FTC Revives Price Discrimination Law in Suit Against Nation’s Largest Alcohol Distributor

On the eve of a new administration, the Federal Trade Commission (FTC) filed its first price-discrimination action under the Robinson-Patman Act (RPA) since 2000. The FTC sued Southern Glazer’s Wine and Spirits LLC in US District Court for the Central District of California, claiming that Southern Glazer’s charged “drastically higher” prices to small, independent retailers than to large, national chains. The lawsuit was long-anticipated, as the FTC’s investigation had become publicly known last year, and the FTC has commented on its interest in reviving price discrimination cases.

The FTC’s complaint alleges that Southern Glazer’s, as the largest US wholesaler of wine and spirits, acts as a “gatekeeper for the majority of the wine and spirits sold” and “routinely” charges small independent grocery stores, local convenience stores, and independently owned wine and spirit shops more than national and regional chains in the same geographic regions.

The complaint alleges that these discounts to large chains come in the form of large quantity discounts (that only large chain customers can obtain), cumulative quantity discounts (which large chains can qualify for by combining purchases across stores), and scan rebates (which are not made available to competing local independents). Thus, the FTC’s complaint alleges “secondary-line” discrimination under the RPA, or that Southern Glazer’s, as the seller, set prices lower for “favored” purchasers (national and regional chains) than for disfavored purchasers (small, independent retailers).

In a statement, Southern Glazer’s criticized the lawsuit, arguing that the “RPA is a Depression-era federal antitrust law that has not been enforced in decades because of bipartisan concern that enforcement leads to higher prices for consumers.” Southern Glazer’s further argued that it was already heavily regulated by the states, consistent with the 21st Amendment of the US Constitution, as well as by the US Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau.

Split Commission

The FTC’s lawsuit was supported by the FTC’s Democratic Commissioners. Commissioner Alvaro Bedoya, joined by Chair Lina Khan and Commissioner Rebecca Kelly Slaughter, authored a statement supporting the FTC’s Complaint, emphasizing the need to enforce the RPA to level the playing field among competitors and restore Americans’ faith in the economy. Their statement argued for a revival of FTC enforcement of RPA, arguing that “[t]he point of Robinson-Patman is that the same rules should apply to everyone,” and therefore “[i]t is time to enforce it.” The Democratic Commissioners’ interest in reviving the RPA finds some support in the US Congress, especially among Democratic lawmakers, a group of whom sent a letter to the Commission in March 2024 supporting RPA enforcement.

The FTC’s Republican minority, however, both issued lengthy dissents. Commissioner Andrew N. Ferguson, recently identified as President-elect Donald Trump’s pick to be the next FTC Chair, issued a statement in dissent arguing that the lawsuit was a waste of the FTC’s limited resources and argued that the FTC should “confine its enforcement efforts to cases where the favored purchasers enjoy market power.” Commissioner Ferguson argued that the FTC was unlikely to prevail on the merits, citing three reasons:

1. That Southern Glazer’s had a strong cost-justification defense that Southern Glazer’s discounts to large retailers reflected it passing on its own cost savings
2. That there was insufficient evidence of diversion to suggest more than de minimis harm to competition
3. That it was not clear that the discriminatory sales took place in “interstate commerce”—a unique attribute of this case due to states’ regulation of the alcohol industry under the 21st Amendment and unclarity as to whether most of the alcohol Southern Glazer’s distributed ever crossed state lines (a stringent requirement of the RPA)

Commissioner Melissa Holyoak, in a separate 88-page dissent, argued that the competitive effects provisions of the RPA should be read consistently with the corresponding provisions in the Clayton Act and Sherman Act—and that the appropriate inquiry under the RPA is “whether the relevant conduct harms competition, rather than competitors.” In Commissioner Holyoak’s view, the Complaint condemned conduct that is “plainly innocuous or even procompetitive.”

The Republican Commissioners’ dissents in this case—particularly Commissioner Holyoak’s lengthy and detailed dissent—were unusual and excoriated by the Democratic majority for using the Commission’s investigative record to present arguments against bringing this enforcement action. While it is not uncommon for Commissioners to vote against bringing any particular case, or to issue lengthy and substantive dissents regarding adjudicative decisions or settlements, it is rare for Commissioners to issue substantive written dissents at the complaint issuance stage opposing a complaint endorsed by a majority of the Commission.

Implications

It remains unclear, for the moment, whether the FTC’s lawsuit against Southern Glazer’s will continue under the new administration. As reflected by his dissent, Commissioner Ferguson is skeptical of the merits of the FTC’s lawsuit against Southern Glazer’s. It is unlikely that the suit would have been brought in the new administration under Commissioner Ferguson’s leadership and with a Republican majority on the Commission. That said, historically, new Commissions have sometimes been reticent to change course on lawsuits already brought, and it remains to be seen whether Commissioner Ferguson will change course once the new Commission is seated.

Moreover, Commissioner Ferguson does not rule out enforcement of the RPA, setting aside the instant lawsuit against Southern Glazer’s. In fact, Commissioner Ferguson takes issue with the FTC’s “longstanding refusal to enforce the Robinson-Patman Act because of disagreement with its underlying policy,” arguing that “unelected bureaucrats” should not be allowed to “effectively suspend a law.” He concludes that the FTC should bring secondary-line RPA cases “when there is strong evidence that the favored purchasers possess market power.”

In support, Commissioner Ferguson argues that price discrimination driven by the buyer market power of large purchasers can harm competitors and consumers. While Commissioner Ferguson’s dissent recognized that this approach limited FTC enforcement of the RPA, he argued that it was reasonable due to the FTC’s limited resources and Congress’s provision for private enforcement of the RPA.

Thus, it is important to continue to monitor not only the FTC’s lawsuit against Southern Glazer’s, but also its interest in bringing new suits under the RPA in the new administration.

How We Can Help

Morgan Lewis lawyers guide and provide strategic antitrust counseling in the food and beverage industry and in other commodity industries that may be impacted by the revival of federal enforcement of the RPA.