[Code of Federal Regulations]
[Title 16, Volume 1]
[Revised as of January 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 16CFR240.13]

[Page 167-168]
 
                     TITLE 16--COMMERCIAL PRACTICES
 
                   CHAPTER I--FEDERAL TRADE COMMISSION
 
PART 240_GUIDES FOR ADVERTISING ALLOWANCES AND OTHER MERCHANDISING 
PAYMENTS AND SERVICES--Table of Contents
 
Sec. 240.13  Customer's and third party liability.

    (a) Customer's liability: Sections 2 (d) and (e) apply to sellers 
and not to customers. However, the Commission may proceed under section 
5 of the Federal Trade Commission Act against a customer who knows, or 
should know, that it is receiving a discriminatory price through 
services or allowances not made available on proportionally equal terms 
to its competitors engaged in the resale of a seller's product. 
Liability for knowingly receiving such a discrimination may result 
whether the discrimination takes place directly through payments or 
services, or indirectly through deductions from purchase invoices or 
other similar means.

    Example 1: A customer should not induce or receive advertising 
allowances for special promotion of the seller's product in connection 
with the customer's anniversary sale or new store opening when the 
customer knows or should know that such allowances, or suitable 
alternatives, are not available on proportionally equal terms to all 
other customers competing with it in the distribution of the seller's 
product.
    Example 2: Frequently the employees of sellers or third parties, 
such as brokers, perform in-store services for their grocery retailer 
customers, such as stocking of shelves, building of displays and 
checking or rotating inventory, etc. A customer operating a retail 
grocery business should not induce or receive such services when the 
customer knows or should know that such services (or usable and suitable 
alternative services) are not available on proportionally equal terms to 
all other customers competing with it in the distribution of the 
seller's product.
    Example 3: Where a customer has entered into a contract, 
understanding, or arrangement for the purchase of advertising with a 
newspaper or other advertising medium that provides for a deferred 
rebate or other reduction in the price of the advertising, the customer 
should advise any seller from whom reimbursement for the advertising is 
claimed that the claimed rate of reimbursement is subject to a deferred 
rebate or other reduction in price. In the event that any rebate or

[[Page 168]]

adjustment in the price is received, the customer should refund to the 
seller the amount of any excess payment or allowance.
    Example 4: A customer should not induce or receive an allowance in 
excess of that offered in the seller's advertising plan by billing the 
seller at ``vendor rates'' or for any other amount in excess of that 
authorized in the seller's promotional program.

    (b) Third party liability: Third parties, such as advertising media, 
may violate section 5 of the Federal Trade Commission Act through double 
or fictitious rates or billing. An advertising medium, such as a 
newspaper, broadcast station, or printer of catalogues, that publishes a 
rate schedule containing fictitious rates (or rates that are not 
reasonably expected to be applicable to a representative number of 
advertisers), may violate section 5 if the customer uses such deceptive 
schedule or invoice for a claim for an advertising allowance, payment or 
credit greater than that to which it would be entitled under the 
seller's promotional offering. Similarly, an advertising medium that 
furnishes a customer with an invoice that does not reflect the 
customer's actual net advertising cost may violate section 5 if the 
customer uses the invoice to obtain larger payments than it is entitled 
to receive.

    Example 1: A newspaper has a ``national'' rate and a lower ``local'' 
rate. A retailer places an advertisement with the newspaper at the local 
rate for a seller's product for which the retailer will seek 
reimbursement under the seller's cooperative advertising plan. The 
newspaper should not send the retailer two bills, one at the national 
rate and another at the local rate actually charged.
    Example 2: A newspaper has several published rates. A large retailer 
has in the past earned the lowest rate available. The newspaper should 
not submit invoices to the retailer showing a high rate by agreement 
between them unless the invoice discloses that the retailer may receive 
a rebate and states the amount (or approximate amount) of the rebate, if 
known, and if not known, the amount of rebate the retailer could 
reasonably anticipate.
    Example 3: A radio station has a flat rate for spot announcements, 
subject to volume discounts. A retailer buys enough spots to qualify for 
the discounts. The station should not submit an invoice to the retailer 
that does not show either the actual net cost or the discount rate.
    Example 4: An advertising agent buys a large volume of newspaper 
advertising space at a low, unpublished negotiated rate. Retailers then 
buy the space from the agent at a rate lower than they could buy this 
space directly from the newspaper. The agent should not furnish the 
retailers invoices showing a rate higher than the retailers actually 
paid for the space.