On a sleepy Friday afternoon late last week, the U.S. Federal Trade Commission officially let wine and spirits distributing giant Southern Glazer’s Wine and Spirits more or less off the hook for its years of corporate bullying. Under the leadership of former FTC chair Lina Khan, the agency sued Southern for using its power as the country’s largest booze distributor to overcharge smaller stores and chains for the rums, merlots, and other products it sells, all while handing out sweetheart deals to major chain stores. The law the FTC accused Southern of breaking, the Robinson-Patman Act, hadn’t been enforced in decades; in reviving the long-dormant law, the agency showed it was serious about ensuring fairness in the broader retail economy.
The FTC’s decision to settle the case last week put a damper on that. The settlement puts conditions in place that seemingly beg Southern to keep discriminating between different retailers, and then challenge a court-appointed monitor to try to catch it in the act. The settlement, as complex as it is, isn’t terrible on its face. It orders Southern to cease-and-desist its price discrimination, which is the traditional Robinson-Patman remedy, and then it puts in place a scheme that would force Southern to pay small businesses if it continues breaking the law.
But the FTC’s settlement hurts for two reasons: First, courts often struggle to enforce these kinds of settlements, in which corporate giants with every incentive to maximize profits are pitted against a court monitor tasked with constraining that exact profit-maximizing (and illegal) behavior. Sometimes these kinds of behavior-altering conditions fail spectacularly, as they did in the aftermath of the Live Nation/Ticketmaster merger. Those companies so brazenly sidestepped the Justice Department’s settlement terms, it now faces a corporate breakup — but only after inflicting harm on venues, artists, and music fans nationwide. Even if the settlement holds and Southern stops its price discrimination, it only lasts for six years, after which the court-appointed monitor, and the transparency into Southern’s pricing, goes away.
What’s more, since it was ultimately up to the FTC to craft whatever settlement it wanted, it could have mandated all kinds of other things that would have promoted competition in the wine and spirits industry — for example, the agency could have forced Southern to continue selling the same products to every store with which it currently does business, curtailing a practice I call “access discrimination.” It could have extended the settlement terms for a decade, or more. It could have required Southern to sell its products to small retailers at a discount for a certain amount of time, to make up for the harm its discrimination caused. The settlement could have done a bunch of stuff that it does not do. It’s a missed opportunity, by an agency acting like it didn’t want anything to do with the case in the first place.
Second, by not taking the case to trial, the FTC rejected an opportunity to create some better case law around the Robinson-Patman Act. At the moment, it’s possible for the government and private plaintiffs to bring RPA cases, but the precedents around the law are very much a mixed bag. The Supreme Court has restricted enforcement of the law multiple times since Congress passed it in 1936. The standards for evidence needed to prove an RPA violation are high, and the defenses corporations can use to justify price discrimination are numerous. We can’t know what Southern’s defenses might have been at trial. But the FTC under Lina Khan was bold, not reckless. If the agency sued, it’s fair to assume they had the evidence and facts needed to make it to trial and win. Southern’s attempt to get the case thrown out had already failed. The case was solid. And there’s a certain kind of deterrence that comes along with taking a case all the way to trial, win or lose. It represents a serious agency doing serious things. Now, the potential for important case law and important deterrence are gone. As is another key aspect of a courtroom victory: Had the FTC won, Southern’s victims could have then used the FTC case and the evidence it uncovered to sue Southern for damages.
What’s crucial now is what the FTC does next in its Robinson-Patman journey.
What’s crucial now is what the FTC does next in its Robinson-Patman journey. Current FTC chair Andrew Ferguson dissented when Khan’s FTC brought the Southern Glazer’s case, not because he doesn’t believe in the Robinson-Patman Act, but because he didn’t think suing a wine and spirits distributor was the best use of the agency’s resources. So what would be a better use? It’s a fascinating question, given that Ferguson and the commission dropped another RPA case against PepsiCo and, by proxy, mega-retailer Walmart. That case, had it gone forward, cut to the heart of a discrimination scheme between the country’s largest retailer and one of its largest food and drink suppliers — one that, according to the complaint that ILSR fought to unseal, raised prices for shoppers nationwide. If not that case, which had nationwide consumer impacts, then what?
The FTC is very likely cooking up another case in the food retail sector, perhaps beyond the facts of the PepsiCo complaint. Ferguson has already said publicly that the FTC has multiple RPA investigations in the works. In his statement accompanying the Southern Glazer’s settlement, fellow FTC Commissioner Mark Meador suggested a grocery case would be a better use of resources. “I would then also support a targeted inquiry into price discrimination issues in a sector that more directly impacts the cost of living for American families, such as food and groceries,” Meador wrote, “focusing on instances where there is clear consumer harm.” If the FTC does sue grocers and their suppliers to enforce RPA, it needs to deliver more than the Southern settlement: real case law and real deterrent for retail power players.