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As we pointed out with the first increment of this series, because of the enormous uncertainties of COVID-19's battering of the business world, effective credit management during the coming months (or years) will certainly include alert and knowledgeable anticipation and participation in customer filings. We began with coverage of the new Subchapter 5 of Bankruptcy Chapter 11 and moved on to anticipating and coping with claims for Preference Payments. Here, we again sat down with Attorney Rich Macias of Maynard Cooper & Gale and asked how to anticipate and deal with charges of violations of the Robinson-Patman Act.
Commonly shortened to Rob-Pat, the Act, along with the Sherman and the Clayton Acts, is one of the trilogies of antitrust laws that regulate competitive business practices. Where the Sherman and Clayton Acts focus mostly on conduct between competitors, Rob-Pat provides rules on the relationships between manufacturer/sellers and distributor/buyers. Rob-Pat deals with price discrimination toward buyers by sellers. Basically, a seller may not discriminate in prices and terms of sale, including credit terms and promotional allowances. Our questions:
Credit Today: We understand that Robinson-Patman does allow some degree of different treatment of buyers. How does that work?
Richard Macias: Essentially the application of Rob-Pat is to assure that competing distributor/buyers, who are similarly situated in the market, get treated in a non-discriminatory manner by their common manufacturer/seller.
CT: How do you establish similarity?
RM: The courts first look to see if the competitors are buyers of the same product. If you buy my analog widget and another buyer is buying my wi-fi enabled digital widget, those are not the same product. If the products are the same, the courts also look to see if the competitors buy in the same quantities: A buyer of 100,000 units and a buyer of 100 units are not the same, and the courts have recognized rationale for giving better pricing to a buyer of larger quantities. The competitors must be selling in the same market. So there may be a basis for pricing distinctions between a distributor in New England and a distributor in Texas. Internet sales have somewhat blurred those lines but that is a topic for another time.
CT: You mentioned during our recent Webinar that credit worthiness is a factor to be weighted in the balance of similarity, which is the key to customer assessment in Robinson-Patman.
 in the post COVid-19 era, you might want to know if a buyer has business interruption insurance that would kick in to provide a resource for payment.
RM: It has not come up frequently in cases, but there has been a recognition that similarity for Rob-Pat purposes may also take into consideration whether the competitor buyers represent the same level of credit risk.
CT: In the Webinar you recommended developing objective criteria- for a COVID-19 credit policy. What should these objective criteria be?
RM: As I said, this has not been extensively litigated, so we do not have an easy flow chart of criteria. Every company and every credit manager have a set of standards used to measure credit risk. A cash buyer and a buyer who needs 90-day terms probably are not similar for Rob-Pat purposes. A buyer who regular pays 30 days late is not like a buyer who pays in the ordinary course within terms. If you are looking at financial statement, and one buyer appears to be in a stronger cash position than a competitor buyer, I think Rob-Pat would allow you to say these two buys are not similar. One of my credit manager clients likes to say he looks at the four C's: credit history, capacity to repay, capitalization and availability of collateral. On that last point, in the post COVid-19 era, you might want to know if a buyer has business interruption insurance that would kick in to provide a resource for payment. The key for purposes of Rob-Pat is that you are using objective credit assessment criteria and applying that criteria equally.
CT: What documentation should you have on file as justifications for changing credit terms?
I mostly have seen Rob-Pat raised as part of defensive tactics in collection litigation... expect post Covid 19 world... surge of business and collection litigation
RM: One big change in the marketplace has been the decline of local and regional banks to provide working lines of credit. Almost all those finance sources are gone. As a result, if your buyer is unable to get a borrowing facility from a regular financial intuition, you are going to be the bank in the sense that you will be shipping on longer and longer terms. My attitude is, if I am going to be the bank, I should be getting the kind of information a banker would want. Annual and interim financials, security agreements, guaranty is, third party financial evaluations, credit group data. What you most need is to have a standardized tick list of items you review when making decision and that you maintain a record in the credit file of what information supports your decision.
CT: How much of a threat is a Rob-Pat claim in the modern world?
RM: We tend to think that all these rules that were developed in the brick and mortar days are too clumsy to apply to a modern cyber economy. Nothing could be further from the actual situation. Modern technology captures so much information. The toughest thing in an antitrust case used to be getting the data to corroborate the claim. But now we work every day with interconnected tools that convey all kinds of information. Allegations involving Rob-Pat violations are rarely brought by the Justice Department anymore because the law allows private enforcement by an aggrieved buyer. I mostly have seen Rob-Pat raised as part of defensive tactics in collection litigation. So to the extent I expect the post COVID-19 world to bring its own surge of business and collection litigation, I'd be concerned these issues are ripe for being inserted into some of that litigation as a matter of establishing a defense.
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