Companies in a wide range of industries commonly develop incentive programs for vendors, including preferred vendor or loyalty programs, to increase sales or establish loyalty. Acceptance of the terms and conditions of these programs often results in agreements that set parameters for participation and consequences for violating the rules, such as exclusion from the program. However, these agreements can raise Sherman Act and Robinson–Patman Act (RPA) issues and companies should consider the antitrust implications when developing their programs.
Below are five antitrust considerations for companies that wish to develop preferred vendor or loyalty programs:
- Ensure the company’s rationale for the program is pro-competitive and enhances consumer welfare. For example, does the program improve brand awareness, fuel research and development, or benefit the end consumer through better quality or price? Be sure to document the rationale.
- Consider the program’s eligible participants and whether the RPA applies. If the RPA applies, vendors or distributors should have access to the same programs as their competitors. If there are participation requirements that are not achievable by a set of vendors, the program may be anti-competitive.
- To the extent pricing, including discounting, is involved, the company developing the program should unilaterally determine the pricing structure to avoid any appearance of collusion.
- Do not inadvertently establish a program that facilitates the exchange of competitively sensitive information among competitors. Avoid scenarios where program participants must share sales figures or inventory availability, for example. Companies that do collect competitively sensitive information from participants should be careful not to share that information with other participants.
- Avoid inflammatory language in documents discussing the program (including emails, texts, and program marketing materials). Terms like “market dominance”, “pricing power”, “margin rationalization”, and “competitive moats” could raise red flags and subject the company to an investigation or a lawsuit, even if the language is hyperbolic or misconstrued.
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