Purchase and Contracts

Subject:

Requested By: Willis Holding, Jr. State Purchasing Officer Purchase and Contract Division Department of Administration

Question: Are suppliers to state and local governmental entities prohibited by the Robinson-Patman Act, 15

U.S.C.A. § 13 et seq., from offering lower prices to governmental entities than to their other customers?

Conclusion: No. The Robinson-Patman Act, by virtue of an established, implied exemption, does not apply to purchases made by state or local governmental entities.

The applicability of the Robinson-Patman Act, 15 U.S.C.A. § 13 et seq., to purchases by governmental entities for consumption by those entities has been considered on several occasions. The statute itself does not speak to any governmental exemption. In 1936, an opinion by the Attorney General of the United States held that the Robinson-Patman Act does not prohibit sales to federal government agencies under contracts for supplies at prices lower than those charged other purchasers. See 38 Op. Atty. Gen. 539, 1932-1939 Trade Cases P55,145 (1936), (citing United States Shipping Board Emergency Fleet Corporation v. Western Union Telegraph Co., 275 U.S. 415, 72 L.Ed. 345, 48 S. Ct. 198 (1928), which found that the rule of equal treatment would not be violated by giving the governmental preferential rates) wherein the Attorney General concluded:

The practice in this respect indicates that it has been customary in the past for those dealing with the various agencies of the Federal Government to grant to them special prices on contracts for supplies. Such prices are often below the regular market for similar material supplied to the regular trade — due, perhaps, to an estimated lower cost of doing business with the Government because of quantity purchases and absence of credit risk, solicitation expense, etc., although it may often be impossible to evaluate such factors with exactness.

Whether state and local governments receive the same exemption has rarely been litigated but the general attitude appears to lean toward exemption. Both Minnesota and Wisconsin have had opinions by their Attorneys General that the Robinson-Patman Act is inapplicable to state purchasing departments purchasing supplies for the state and to business concerns within the state bidding for state purchases. See Op. Atty. Gen. of Minnesota (March 4, 1937), 1932-1939 Trade Cases P55,157; Op. Atty. Gen. of Wisconsin (1937), 26 Op. Atty. Gen. 142. Also, a Federal District Court in Kentucky held that the Act does not apply to sales to the government, state, or a municipality. General Shale Products Corp. v. Struck Construction Company, 37 F. Supp. 598 (W.D. Ky. 1941), aff’d. 132 F. 2d 425 (6th Cir. 1942). The Court found that:

Neither theh government nor a city in its purchase of property considered necessary for the purpose of carrying out its governmental functions is in competition with another buyer who may be engaged in buying and reselling that article. 37 F. Supp. at 603.

It further noted that:

Accordingly, a sale at a reduced price is not illegal unless it is made for the purpose of discriminating between competitive buyers. Id., at 603.

Speaking to the 1938 Amendment exempting non-profit institutions from price discrimination provisions, 15 U.S.C.A. § 13(c), the Court determined that had Congress disagreed with the recorded Attorney General’s Opinion of 1936, it would have spoken in the Amendment. It reasoned that the 1938 Amendment merely added to the existing governmental exemption.

Other cases holding that the Robinson-Patman Act is inapplicable to government procurement include the trail court opinion in Logan Lanes, Inc. v. Brunswick Corporation, 378 F. 2d 212 (9th Cir. 1967), cert. denied 389 U.S. 898 (1967), and Sachs v. Brown-Forman Distillers Corp., 134

F. Supp. 9 (S.D.N.Y. 1955), aff’d 234 F. 2d 959 (2d Cir. 1956). In Sachs, the Court stated:

It is doubtful at least, whether the Robinson-Patman Act applies at all to sales to Government agencies, state or federal. 134 F. Supp. at 16.

Although holding against the defendant, the U.S. District Court of Utah in Pacific Engineering & Production Co. v. Kerr-McGee Corp., 1974 Trade Cases P75,054 at p. 96,742 concluded:

Though government actions are excluded from the Act . . . 39 Op. Atty. Gen. 539 (1936), AMPOT has cited no support for the proposition that sales to private parties are exempt merely because the ultimate consumer is the government.

In two states, Georgia and California, the respective Attorneys General have opined against state exemption from Robinson-Patman provisions. However, in the Georgia case, 1949 Trade Cases P62,755, the decision against exemption was based on the fact that the State Factory for the Blind entered the field of private enterprise by reselling its products to individuals and corporate dealers as well as other governmental units. The Attorney General also stated that had the factory confined its activities to manufacture and sale of supplies to state institutions, the Robinson-Patman Act would not apply. It should also be noted that although California found the Act applicable to government contracts, it nevertheless permitted granting state agencies special prices as a result of cost-saving factors, such as quantity purchases, absence of credit risk, and solicitation expense. See Op. Atty. Gen. of California, 1932-1939 Trade Cases P55,156.

It must be remembered that the purpose behind enactment of the Robinson-Patman Act was to make price discrimination unlawful where it substantially lessened or prevented competition or tended to create a monopoly. A state agency purchasing supplies for state needs is certainly not in competition with private business enterprise. Nor should lower prices to the state interfere with the normal price competition in sales to the general public.

Another important consideration is the first proviso in the Robinson-Patman Act which allows price differentials which make allowances for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities involved. A state agency purchase often results in cost-saving factors such as absence of credit risk, ease in solicitation of orders and ease in delivery. So even if not exempted from the Act, it would seem that lower prices for the state agencies would be permitted within the Act itself.

Rufus L. Edmisten Attorney General

Rudolph A. Ashton, III Associate Attorney General