How a Depression-era law could be used to make your booze cheaper

(CNN) — Federal regulators are planning to use a rarely enforced law from the Great Depression to allege America’s largest alcohol distributor is unfairly pricing wine and spirits, a person familiar with the matter told CNN.

A looming Federal Trade Commission lawsuit against Southern Glazer’s Wine and Spirits would be aimed at lowering costs for consumers — in this case on alcohol — and ensuring mom-and-pop shops have a level playing field against big chains, the source said.

The case, which could be risky, would represent the latest effort by Biden administration regulators to show they are taking action to lower costs and confront dominant companies. It would also be the latest aggressive step by FTC Chair Lina Khan, who recently led the agency to ban most employers from using noncompete clauses and is probing a Microsoft deal with an artificial intelligence startup.

The latest battleground in the antitrust fight could be booze. Southern Glazer’s, based in Miami and operating in 44 US states, is the largest wine and spirits distributor in the United States. The family-owned company distributes everything from Grey Goose vodka and Jim Beam bourbon to Yellow Tail wine.

Abandoned antitrust law from 1936

The FTC lawsuit, previously reported by Politico, could come in the next few weeks and would rely on the Robinson-Patman Act of 1936, the source said. That Depression-era law prohibits suppliers from providing deeper discounts to large chains than to smaller stores.

In other words, discounts to big-box chains must be available to mom-and-pop stores, too.

At the time, the antitrust law was aimed at helping smaller grocers survive when A&P and other chains dominated with lower prices.

However, an FTC lawsuit against Southern Glazer’s today would be controversial in part because the Robinson-Patman Act has rarely been enforced since the late 1980s. In fact, this would be the first time it’s been invoked since 2000, when the agency settled with spice company McCormick.

“It’s been a law since 1936. It’s still a law on the books. We enforce the law,” the source told CNN, adding that since the law hasn’t been enforced some smaller stores have struggled to survive. “If you can’t compete on price or come even close, you can’t stay in business.”

The thinking is that if a major alcohol distributor is offering deeper discounts to, say, Walmart or Target, that’s unfair to the smaller stores and their shoppers. And if those stores don’t exist, consumers are harmed from the lack of access and from the fact that the larger chains now face less competition on price.

Could enforcement backfire on shoppers?

Yet critics of the Robinson-Patman Act argue that enforcement would backfire on consumers, causing big chains to raise prices because they lose access to deep discounts they currently enjoy.

Favoring small businesses over large ones, critics argue, would harm consumers.

Alden Abbott, a former FTC general counsel during the Trump administration, warned in a Forbes op-ed last month that the FTC should consider the “major downside” of Robinson-Patman Act (RPA) prosecutions.

“While perhaps cloaked in ‘fairness,’ a major RPA lawsuit could discourage business discounting at a time of public concern over excessively high prices,” wrote Abbott, senior research fellow at George Mason University’s Mercatus Center.

The Antitrust Modernization Commission, a bipartisan commission created by Congress, concluded in 2007 that Congress should “finally repeal” the Robinson-Patman Act because it “appears antithetical to core antitrust principles.”

“A successful revival of Robinson-Patman would more likely result in higher not lower prices,” said Ed Schwartz, an antitrust partner with Reed Smith.

However, that is hard to prove. Much of the debate is theoretical since the law hasn’t been enforced in decades.

“There is no empirical evidence that enforcement of the Robinson-Patman Act raises consumer prices,” said Lee Hepner, senior counsel at the American Economic Liberties Project, a nonpartisan anti-monopoly advocacy group.

While opponents of enforcing Robinson-Patman say consumers are helped by the big discounts large chains get, Hepner argued the opposite is true.

“Price discrimination is a tool used by dominant corporations to enhance their market power,” he said. “That market power leads to higher consumer prices.”

Chris Jones, chief government relations officer and counsel at the National Grocers Association, a national trade association for independent grocers, said enforcement of the Robinson-Patman Act by the FTC is “long overdue.”

“For decades, antitrust enforcers have overlooked this statute, allowing dominant firms to use their size and market power to crush main street businesses and increase consumer costs,” said Jones, leader of the Main Street Competition Coalition, an industry group that supports enforcement of the 1936 law. “Enforcing the Robinson-Patman Act will help restore true price competition across the economy, benefiting consumers with more choices and lower prices for everyday essentials.”

A key test case in antitrust

Both the FTC and Southern Glazer’s declined to comment.

However, a person familiar with the matter said Southern Glazer’s discounts are available to all retailers where permitted by state law.

The source added that there are no secret discounts going on and that the only reason a smaller store may not enjoy the same discount as a larger store is because they can’t or won’t take on the same volume.

The FTC has not filed a lawsuit against Southern Glazer’s, and there is no guarantee the agency will pursue one. It’s still possible that FTC commissioners vote against such a lawsuit.

But if the lawsuit does go forward, it would represent a test case — and a complex one at that.

One complicating factor is that the alcohol industry is already heavily regulated at the state level. There is a maze of state-level rules that dictate who can sell what booze to whom. That could make such a case a state’s rights issue – and one where businesses argue consumers will be hurt.

Schwartz, the Reed Smith lawyer, said a case against Southern Glazer’s would reflect a shift in enforcement policy at the FTC under Khan away from the consumer welfare standards, where lower prices are almost always considered better for competition.

The goal here would be to “try to level the playing field for small retailers who are trying to compete,” he said. “You could think of it as much as a challenge to the mega-retailers as it is to the suppliers.”

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