FTC to Study Supply Chain Disruptions

What Happened: The Chair of the Federal Trade Commission (FTC) announced that the Commission will vote at the next open meeting on November 18 whether to use its authority under Section 6(b) of the FTC Act to order large retailers and consumer goods suppliers to provide answers on the impact of competition in the ongoing supply chain disruptions.

The Bottom Line: If the FTC votes to issue these 6(b) orders, recipients should treat them like subpoenas and civil investigative demands, and they will either have to comply, or file a petition to limit or quash the order. Recipients should consider their response with awareness of the demands and circumstances leading up to this action. 

The Full Story:

Over the past year, a number of varying interests have lobbied on a number of fronts for a comprehensive FTC investigation of dominant retailers and aggressive related enforcement actions.

On February 19, 2021, the Center for Science in the Public Interest sent a lengthy letter to the FTC requesting an investigation pursuant to Section 6(b) of the FTC Act into trade promotion, category captain, and online retail practices in the grocery retail industry. The letter even went so far as to provide the FTC with the specific categories of documents they should be requesting as part of their Section 6(b) inquiry.

Then, in mid-March, the National Grocers Association (NGA) held a virtual press conference and released a white paper calling for a crackdown on so-called “power buyers” in grocery retail. The NGA complained that small food retailers are being squeezed by big retailers that allegedly use their scale to command more favorable supply terms, lower pricing, special product package sizes, and first call on high-demand items. The NGA added that the disparity was especially pronounced during the COVID-19 pandemic, as independent grocers’ customers often encountered empty shelves and higher prices for essential products, whereas large competitors were able to procure sought-after items. Increasing consolidation in the retail and consumer goods sectors was identified as one cause exacerbating this dynamic. The NGA argued in their white paper that current U.S. antitrust laws provided the tools necessary to curb such practices.

The NGA echoed the concerns at the FTC’s Open Commission Meeting in July 2021. At the end of that month, Associated Wholesale Grocers President and CEO David Smith did the same in testimony on behalf of the NGA at a U.S. Senate Judiciary Committee hearing on competition in the nation’s food industry. Several Senators, including Sens. Blumenthal and Klobuchar, seemed to express similar concerns at the hearing. Afterwards, the NGA President and CEO Greg Ferrara said the hearing was a “pivotal moment” for independent grocers and expressed confidence that, for “the first time in decades, there is momentum for antitrust reform and enforcement.” While the NGA and others had reportedly been pushing Congress to address the issue in an antitrust bill, they ultimately concluded that the new FTC leadership was “their best bet for swift action.”

Subsequently, on October 28, 2021, a coalition of independent grocers, pharmacies, restaurants, convenience stores and farmers formed the Main Street Competition Council (MSCC) “to encourage enforcement of the Robinson-Patman Act against anti-competitive tactics by dominant firms across industries.” Members include the NGA, National Community Pharmacists Association, American Beverage Licensees, National Association of Convenience Stores, Energy Marketers of America, Protect Our Restaurants, Organic Farmers Association, National Association of Truck Stop Operators, Western Growers Association, and the National Beer Wholesalers Association.

On the same day, eight members of the MSCC sent a letter to the FTC seeking assistance “in addressing the anticompetitive effects of economic discrimination.” The letter requested that the FTC “immediately use its authority under 6(b) of the Federal Trade Commission Act to study economic discrimination” and urged the FTC to “look beyond price effect to include other dimensions of competition, including impacts on quality, service and convenience as a result of economic discrimination and increasing consolidation.” As part of this inquiry, the MSCC asked the FTC to investigate:

1. Arrangements between dominant retailers and suppliers to determine whether these arrangements result in economic discrimination that harms smaller rivals, including whether so-called “channels of trade” distinctions are being used to evade laws against economic discrimination; and
2. The question of whether economic discrimination and buyer power have led to concentration throughout supply chains, especially in the food and agriculture sector.

Finally, presumably based on the requested investigation, the MSCC asked the FTC to “use its authority under the Robinson-Patman Act to bring enforcement actions against anticompetitive economic discrimination.”

Where does that bring us? Now, two weeks after receiving the MSCC letter, the FTC has announced that the Commission will take a vote on “whether to issue Orders to large retailers and consumer goods suppliers to study the impact on competition of ongoing supply chain competition and gather information from other suppliers and retailers on this issue.” The agency’s announcement added that the study would “focus on why these disruptions occur, whether they are leading to specific bottlenecks, shortages, anticompetitive practices, or contributing to rising consumer prices.”

Next Thursday (November 18), the Commission will vote on whether to issue 6(b) orders to a yet-unnamed group of large retailers and consumer products companies, but that will presumably include the companies named in the NGA’s white paper. Section 6 of the FTC Act empowers the FTC to order businesses to provide reports or specific answers to FTC questions even when the FTC is conducting a study without a specific law enforcement purpose. As with subpoenas and CIDs, 6(b) orders are issued under the FTC’s powers of compulsory process, and recipients must either respond to or file a petition to limit or quash the order.

Retailers and suppliers that receive these orders should consult with counsel regarding how best to respond to an FTC inquiry, particularly given the context in which the Order arises and the potential for follow-on enforcement actions.

The Hunton Andrews Kurth Antitrust and Consumer Protection team is at the forefront of advising retailers on supply chain antitrust issues. Kevin Hahm is the former head of the FTC division focused on transactions in the retail and consumer goods space. Hunton Partners Ryan Phair and Phyllis Marcus work extensively with retailers on antitrust and consumer protection litigation and counseling matters, including extensively on Robinson-Patman and other antitrust issues arising out of supply chain relations. All three are members of the firm’s Retail and Consumer Products multi-disciplinary group.