Manufacturer/supplier-initiated payments to retailers related to shelf space may require Federal Trade Commission analysis to determine if the conduct is anticompetitive, a Chicago antitrust attorney told commission reps during a public meeting on slotting fees in Washington, D.C. May 31-June 1.

Alan Silberman (Sonnenschein, Nath & Rosenthal) distinguished manufacturer-initiated payments to retain or avoid reduction of shelf space for older products from "the more classic slotting allowances, the one-time payment demanded by retailers" for new products.

"I would use the phrase 'slotting allowances' only where it's demanded by the retailer, and therefore I would distinguish [them] from the manufacturer-initiated situation. I look at the slotting allowance, or more precisely, the new product introduction costs, as being a one-time, short-term event" that should be exempt from FTC scrutiny, the attorney maintained.

"Where you're dealing with manufacturer-initiated conduct - 'I will pay you' - I haven't heard of anybody who offers to pay not in return for something, so there must be something that's coming back," he said. "Is it exclusivity? Is it creating some barrier to a designated competitor? Those are things that now call for further analysis [although] they still may not be improper."

Recommendations from Silberman and other lawyers and economists ended two days of discussions on the use of slotting fees in retail outlets (¹ Also see "Slotting Fee Replacement By Post-Marketing Methods Suggested To FTC" - Pink Sheet, 5 June, 2000.).

Rick Warren-Boulton, a principal in the Washington, D.C. economic consulting firm MiCra, opined slotting fees for new products should fall outside FTC's enforcement authority. Focusing instead on ongoing payments for older products, he suggested a prerequisite to FTC enforcement should be fees initiated by a manufacturer monopoly power with "a unilateral ability to raise prices and exclude rivals."

Attorney Robert Skitol (Drinker, Biddle & Reath, D.C.) urged a broader scope of FTC enforcement, particularly for new product fees. "If the fee bore some reasonable relationship to new product introduction costs, I would say safe harbor, close the books, don't even look at it," he said.

However, "if it's a situation where the amount of the fee...is way beyond any conceivable cost justification ...then we don't have to worry that we are interfering with an efficient practice, and the payment is likely to be entry barrier-raising, vis a vis smaller rivals, and the situation is worth a close look as to whether there is" an exclusionary anticompetitive effect, he noted.

Skitol also cited the need to distinguish between flat, one-time payments unrelated to volume and sliding scale fees in the form of per unit discounts.

The latter, he suggested, should be exempt from FTC scrutiny because it is a payment small manufacturers "ought to be able to afford over time," and the discount "is much more likely to end up translating into a downstream lower price to the consumer...versus the flat payment unrelated to volume which is much more likely to go into the retailer's bottom line."

Attorney Mark Gidley (White & Case, D.C.) warned against FTC regulation of the form or amount of new product slotting fees. "I think if FTC were to engage in that it would lose its soul," he maintained. "You would have an infinite level of rule of reason challenges to every new product introduction slotting allowance."

FTC Bureau of Competition Senior Staff Attorney Neil Averitt cautioned it may be difficult to distinguish "between up-front payments and payments over time... where a manufacturer's product line may change from year to year as new products are introduced and old ones are phased out. It may also get to be a little blurry whether a particular payment is actually instigated by the manufacturer or the retailer."

Skitol has petitioned FTC on behalf of several food industry trade associations to issue enforcement guidelines on slotting allowances in the grocery industry. The groups suggest such guidelines should apply to suppliers accounting for 20% or more of U.S. or regional sales of an affected product category, and retailers accounting for 20% or more of retail food sales within an affected metropolitan area.

The groups also call for manufacturers and retailers to publicly disclose their slotting fee practices.

Several panelists, however, urged against FTC formal guidelines, advising that the commission first bring enforcement actions to establish, through a litigated record, that a competitive injury problem exists.

Gidley suggested any formal FTC position or guidance should be universally applicable to all retail formats. "There is no reason to limit it to supermarkets," he said. "I understand drug stores have used slotting allowances for many years."

Manufacturer-Initiated Fees To Retailers May Require FTC Scrutiny - Attorney

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