 
resale by the customer, the special packaging is not a promotional 
service or facility covered by section 2(d) or 2(e) of the Act.''
    NADA suggested adding an example to the non-exhaustive list of 
covered promotional services or facilities in section 240.7 in 
recognition of the prevalence of Internet-based platforms in the 
advertising and sale of products. The Commission agrees that it may be 
useful to make explicit the application of the Guides to those 
platforms, and therefore has added ``online advertising'' to the list 
of examples in section 240.7.
    Finally, the Commission declines to adopt the Antitrust Section's 
suggestion that section 240.7 be revised by deleting the word 
``primarily'' from the definition of covered services or facilities, 
which states that a covered service or facility is one that is ``used 
primarily to promote the resale of the seller's product.'' Deletion of 
the word ``primarily'' would imply that services or facilities are 
covered under sections 2(d) and 2(e) of the Act only if they do not 
promote, in any measure, the initial sale of the product. But a service 
or facility provided by a seller to its customers may somewhat promote 
the initial sale of a product, while its predominant effect is to 
promote the product's resale. Neither of the two judicial decisions 
cited in the comment addresses such a situation.\9\ The Commission does 
not think it appropriate to adopt so-limited a construction of the 
scope of sections 2(d) and 2(e) in the Guides.
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    \9\ See Freightliner of Knoxville v. Daimler Chrysler Vans, LLC, 
484 F.3d 865 (6th Cir. 2007) (question of fact existed as to whether 
allegedly discriminatory promotion was paid for by seller or by 
customer); Alan's of Atlanta, Inc. v. Minolta Corp., 903 F.2d 1414 
(11th Cir. 1990), reh'g denied, 929 F.2d 704 (11th Cir. 1991) 
(``Generally, financing programs do not relate to the resale of the 
supplier's goods and therefore are not services and facilities 
within the meaning of sections 2(d) and (e).'').
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Section 240.8--Need for a Plan

    Section 240.8 states that ``[a]lternative terms and conditions 
should be made available to customers who cannot, in a practical sense, 
take advantage of some of the plan's offerings.'' The Antitrust Section 
and FMI asserted that this language is overly restrictive, and that a 
plan should suffice so long as a customer can take advantage of any of 
the offerings. The Commission agrees, and has revised the section as 
follows: ``Alternative terms and conditions should be made available to 
customers who cannot, in a practical sense, take advantage of any of 
the plan's offerings.''
    Section 240.8 further states that ``[t]he seller should inform 
competing customers of the plans available to them, in time for them to 
decide whether to participate.'' The Antitrust Section proposed that 
``it should be sufficient for the plan to contain a statement that a 
customer who cannot take advantage of any of the offerings should 
contact the seller so that something usable by the customer can be 
arranged.'' But, the Act requires the seller to take such actions as 
are necessary to provide proportional services and facilities to 
competing customers.\10\ The Antitrust Section comment suggested, in 
effect, that the seller may shift a part of its statutory burden to the 
customer. The law does not permit such burden-shifting.\11\
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    \10\ See Alterman Foods, Inc. v. F.T.C., 497 F.2d 993, 1001 (5th 
Cir. 1974) (holding that to avoid unlawful discrimination, ``a 
supplier must not merely be willing, if asked, to make an equivalent 
deal with other customers, but must take affirmative action to 
inform them of the availability of the promotion programs'').
    \11\ The Commission has corrected a non-substantive error in the 
text of section 240.8. The word ``describe'' has been changed to 
``described''.
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Section 240.9--Proportionally Equal Terms

    Section 240.9 states the core requirement of sections 2(d) and 
2(e): that promotional services and allowances should be made available 
to competing customers on proportionally equal terms. It notes that 
``[n]o single way to do this is prescribed by law,'' and that ``[a]ny 
method that treats competing customers on proportionally equal terms 
may be used.'' At the same time, the Guides explain, ``[g]enerally, 
this can be done most easily by basing the payments made or the 
services furnished on the dollar volume or on the quantity of the 
product purchased during a specified period.'' But again, the Guides 
note that ``other methods that result in proportionally equal 
allowances and services being offered to all competing customers are 
acceptable.''
    The Antitrust Section and FMI both urged the Commission to adopt 
language in the Guides that would explicitly ``endorse 
proportionalization based on the value to the seller of the promotional 
services rendered.'' NGA opposed any such revision and stated that 
``[t]he Commission is well aware of the numerous subjective factors 
that make a value standard a slippery slope to price discrimination by 
sellers for the advantage of power buyers.''
    In preparing for its 1990 review of the Guides, the Commission 
expressly invited comment on alternative standards of proportional 
equality, including a standard ``based on the value to the seller of 
promotions in different media or by different groups of customers, 
called the `seller's value standard,' or simply the value standard.'' 
See 55 FR 33655 (Aug. 17, 1990). In reply, the Commission received and 
carefully considered 210 comments on this issue. The ``overwhelming 
majority'' of comments

[[Page 58250]]

opposed adoption of a seller's value standard, whereas they generally 
concluded that the cost-based standard identified in the Guides worked 
well. ``While some [felt] that the adoption of the seller's value 
standard might promote the efficient allocation of promotional 
resources, many considered it contrary to the Act's purpose of fairness 
and [thought] it would result in unjustified favorable treatment for 
large buyers.'' 55 FR 33654-33657 (Aug. 17, 1990). The Commission 
concluded then, as it does now, that ``[t]he law may also permit use of 
the value standard, at least so far as recognizing the varying value of 
different media for the seller's promotional efforts.'' But the 
Commission declined to incorporate the seller's value standard in the 
1990 Guides because, ``unless carefully monitored, sellers may use 
elastic, expansive measurements of value which could help disguise 
persistent, systematic discrimination. . . . These concerns . . . 
counsel against including it in the Guides, which are intended to help 
businesses comply with the law.'' No subsequent changes in fact or law 
counsel differently now.
    The Antitrust Section and FMI pointed to Texaco Inc. v. Hasbrouck, 
496 U.S. 543 (1990), by way of suggesting that the Commission's 
concerns were unwarranted. In Hasbrouck, a majority of the Supreme 
Court opined that functional discounts ``that merely accord due 
recognition and reimbursement for actual marketing functions'' do not 
violate section 2(a) of the R-P Act, and that such reimbursement might 
be based on the actual value to the seller of those marketing 
functions. Hasbrouck does not clarify the circumstances under which use 
of a value standard would be lawful under sections 2(d) and 2(e). 
Particularly given the fact that sections 2(d) and 2(e) of the R-P Act 
were enacted to inhibit evasion of section 2(a) by disguising price 
discriminations as promotional allowances or services,\12\ concern 
remains that explicit endorsement of the value standard in the Guides 
might promote imprecision, subjectivity, and ``elastic, expansive 
measurements of value'' which might facilitate the concealment of price 
discrimination, contrary to the intent underlying the Act. Accordingly, 
the current language of section 240.9 with regard to the standard of 
proportional treatment is retained.
---------------------------------------------------------------------------

    \12\ See, e.g., L & L Oil Co., Inc. v. Murphy Oil Corp., 674 F. 
2d 1113 (5th Cir. 1982) (``[T]he intent of s 2(e) was to end 
disguised price discriminations in the form of advertising and 
promotional activities and cooperative merchandising.'') (citing 
Congressman Patman).
---------------------------------------------------------------------------

    The Antitrust Section and FMI also urged the Commission to delete 
Example 4 of section 240.9, which provides that ``[a] seller should not 
identify or feature one or a few customers in its own advertising 
without making the same service available on proportionally equal 
terms'' to competing customers. The Antitrust Section stated that 
alternative offers of ``useable and suitable'' promotional services 
should be acceptable. The Commission believes that Example 4 is useful 
because it addresses a commonly furnished promotional service. At the 
same time, Example 4 may be unduly rigid and confining, especially 
insofar as proportionally identifying or featuring all competing 
customers in a seller's advertising may be impracticable under some 
circumstances, as where the seller has a few relatively large customers 
and many relatively small ones. For these reasons, the Commission has 
revised Example 4 to provide that the seller should ``not identify or 
feature one or a few customers in its own advertising without making 
the same or if impracticable, alternative services available to 
competing customers on proportionally equal terms. . . .'' \13\
---------------------------------------------------------------------------

    \13\ The Commission has corrected a nonsubstantive error in the 
text of section 240.9. The word ``lterms'' has been replaced with 
``terms''.
---------------------------------------------------------------------------

Section 240.10--Availability to All Competing Customers

    Section 240.10(a) of the Guides discusses the requirement that a 
seller take reasonable steps to ensure that offered promotional 
services and facilities are ``useable in a practical sense'' by 
competing customers; i.e., functionally available. Example 1 following 
section 240.10(a) currently states: ``A manufacturer offers a plan for 
cooperative advertising on radio, TV, or in newspapers of general 
circulation. Because the purchases of some of the manufacturer's 
customers are too small, this offer is not useable in a practical sense 
by them. The manufacturer should offer them alternative(s) on 
proportionally equal terms that are useable in a practical sense by 
them.'' Given the rapid development of online retailing, the Commission 
has revised Example 1 to encourage the making of online promotional 
alternatives available to online customers (and others) as appropriate. 
The example is amended by adding to the current text the following: 
``In addition, some competing customers are online retailers that 
cannot make practical use of radio, TV, or newspaper advertising. The 
manufacturer should offer them proportionally equal alternatives, such 
as online advertising, that are useable by them in a practical sense.''
    Section 240.10(b) discusses the requirement that a seller take 
reasonable steps to provide competing customers with notice of 
available promotional services and facilities. The Antitrust Section 
suggested revisions pertaining to use of the Internet to provide 
customers with notice of the availability of promotional services or 
allowances. The Antitrust Section stated that the section should be 
revised ``to state that it is sufficient for the notice to direct 
customers to the seller's Web site for details of the offer,'' and that 
``Web site postings'' should be added to section 240.10's non-
exhaustive list of acceptable methods of notifying customers about the 
availability of promotional services and allowances. FMI made a similar 
suggestion. In addition, the Antitrust Section urged that a retailer be 
barred from claiming that it did not receive promotional services and 
allowances if it failed to look at the seller's Web site for posted 
promotional programs.
    The R-P Act requires the seller to provide competing customers with 
proportionally equal promotional services and allowances. The dramatic 
increase in Internet use by sellers and customers does not justify 
shifting to customers the burden of learning about sellers' promotional 
programs in the first instance, which might require a merchant 
reselling the products of scores of manufacturers to regularly search 
scores of Web sites just to determine whether promotional services and 
allowances might be available. For that reason, the Guides will 
continue to provide that the seller must ``take steps reasonably 
designed to provide notice to competing customers of the availability 
of promotional services and allowances,'' as suggested by the non-
exhaustive list of acceptable methods of notification contained in 
section 240.10(b). Acceptable methods listed include, for example, the 
provision of ``information on shipping containers or product packages 
of the availability and essential features of an offer, identifying a 
specific source for further information.'' This last clause ensures 
that once customers are put on notice of the availability and essential 
features of an offer, the details of that offer can be efficiently 
conveyed without sacrifice of effectiveness. Given the general 
availability of the Internet to sellers and customers, the ``specific 
source for further information'' can be a Web site posting to which the 
customer has been directed.

[[Page 58251]]

Section 240.11--Wholesaler or Third Party Performance of Seller's 
Obligations

    Section 240.11 of the Guides provides that a seller may contract 
with intermediaries to perform some or all of its obligations under 
sections 2(d) and 2(e) of the R-P Act, but that use of intermediaries 
does not relieve the seller of its responsibility for compliance with 
the Act. The Antitrust Section suggested that although a seller may be 
obliged to monitor and supervise its intermediaries, ``it should not be 
held as a guarantor of its intermediaries' performance.''
    Section 240.11 is retained without change. A seller may work 
through intermediaries to comply with the R-P Act, but the seller's 
obligation to comply with the Act is not itself delegable--the seller 
remains responsible for compliance in fact.
    The Antitrust Section also urged that a new sentence be added to 
section 240.11, informing intermediaries that they ``may be held 
responsible under Section 5 of the FTC Act for failing to perform.'' 
The current regulatory review is not an appropriate vehicle for 
assessing or putting forward new theories of liability under section 5 
of the FTC Act.

Section 240.13--Customer's and Third Party Liability

    Current section 240.13 of the Guides notes that although sections 
2(d) and 2(e) apply to a seller and not to its customer, a customer 
that knows or should know that it is receiving services or allowances 
not made proportionally available to competing customers may be liable 
under section 5 of the FTC Act.\14\ FMI urged the Commission to modify 
section 240.13 ``to make it clear that the Commission would not proceed 
against a buyer [under Section 5] . . . absent evidence of likely 
injury to competition.''
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    \14\ Section 2(f) of the R-P Act condemns knowing inducement or 
receipt of a price discrimination prohibited by section 2(a). The 
Act does not have a similar provision condemning knowing inducement 
or receipt of promotional assistance prohibited by sections 2(d) and 
2(e). The absence of such a provision has been held to be ``more 
`inadvertent' than `studious,' . . . [t]he practices themselves 
[having been] declared contrary to the public interest and therefore 
unlawful.'' Grand Union Co. v. F.T.C., 300 F.2d 92, 96-97 (2nd Cir. 
1962).
---------------------------------------------------------------------------

    Likely injury to competition is not an element of seller liability 
under section 2(d) or 2(e). Similarly, the Commission and some courts 
have held that a finding of likely injury to competition is not 
required to establish buyer liability under FTC Act section 5 for 
knowing inducement or receipt of promotional assistance prohibited by 
section 2(d) or 2(e).\15\ FMI questions the soundness of those 
precedents and urges the Commission to ``make it clear'' that the 
Commission would not proceed against a buyer for knowing inducement or 
receipt ``absent evidence of likely injury to competition.''
---------------------------------------------------------------------------

    \15\ See, e.g., Grand Union Co. v. F.T.C., 300 F.2d 92, 99 (2nd 
Cir. 1962), aff'g In re Grand Union Co., 57 FTC 382 (August 12, 
1960).
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    The Supreme Court has instructed that the Robinson-Patman Act 
should be construed consistent with antitrust policy generally, which 
focuses on harm to competition.\16\ Likewise, the Commission believes 
that a finding of an ``unfair method of competition'' under Sec.  5 
should be tethered to likely injury to competition. Accordingly, the 
Commission has revised section 240.13 of the Guides to state that 
``where there is likely injury to competition,'' the Commission may 
proceed under Sec.  5 against a customer who knows, or should know, 
that it is receiving services or allowances not made proportionally 
available to competing customers.
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    \16\ See, e.g., Volvo Trucks North America, Inc. v. Reeder-Simco 
GMC, Inc., 546 U.S. 164, 181 (2006) (``[W]e . . . resist 
interpretation [of the R-P Act] geared more to the protection of 
existing competitors than to the stimulation of competition.''); 
Brown Shoe Co. v. U.S., 370 U.S. 294, 320 (1962).
---------------------------------------------------------------------------

    Section 240.13(a) contains several illustrative Examples pertaining 
to a customer's and third-party liability. Example 1 discourages 
inducement or receipt of advertising allowances for promotion of the 
seller's product in connection with a customer's new store opening or 
anniversary sale when the customer knows or should know that 
proportionally equal allowances, or suitable alternatives, are not 
available to competing customers. Example 2 discourages inducement or 
receipt of in-store services--stocking of shelves, building of 
displays, and rotating of inventory, for example--under similar 
circumstances. FMI argued that the ``suggestion[s] of liability'' 
contained in these examples are unwarranted and discourage efficient 
competitive conduct. FMI asserted: that Example 1 discourages companies 
``from developing special or exclusive promotional programs . . ., 
where such promotions are part of the supplier's overall promotional 
program'', and that Example 2 similarly discourages companies from 
seeking to make best use of in-store services by `` `fine-tuning' them 
to particular customers or channels,'' where alternative services are 
made available to competing customers as part of the supplier's overall 
promotional program. FMI's critique, however, does not recognize the 
fundamental requirement applicable both to sellers that grant and 
customers that knowingly induce or receive allowances, services, or 
facilities: as stated in the text of Guide 240.13(a), they must be 
``made available on proportionally equal terms'' to ``competitors 
engaged in the resale of a seller's product.'' Examples 1 and 2 do not 
discourage the development of specialized promotions or the fine-tuning 
of in-store service programs, where those programs are part of the 
supplier's overall promotional program and that program makes available 
to competing customers proportionally equal allowances, services, and 
facilities that are useable as a practical matter. And FMI has not 
demonstrated relevant changed facts or law since the Commission last 
reviewed the Guides. These Examples to section 240.13 remain valid and 
useful, and the Guides retain them.
    With respect to Example 2, FMI also noted ``the importance of in-
store follow through,'' and then asserted that ``[f]ew, if any, 
suppliers have the resources to provide or pay for personnel for [in-
store services for] every customers' stores,'' and that doing so would 
not ``be beneficial to retailers or ultimate consumers.'' This last 
point seems to be less directed at Example 2, which pertains to knowing 
inducement or receipt of prohibited services and facilities, as at the 
basic requirement of sections 2(d) and 2(e) that sellers provide 
services and facilities to competing customers proportionally.
    As noted, section 240.13 of the Guides states that sections 2(d) 
and 2(e) are inapplicable to knowing inducement or receipt of greater-
than-proportional promotional assistance, but that the Commission may, 
where there is likely injury to competition, challenge such conduct 
under section 5 of the FTC Act (which creates no private right of 
action). In so saying, section 240.13 may imply that there is no 
private right of action for knowing inducement or receipt of greater-
than-proportional promotional assistance. Some judicial decisions 
published after the Commission's 1990 review of the Guides, however, 
have held that under some circumstances there may be a private right of 
action for knowing inducement or receipt of discriminatory pricing 
under Sec.  2(f) of the R-P Act. See, e.g., American Booksellers Ass'n, 
Inc. v. Barnes & Noble, Inc., 135 F. Supp. 2d 1031, 1068 (N.D. Cal. 
2001) (to extent promotional allowances ``do not bear a reasonable 
relationship to [defendants'] actual advertising expenditures, . . .

[[Page 58252]]

they can be challenged as indirect price discriminations under Sec.  
2(a) and Sec.  2(f)''). In its recent request for public comments, the 
Commission asked whether the Guides should be revised in light of these 
decisions.
    FMI replied that ``the law on this subject is sufficiently clear 
that no additional discussion is needed in the Guides.'' But, FMI 
added, if the Commission were inclined to so-revise the Guides, it 
should explain that sections 2(a) and 2(f) of the R-P Act may apply to 
ostensible promotional allowances only where no services are performed 
in return, or where the payments are not reasonably related to the 
``customer's cost of performance or the value of the promotional 
service to the supplier.'' (Emphasis in original.) The Antitrust 
Section appears to have derived a similar standard from its review of 
recent decisions, but did not comment on the utility of so-revising the 
Guides.
    AAI did not specifically address this question, but stated that the 
Commission should take account of recent research findings in its 
review of the Guides. Specifically, AAI noted that researchers have 
documented that ``[r]etailer's [sic] buying power has significantly 
increased in recent years . . . , '' and that retailers ``reportedly 
`exert [discriminatory] buying power over manufacturers. . . .' '' 
(Brackets in original; footnotes omitted.)
    The Commission concludes that the Guides should be revised to 
acknowledge the possible applicability of sections 2(a) and 2(f) of the 
Act to promotional allowances, and the attendant risk of customer 
enforcement. Doing so is necessary to remedy the Guides' possible 
implication to the contrary, and to better assist businesses in 
complying with the Act, as interpreted by the courts. The Commission 
agrees with FMI and the Antitrust Section that sections 2(a) and 2(f) 
are applicable only in limited circumstances. Specifically, the 
Commission has revised the Guides by adding a new paragraph immediately 
prior to the Examples in section 240.13(a), as follows: ``In addition, 
the giving or knowing inducement or receipt of proportionally unequal 
promotional allowances may be challenged under sections 2(a) and 2(f) 
of the Act, respectively, where no promotional services are performed 
in return for the payments, or where the payments are not reasonably 
related to the customer's cost of providing the promotional services. 
See, e.g., American Booksellers Ass'n v. Barnes & Noble, 135 F. Supp. 
2d 1031 (N.D. Cal. 2001); but see United Magazine Co. v. Murdoch 
Magazines Distrib., Inc. 2001 U.S. Dist. Lexis 20878 (S.D.N.Y. 2001). 
Sections 2(a) and 2(f) of the Act may be enforced by disfavored 
customers, among others.''
    The Commission declines to add a statement that sections 2(a) and 
2(f) are inapplicable to promotional allowances where the payments are 
reasonably related to the value of the promotional service to the 
initial seller. Neither American Booksellers nor other decisions cited 
by the commenters support adoption of a ``seller's value standard''. 
See also the discussion of the ``seller's value standard'' in 
connection with section 240.9 of the Guides.

240.14--Meeting Competition

    Section 240.14 of the Guides states that a seller may defend 
against charges that it has violated section 2(d) or 2(e) by showing 
that the promotional allowances or services in question were provided 
``in good faith to meet equally high payments or equivalent services 
offered or supplied by a competing seller. . . .'' The Antitrust 
Section stated that the Commission should modify section 240.14 to 
``clarify that a supplier can meet the competition offered by a lower 
priced brand, including a private label brand, when the customer. . . 
informs the seller that unless the seller offers the allowance or 
service requested by the reseller, the customer will accept a 
competitive offer from the lower-priced brand . . . and either 
eliminate or reduce the promotional services provided to the seller 
refusing the request.'' The Commission does not believe that such a 
change is necessary or appropriate.
    The Antitrust Section's comment does not indicate that the 
applicable law has changed since 1990 or that concrete difficulties 
have since arisen in the application of section 240.14. Nevertheless, 
the Antitrust Section asks the Commission to conclude that sellers of 
higher-priced brands always may discriminate in the provision of 
promotional allowances or services based only on representations and 
threats made by buyers of lower-priced alternative goods, including 
store-brands. Such a sweeping summary disposition would be inconsistent 
with section 2(b) of the R-P Act, which limits the ``meeting 
competition'' defense to instances in which a seller acts ``in good 
faith to meet . . . the services or facilities furnished by a 
competitor.'' \17\ Furthermore, the R-P Act ``places the burden of 
establishing the defense on the [seller].'' \18\ Whether that burden is 
met depends on ``the facts and circumstances of the particular case.'' 
\19\ A seller must ``show the existence of facts which would lead a 
reasonable and prudent person to believe that the granting of [the 
discrimination] would in fact meet the equally [favorable terms] of a 
competitor.'' \20\ Whether a seller has done so is a question best left 
for resolution on the totality of a developed record.\21\ Further, 
because the question of the seller's good faith belief ``lies at the 
core of the defense,'' issues of credibility ``are inherently bound 
up'' with claims of meeting competition.\22\ Again, those issues are 
best resolved on the totality of a developed record. Amending section 
240.14 of the Guides as urged by the Antitrust Section unnecessarily 
and unwisely would cut short the development of the record in an entire 
category of proceedings. Thus, the Guides will retain section 240.14 
without change.
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    \17\ See, e.g., Hoover Color Corp. v. Bayer Corp., 199 F.3d 160, 
164 (4th Cir. 1999), in which the court noted that ``courts have 
rarely granted the seller judgment as a matter of law on the basis 
of the [meeting competition] defense,'' citing with approval Alan's 
of Atlanta Inc. v. Minolta Corp., 903 F.2d 1414 (11th Cir. 1990).
    \18\ Falls City Industries v. Vanco Beverage, 460 U.S. 428, 451 
(1983).
    \19\ Id. at 441, quoting United States v. U.S. Gypsum Co., 438 
U.S. 422 (1978).
    \20\ Great Atl. & Pac. Tea Co. v. FTC, 440 U.S. 69, 82 (1979), 
quoting FTC v. A.E. Staley Mfg., 324 U.S. 746, 759-60 (1945) 
(discussing the applicability of section 2(b) to discrimination in 
price).
    \21\ See Alan's of Atlanta, Inc. v. Minolta Corp., 903 F.2d 1414 
(11th Cir. 1990). Compare Reserve Supply Corp. v. Owens-Corning 
Fiberglas Corp., 971F.2d 37 (7th Cir. 1992), in which the court 
affirmed summary judgment based on the seller's meeting competition 
claim, which was supported by evidence of the seller's experience 
with and evaluation of the credibility of the buyer, the size and 
reputation of and the threats made by the buyer, pricing otherwise 
available in the market, etc. The evidence in Reserve Supply goes 
well beyond the predicate facts on which the Antitrust Section would 
have the Commission summarily authorize wholesale application of the 
defense.
    \22\ Alan's of Atlanta, Inc., 903 F. 2d at 1425-26.
---------------------------------------------------------------------------

Conclusion

    The Commission has concluded its review of the Guides by retaining 
the Guides with some amendments. The revised Guides should increase the 
use and confidence of use by the public in seeking to conduct business 
in accordance with sections 2(d) and 2(e) of the R-P Act.

List of Subjects in 16 CFR Part 240

    Advertising, Promotional allowances and services, Robinson-Patman 
Act, Trade practices.
    For the reasons stated above, the Federal Trade Commission revises 
16 CFR part 240 to read as follows:

[[Page 58253]]

PART 240--GUIDES FOR ADVERTISING ALLOWANCES AND OTHER MERCHANDISING 
PAYMENTS AND SERVICES

Sec.
240.1 Purpose of the Guides.
240.2 Applicability of the law.
240.3 Definition of seller.
240.4 Definition of customer.
240.5 Definition of competing customers.
240.6 Interstate commerce.
240.7 Services or facilities.
240.8 Need for a plan.
240.9 Proportionally equal terms.
240.10 Availability to all competing customers.
240.11 Wholesaler or third party performance of seller's 
obligations.
240.12 Checking customer's use of payments.
240.13 Customer's and third party liability.
240.14 Meeting competition.
240.15 Cost justification.

    Authority: Secs. 5, 6, 38 Stat. 719, as amended, 721; 15 U.S.C. 
45, 46; 49 Stat. 1526; 15 U.S.C. 13, as amended.


Sec.  240.1  Purpose of the Guides.

    The purpose of these Guides is to provide assistance to businesses 
seeking to comply with sections 2(d) and (e) of the Robinson-Patman Act 
(the ``Act''). The guides are based on the language of the statute, the 
legislative history, administrative and court decisions, and the 
purposes of the Act. Although the Guides are consistent with the case 
law, the Commission has sought to provide guidance in some areas where 
no definitive guidance is provided by the case law. The Guides are what 
their name implies--guidelines for compliance with the law. They do not 
have the force of law. They do not confer any rights on any person and 
do not operate to bind the FTC or the public.


Sec.  240.2  Applicability of the law.

    (a) The substantive provisions of section 2(d) and (e) apply only 
under certain circumstances. Section 2(d) applies only to:
    (1) A seller of products
    (2) Engaged in interstate commerce
    (3) That either directly or through an intermediary
    (4) Pays a customer for promotional services or facilities provided 
by the customer
    (5) In connection with the resale (not the initial sale between the 
seller and the customer) of the seller's products
    (6) Where the customer is in competition with one or more of the 
seller's other customers also engaged in the resale of the seller's 
products of like grade and quality.
    (b) Section 2(e) applies only to:
    (1) A seller of products
    (2) Engaged in interstate commerce
    (3) That either directly or through an intermediary
    (4) Furnishes promotional services or facilities to a customer
    (5) In connection with the resale (not the initial sale between the 
seller and the customer) of the seller's products
    (6) Where the customer is in competition with one or more of the 
seller's other customers also engaged in the resale of the seller's 
products of like grade and quality.
    (c) Additionally, section 5 of the FTC Act may apply to buyers of 
products for resale or to third parties. See Sec.  240.13 of these 
Guides.


Sec.  240.3  Definition of seller.

    Seller includes any person (manufacturer, wholesaler, distributor, 
etc.) who sells products for resale, with or without further 
processing. For example, selling candy to a retailer is a sale for 
resale without processing. Selling corn syrup to a candy manufacturer 
is a sale for resale with processing.


Sec.  240.4  Definition of customer.

    A customer is any person who buys for resale directly from the 
seller, or the seller's agent or broker. In addition, a ``customer'' is 
any buyer of the seller's product for resale who purchases from or 
through a wholesaler or other intermediate reseller. The word 
``customer'' which is used in section 2(d) of the Act includes 
``purchaser'' which is used in section 2(e).
    Note: There may be some exceptions to this general definition of 
``customer.'' For example, the purchaser of distress merchandise would 
not be considered a ``customer'' simply on the basis of such purchase. 
Similarly, a retailer purchasing solely from other retailers, or making 
sporadic purchases from the seller or one that does not regularly sell 
the seller's product, or that is a type of retail outlet not usually 
selling such products (e.g., a hardware store stocking a few isolated 
food items) will not be considered a ``customer'' of the seller unless 
the seller has been put on notice that such retailer is selling its 
product.

    Example 1: A manufacturer sells to some retailers directly and 
to others through wholesalers. Retailer A purchases the 
manufacturer's product from a wholesaler and resells some of it to 
Retailer B. Retailer A is a customer of the manufacturer. Retailer B 
is not a customer unless the fact that it purchases the 
manufacturer's product is known to the manufacturer.
    Example 2: A manufacturer sells directly to some independent 
retailers, to the headquarters of chains and of retailer-owned 
cooperatives, and to wholesalers. The manufacturer offers 
promotional services or allowances for promotional activity to be 
performed at the retail level. With respect to such services and 
allowances, the direct-buying independent retailers, the 
headquarters of the chains and retailer-owned cooperatives, and the 
wholesaler's independent retailer customers are customers of the 
manufacturer. Individual retail outlets of the chains and the 
members of the retailer-owned cooperatives are not customers of the 
manufacturer.
    Example 3:  A seller offers to pay wholesalers to advertise the 
seller's product in the wholesalers' order books or in the 
wholesalers' price lists directed to retailers purchasing from the 
wholesalers. The wholesalers and retailer-owned cooperative 
headquarters and headquarters of other bona-fide buying groups are 
customers. Retailers are not customers for purposes of this 
promotion.

Sec.  240.5  Definition of competing customers.

    Competing customers are all businesses that compete in the resale 
of the seller's products of like grade and quality at the same 
functional level of distribution regardless of whether they purchase 
directly from the seller or through some intermediary.

    Example 1: Manufacturer A, located in Wisconsin and distributing 
shoes nationally, sells shoes to three competing retailers that sell 
only in the Roanoke, Virginia area. Manufacturer A has no other 
customers selling in Roanoke or its vicinity. If Manufacturer A 
offers its promotion to one Roanoke customer, it should include all 
three, but it can limit the promotion to them. The trade area should 
be drawn to include retailers who compete.
    Example 2: A national seller has direct-buying retailing 
customers reselling exclusively within the Baltimore area, and other 
customers within the area purchasing through wholesalers. The seller 
may lawfully engage in a promotional campaign confined to the 
Baltimore area, provided that it affords all of its retailing 
customers within the area the opportunity to participate, including 
those that purchase through wholesalers.
    Example 3: B manufactures and sells a brand of laundry detergent 
for home use. In one metropolitan area, B's detergent is sold by a 
grocery store and a discount department store. If these stores 
compete with each other, any allowance, service or facility that B 
makes available to the grocery store should also be made available 
on proportionally equal terms to the discount department store.


Sec.  240.6  Interstate commerce.

    The term ``interstate commerce'' has not been precisely defined in 
the statute. In general, if there is any part of a business which is 
not wholly within one state (for example, sales or deliveries of 
products, their subsequent distribution or purchase, or delivery of 
supplies or raw materials), the business may be subject to sections 
2(d) and 2(e) of the Act. (The commerce standard for sections 2(d) and 
(e) is at least as inclusive as the commerce standard for

[[Page 58254]]

section 2(a).) Sales or promotional offers within the District of 
Columbia and most United States possessions are also covered by the 
Act.


Sec.  240.7  Services or facilities.

    The terms ``services'' and ``facilities'' have not been exactly 
defined by the statute or in decisions. One requirement, however, is 
that the services or facilities be used primarily to promote the resale 
of the seller's product by the customer. Services or facilities that 
relate primarily to the original sale are covered by section 2(a). The 
following list provides some examples--the list is not exhaustive--of 
promotional services and facilities covered by sections 2(d) and (e):

Cooperative advertising;
Handbills;
Demonstrators and demonstrations;
Catalogues;
Cabinets;
Displays;
Prizes or merchandise for conducting promotional contests;
Special packaging, or package sizes; and
Online advertising.

    Example 1: A seller offers a supermarket chain an allowance of 
$500 per store to stock a new packaged food product and find space 
for it on the supermarket's shelves and a further allowance of $300 
per store for placement of the new product on prime display space, 
an aisle endcap. The $500 allowance relates primarily to the initial 
sale of the product to the supermarket chain, and therefore should 
be assessed under section 2(a) of the Act. In contrast, the $300 
allowance for endcap display relates primarily to the resale of the 
product by the supermarket chain, and therefore should be assessed 
under section 2(d).
    Example 2: During the Halloween season, a seller of multi-packs 
of individually wrapped candy bars offers to provide those multi-
packs to retailers in Halloween-themed packaging. The primary 
purpose of the special packaging is to promote customers' resale of 
the candy bars. Therefore, the special packaging is a promotional 
service or facility covered by section 2(d) or 2(e) of the Act.
    Example 3: A seller of liquid laundry detergent ordinarily 
packages its detergent in containers having a circular footprint. A 
customer asks the seller to furnish the detergent to it in special 
packaging having a square footprint, so that the customer can more 
efficiently warehouse and transship the detergent. Because the 
purpose of the special packaging is primarily to promote the 
original sale of the detergent to the customer and not its resale by 
the customer, the special packaging is not a promotional service or 
facility covered by section 2(d) or 2(e) of the Act.

Sec.  240.8  Need for a plan.

    A seller who makes payments or furnishes services that come under 
the Act should do so according to a plan. If there are many competing 
customers to be considered or if the plan is complex, the seller would 
be well advised to put the plan in writing. What the plan should 
include is described in more detail in the remainder of these Guides. 
Briefly, the plan should make payments or services functionally 
available to all competing customers on proportionally equal terms. 
(See Sec.  240.9 of this part.) Alternative terms and conditions should 
be made available to customers who cannot, in a practical sense, take 
advantage of any of the plan's offerings. The seller should inform 
competing customers of the plans available to them, in time for them to 
decide whether to participate. (See Sec.  240.10 of this part.)


Sec.  240.9  Proportionally equal terms.

    (a) Promotional services and allowances should be made available to 
all competing customers on proportionally equal terms. No single way to 
do this is prescribed by law. Any method that treats competing 
customers on proportionally equal terms may be used. Generally, this 
can be done most easily by basing the payments made or the services 
furnished on the dollar volume or on the quantity of the product 
purchased during a specified period. However, other methods that result 
in proportionally equal allowances and services being offered to all 
competing customers are acceptable.
    (b) When a seller offers more than one type of service, or payments 
for more than one type of service, all the services or payments should 
be offered on proportionally equal terms. The seller may do this by 
offering all the payments or services at the same rate per unit or 
amount purchased. Thus, a seller might offer promotional allowances of 
up to 12 cents a case purchased for expenditures on either newspaper or 
Internet advertising or handbills.

    Example 1: A seller may offer to pay a specified part (e.g., 50 
percent) of the cost of local advertising up to an amount equal to a 
specified percentage (e.g., 5 percent) of the dollar volume of 
purchases during a specified period of time.
    Example 2: A seller may place in reserve for each customer a 
specified amount of money for each unit purchased, and use it to 
reimburse these customers for the cost of advertising the seller's 
product.
    Example 3: A seller should not provide an allowance or service 
on a basis that has rates graduated with the amount of goods 
purchased, as, for instance, 1 percent of the first $1,000 purchased 
per month, 2 percent of the second $1,000 per month, and 3 percent 
of all over that.
    Example 4: A seller should not identify or feature one or a few 
customers in its own advertising without making the same, or if 
impracticable, alternative services available on proportionally 
equal terms to customers competing with the identified customer or 
customers.
    Example 5: A seller who makes employees available or arranges 
with a third party to furnish personnel for purposes of performing 
work for a customer should make the same offer available on 
proportionally equal terms to all other competing customers or offer 
useable and suitable services or allowances on proportionally equal 
terms to competing customers for whom such services are not useable 
and suitable.
    Example 6: A seller should not offer to pay a straight line rate 
for advertising if such payment results in a discrimination between 
competing customers; e.g., the offer of $1.00 per line for 
advertising in a newspaper that charges competing customers 
different amounts for the same advertising space. The straight line 
rate is an acceptable method for allocating advertising funds if the 
seller offers small retailers that pay more than the lowest 
newspaper rate an alternative that enables them to obtain the same 
percentage of their advertising cost as large retailers. If the 
$1.00 per line allowance is based on 50 percent of the newspaper's 
lowest contract rate of $2.00 per line, the seller should offer to 
pay 50 percent of the newspaper advertising cost of smaller 
retailers that establish, by invoice or otherwise, that they paid 
more than that contract rate.
    Example 7: A seller offers each customer promotional allowances 
at the rate of one dollar for each unit of its product purchased 
during a defined promotional period. If Buyer A purchases 100 units, 
Buyer B 50 units, and Buyer C 25 units, the seller maintains 
proportional equality by allowing $100 to Buyer A, $50 to Buyer B, 
and $25 to Buyer C, to be used for the Buyers' expenditures on 
promotion.


Sec.  240.10  Availability to all competing customers.

    (a) Functional availability. (1) The seller should take reasonable 
steps to ensure that services and facilities are useable in a practical 
sense by all competing customers. This may require offering alternative 
terms and conditions under which customers can participate. When a 
seller provides alternatives in order to meet the availability 
requirement, it should take reasonable steps to ensure that the 
alternatives are proportionally equal, and the seller should inform 
competing customers of the various alternative plans.
    (2) The seller should insure that promotional plans or alternatives 
offered to retailers do not bar any competing retailers from 
participation, whether they purchase directly from the seller or 
through a wholesaler or other intermediary.
    (3) When a seller offers to competing customers alternative 
services or allowances that are proportionally equal

[[Page 58255]]

and at least one such offer is useable in a practical sense by all 
competing customers, and refrains from taking steps to prevent 
customers from participating, it has satisfied its obligation to make 
services and allowances ``functionally available'' to all customers. 
Therefore, the failure of any customer to participate in the program 
does not place the seller in violation of the Act.

    Example 1: A manufacturer offers a plan for cooperative 
advertising on radio, TV, or in newspapers of general circulation. 
Because the purchases of some of the manufacturer's customers are 
too small this offer is not useable in a practical sense by them. 
The manufacturer should offer them alternative(s) on proportionally 
equal terms that are useable in a practical sense by them. In 
addition, some competing customers are online retailers that cannot 
make practical use of radio, TV, or newspaper advertising. The 
manufacturer should offer them proportionally equal alternatives, 
such as online advertising, that are useable by them in a practical 
sense.
    Example 2: A seller furnishes demonstrators to large department 
store customers. The seller should provide alternatives useable in a 
practical sense on proportionally equal terms to those competing 
customers who cannot use demonstrators. The alternatives may be 
services useable in a practical sense that are furnished by the 
seller, or payments by the seller to customers for their advertising 
or promotion of the seller's product.
    Example 3: A seller offers to pay 75 percent of the cost of 
advertising in daily newspapers, which are the regular advertising 
media of the seller's large or chain store customers, but a lesser 
amount, such as only 50 percent of the cost, or even nothing at all, 
for advertising in semi-weekly, weekly, or other newspapers or 
media, such as the Internet, that may be used by small retail 
customers. Such a plan discriminates against particular customers or 
classes of customers. To avoid that discrimination, the seller in 
offering to pay allowances for newspaper advertising should offer to 
pay the same percent of the cost of newspaper advertising for all 
competing customers in a newspaper of the customer's choice, or at 
least in those newspapers that meet the requirements for second 
class mail privileges. While a small customer may be offered, as an 
alternative to advertising in daily newspapers, allowances for other 
media and services such as envelope stuffers, handbills, window 
banners, Web sites, and the like, the small customer should have the 
choice to use its promotional allowance for advertising similar to 
that available to the larger customers, if it can practicably do so.
    Example 4: A seller offers short term displays of varying sizes, 
including some which are useable by each of its competing customers 
in a practical business sense. The seller requires uniform, 
reasonable certification of performance by each customer. Because 
they are reluctant to process the required paper work, some 
customers do not participate. This fact does not place the seller in 
violation of the functional availability requirement and it is under 
no obligation to provide additional alternatives.

    (b) Notice of available services and allowance.: The seller has an 
obligation to take steps reasonably designed to provide notice to 
competing customers of the availability of promotional services and 
allowances. Such notification should include enough details of the 
offer in time to enable customers to make an informed judgment whether 
to participate. When some competing customers do not purchase directly 
from the seller, the seller must take steps reasonably designed to 
provide notice to such indirect customers. Acceptable notification may 
vary. The following is a non-exhaustive list of acceptable methods of 
notification:
    (1) By providing direct notice to customers;
    (2) When a promotion consists of providing retailers with display 
materials, by including the materials within the product shipping 
container;
    (3) By including brochures describing the details of the offer in 
shipping containers;
    (4) By providing information on shipping containers or product 
packages of the availability and essential features of an offer, 
identifying a specific source for further information;
    (5) By placing at reasonable intervals in trade publications of 
general and widespread distribution announcements of the availability 
and essential features of promotional offers, identifying a specific 
source for further information; and
    (6) If the competing customers belong to an identifiable group on a 
specific mailing list, by providing relevant information of promotional 
offers to customers on that list. For example, if a product is sold 
lawfully only under Government license (alcoholic beverages, etc.), the 
seller may inform only its customers holding licenses.
    (c) A seller may contract with intermediaries or other third 
parties to provide notice. See Sec.  240.11.

    Example 1: A seller has a plan for the retail promotion of its 
product in Philadelphia. Some of its retailing customers purchase 
directly and it offers the plan to them. Other Philadelphia 
retailers purchase the seller's product through wholesalers. The 
seller may use the wholesalers to reach the retailing customers that 
buy through them, either by having the wholesalers notify these 
retailers, or by using the wholesalers' customer lists for direct 
notification by the seller.
    Example 2: A seller that sells on a direct basis to some 
retailers in an area, and to other retailers in the area through 
wholesalers, has a plan for the promotion of its product at the 
retail level. If the seller directly notifies competing direct 
purchasing retailers, and competing retailers purchasing through the 
wholesalers, the seller is not required to notify its wholesalers.
    Example 3: A seller regularly promotes its product at the retail 
level and during the year has various special promotional offers. 
The seller's competing customers include large direct-purchasing 
retailers and smaller retailers that purchase through wholesalers. 
The promotions offered can best be used by the smaller retailers if 
the funds to which they are entitled are pooled and used by the 
wholesalers on their behalf (newspaper advertisements, for example). 
If retailers purchasing through a wholesaler designate that 
wholesaler as their agent for receiving notice of, collecting, and 
using promotional allowances for them, the seller may assume that 
notice of, and payment under, a promotional plan to such wholesaler 
constitutes notice and payment to the retailer. The seller must have 
a reasonable basis for concluding that the retailers have designated 
the wholesaler as their agent.


Sec.  240.11  Wholesaler or third party performance of seller's 
obligations.

    A seller may contract with intermediaries, such as wholesalers, 
distributors, or other third parties, to perform all or part of the 
seller's obligations under sections 2(d) and (e). The use of 
intermediaries does not relieve a seller of its responsibility to 
comply with the law. Therefore, in contracting with an intermediary, a 
seller should ensure that its obligations under the law are in fact 
fulfilled.


Sec.  240.12  Checking customer's use of payments.

    The seller should take reasonable precautions to see that the 
services the seller is paying for are furnished and that the seller is 
not overpaying for them. The customer should expend the allowance 
solely for the purpose for which it was given. If the seller knows or 
should know that what the seller is paying for or furnishing is not 
being properly used by some customers, the improper payments or 
services should be discontinued.


Sec.  240.13  Customer's and third party liability.

    (a) Customer's liability. Sections 2(d) and (e) apply to sellers 
and not to customers. However, where there is likely injury to 
competition, the Commission may proceed under section 5 of the Federal 
Trade Commission Act against a customer who knows, or should know, that 
it is receiving a discriminatory price through services or allowances 
not made available on proportionally equal terms to its competitors 
engaged in the resale of a seller's product. Liability for knowingly 
receiving such a discrimination may

[[Page 58256]]

result whether the discrimination takes place directly through payments 
or services, or indirectly through deductions from purchase invoices or 
other similar means. In addition, the giving or knowing inducement or 
receipt of proportionally unequal promotional allowances may be 
challenged under sections 2(a) and 2(f) of the Act, respectively, where 
no promotional services are performed in return for the payments, or 
where the payments are not reasonably related to the customer's cost of 
providing the promotional services. See, e.g., American Booksellers 
Ass'n v. Barnes & Noble, 135 F. Supp. 2d 1031 (N.D. Cal. 2001); but see 
United Magazine Co. v. Murdoch Magazines Distrib., Inc. 2001 U.S. Dist. 
Lexis 20878 (S.D.N.Y. 2001). Sections 2(a) and 2(f) of the Act may be 
enforced by disfavored customers, among others.

    Example 1: A customer should not induce or receive advertising 
allowances for special promotion of the seller's product in 
connection with the customer's anniversary sale or new store opening 
when the customer knows or should know that such allowances, or 
suitable alternatives, are not available on proportionally equal 
terms to all other customers competing with it in the distribution 
of the seller's product.
    Example 2: Frequently the employees of sellers or third parties, 
such as brokers, perform in-store services for their grocery 
retailer customers, such as stocking of shelves, building of 
displays and checking or rotating inventory, etc. A customer 
operating a retail grocery business should not induce or receive 
such services when the customer knows or should know that such 
services (or usable and suitable alternative services) are not 
available on proportionally equal terms to all other customers 
competing with it in the distribution of the seller's product.
    Example 3: Where a customer has entered into a contract, 
understanding, or arrangement for the purchase of advertising with a 
newspaper or other advertising medium, such as the Internet, that 
provides for a deferred rebate or other reduction in the price of 
the advertising, the customer should advise any seller from whom 
reimbursement for the advertising is claimed that the claimed rate 
of reimbursement is subject to a deferred rebate or other reduction 
in price. In the event that any rebate or adjustment in the price is 
received, the customer should refund to the seller the amount of any 
excess payment or allowance.
    Example 4: A customer should not induce or receive an allowance 
in excess of that offered in the seller's advertising plan by 
billing the seller at ``vendor rates'' or for any other amount in 
excess of that authorized in the seller's promotional program.

    (b) Third party liability. Third parties, such as advertising 
media, may violate section 5 of the Federal Trade Commission Act 
through double or fictitious rates or billing. An advertising medium, 
such as the Internet, a newspaper, broadcast station, or printer of 
catalogues, that publishes a rate schedule containing fictitious rates 
(or rates that are not reasonably expected to be applicable to a 
representative number of advertisers), may violate section 5 if the 
customer uses such deceptive schedule or invoice for a claim for an 
advertising allowance, payment or credit greater than that to which it 
would be entitled under the seller's promotional offering. Similarly, 
an advertising medium that furnishes a customer with an invoice that 
does not reflect the customer's actual net advertising cost may violate 
section 5 if the customer uses the invoice to obtain larger payments 
than it is entitled to receive.

    Example 1: A newspaper has a ``national'' rate and a lower 
``local'' rate. A retailer places an advertisement with the 
newspaper at the local rate for a seller's product for which the 
retailer will seek reimbursement under the seller's cooperative 
advertising plan. The newspaper should not send the retailer two 
bills, one at the national rate and another at the local rate 
actually charged.
    Example 2: A newspaper has several published rates. A large 
retailer has in the past earned the lowest rate available. The 
newspaper should not submit invoices to the retailer showing a high 
rate by agreement between them unless the invoice discloses that the 
retailer may receive a rebate and states the amount (or approximate 
amount) of the rebate, if known, and if not known, the amount of 
rebate the retailer could reasonably anticipate.
    Example 3: A radio station has a flat rate for spot 
announcements, subject to volume discounts. A retailer buys enough 
spots to qualify for the discounts. The station should not submit an 
invoice to the retailer that does not show either the actual net 
cost or the discount rate.
    Example 4: An advertising agent buys a large volume of newspaper 
advertising space at a low, unpublished negotiated rate. Retailers 
then buy the space from the agent at a rate lower than they could 
buy this space directly from the newspaper. The agent should not 
furnish the retailers invoices showing a rate higher than the 
retailers actually paid for the space.

Sec.  240.14  Meeting competition.

    A seller charged with discrimination in violation of sections 2(d) 
and (e) may defend its actions by showing that particular payments were 
made or services furnished in good faith to meet equally high payments 
or equivalent services offered or supplied by a competing seller. This 
defense is available with respect to payments or services offered on an 
area-wide basis, to those offered to new as well as old customers, and 
regardless of whether the discrimination has been caused by a decrease 
or an increase in the payments or services offered. A seller must 
reasonably believe that its offers are necessary to meet a competitor's 
offer.


Sec.  240.15  Cost justification.

    It is no defense to a charge of unlawful discrimination in the 
payment of an allowance or the furnishing of a service for a seller to 
show that such payment or service could be justified through savings in 
the cost of manufacture, sale or delivery.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2014-23137 Filed 9-26-14; 8:45 am]
BILLING CODE 6750-01-P