District court first to allow price discrimination claim based on package size

February 13, 2015

Antitrust Alert

Author(s): John R. Foote, David A. Martland

For the first time, a federal district court has recognized the viability of a discrimination claim under the Robinson-Patman Act based on offering different package sizes to different customers.  Relying in part on the FTC’s recently revised Fred Meyer Guidelines, the court declined to dismiss a claim against Clorox by a regional grocery store chain based on Clorox’s refusal to offer that chain the same large size packages of its products that it sells to big box stores.

On February 2, 2015, a Federal District Court broke new ground by becoming the first court to allow a claim under sections 2(d) and 2(e) of the Robinson-Patman Act for discriminating between customers with respect to package size. [1] The court denied a motion by Clorox to dismiss a complaint against it filed by Woodman’s Food Market, a regional chain of 15 grocery stores, alleging that Clorox violated sections 2(d) and 2(e) by refusing to sell Woodman’s the same large packs of products that Clorox sold to certain “big box” stores. [2]

Woodman’s had for many years purchased from Clorox a number of large pack products – i.e., large containers or packages of a product that are offered to customers at a cost savings per unit compared to when the same product is sold in smaller containers or packages. However, in fall 2014 Clorox announced that Woodman’s would be placed in a different distribution channel than Sam’s Club and Costco and, as a result, would no longer be able to purchase large packs of Clorox products with one exception—a 20-pound double pack of charcoal. Although Woodman’s could still purchase all of the same Clorox products in smaller packages, those smaller packages would not have the lower per unit price of the large packs. Concerned that its inability to purchase large packs with the lower per unit pricing would result in the loss of business to Sam’s Club and Costco, Woodman’s sued Clorox.

Although Woodman’s sued Clorox under both sections 2(d) and 2(e), in opposing the motion it focused only on section 2(e). That section prohibits discrimination in the furnishing of services or facilities in connection with the processing, handling, sale or offering for sale of a commodity purchased for resale. In essence, a seller is prohibited from furnishing services to promote the resale of its products unless those services are offered to all customers on proportionally equal terms. Thus, the crux of the parties’ dispute was whether the large packs that Clorox offered only to the big box stores constituted a promotional service within the meaning of section 2(e).

The court noted that no federal court had ever addressed whether special package size could constitute a service within the meaning of section 2(e). However, two old administrative decisions in FTC cases had considered this issue. In one, the FTC found that, because small size cosmetic products were more convenient to carry and promoted freshness, the special packaging size facilitated resale and thus constituted a promotional service within the meaning of section 2(e). In the Matter of Luxor, Ltd., 31 F.T.C. 658 (1940). In the other, the hearing examiner found that offering an institutional size package of coffee to only some customers violated section 2(e). In the Matter of General Foods Corp., 52 F.T.C. 798 (1956).

The court also observed that, subsequent to these administrative decisions, the FTC had in 1969 published guidelines to assist businesses in complying with sections 2(d) and 2(e) (commonly referred to as the Fred Meyer Guidelines), and had revised those guidelines in 1990 and again recently in fall 2014. In each version, those guidelines had contained a non-exhaustive list of activities that the FTC considered to be promotional services under sections 2(d) and 2(e), which expressly included “special packaging, or package sizes.” See 16 C.F.R. §240.7. The court further noted that, when the guidelines were revised in 2014, the FTC had rejected the suggestion made by the Antitrust Section of the ABA to delete “special packaging, or package sizes” from the list of promotional services.

The court concluded that the FTC’s decisions in Luxor and General Foods were directly on point and that the FTC had recently made it clear in its guidelines that suppliers cannot use special packaging or package sizes to benefit only certain customers. As a result, it found that Woodman’s allegations against Clorox were sufficient to state a claim under section 2(e) of the Robinson-Patman Act.

While the decision in the Woodman’s case is only in the context of denying a motion to dismiss and thus is not yet final and subject to appeal, when coupled with the revised Fred Meyer Guidelines, it increases the risk for suppliers that offer special package sizes to their larger customers but refuse to make those same package sizes, or packaging that is proportionally equivalent, available to all of their customers. Thus, before discriminating among customers with respect to special packaging or package sizes, suppliers should consult experienced antitrust counsel in order to avoid legal problems with their customers or the FTC.

  1. Sections 2(d) and 2(e) of the Robinson-Patman Act, 15 U.S.C. §13 (“RPA”) prohibit discrimination by suppliers in the provision of advertising allowances and other promotional payments and services to their customers. [Back to reference]
  2. See Woodman’s Food Market, Inc. v. The Clorox Co. and The Clorox Sales Co., 2105 U.S. Dist. LEXIS 11656 (W.D. WI, February 2, 2015). [Back to reference]

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