Pricing Issues

The laws, regulations, and legal risks which govern how a business may price its products are some of the most intricate and counterintuitive to exist anywhere outside the U.S. Tax Code.

The possible traps for the unwary begin with the Robinson-Patman Act, a part of the federal antitrust laws which prohibits price discrimination. Manufacturer and wholesaler clients continue to be dumbfounded when they learn that negotiating a separate price with each of their commercial customers can be a federal offense. The law is riddled with exceptions, both statutory and judge-made, but those who fail to undertake the analysis to determine whether an exception applies to their pricing practices do so at their peril. While government enforcement action under Robinson-Patman is not common, it is certainly not unheard of, and a prevailing private plaintiff under the statute may recover treble damages and attorneys fees.

State laws present an even more unmanageable welter of restrictions. Many states have so-called "fair trade" laws, which are appropriately named only if one considers price competition unfair. These laws often prohibit sales "below cost," but define how "cost" is to be calculated in ways that bear little resemblance to GAAP. And as if these laws of general applicability were not enough, every state has at least some industry-specific pricing laws, most commonly for commodities like gasoline, tobacco, alcohol and milk, but no line of commerce is immune. (It's amazing how receptive a state legislature can be to a strong local lobby.)

And then, of course, there are the pitfalls everyone has at least heard of: price-fixing under federal and state antitrust laws, and other price-related antitrust risks.

We not only are familiar with how these laws read on the books, we have hands-on experience with how they are actually enforced in the real world. Rod has in fact taken antitrust cases to jury trial, a perspective which is invaluable in counseling clients attempting compliance in this murky area.

Proper implementation of a well-considered set of compliance guidelines can be very helpful in minimizing risks. There is also a separate pragmatic reason to implement such guidelines: the fact that a company has done so is a significant mitigating factor under the federal Antitrust Sentencing Guidelines. To see a set of model guidelines we have prepared, click here. Bear in mind, however, that such guidelines will only be effective if (1) they address in concrete terms the real-world issues that operational personnel are likely to encounter in a particular industry, and are couched in language that those in the field will understand, and (2) they are communicated to such personnel in a way which promotes both comprehension and motivation to implement.

For more detail on all these issues, consult Rod's papers, "Identifying Potential Antitrust Issues" and "Proving (Or Contesting) Market Power Claims"

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