Loyalty Discounts Becoming More Complicated Than Ever

According to a sharply divided opinion from the US Court of Appeals for the Third Circuit, discounts conditioned on customer loyalty can be anticompetitive even if the discounted price still exceeds the seller's cost. Further, a seller's insistence that dealers charge less for its brand than for rival brands can also spell trouble.

In its 2012 decision in ZF Meritor, LLC v. Eaton Corp.,¹ the Third Circuit confirmed that "loyalty discounts"— in which a seller provides price reductions or rebates to customers that buy at least a specified percentage of their purchases of a product from that seller— can violate the antitrust laws even if the discounted price is not below the seller's cost, and even if eligibility for the discount does not require 100 percent loyalty. How to tell whether a loyalty discount crosses the line depends on a variety of factors under the Third Circuit's approach, and the opinion illustrates some things that sellers may want to avoid. Also