FTC clarifies position on discrimination claims based on package size

December 17, 2015

Antitrust Alert

Author(s): John R. Foote

The FTC recently filed an amicus brief in an appeal of the first Federal District Court decision to allow a claim under section 2(e) of the Robinson-Patman Act for discriminating between customers with respect to package size.[1] The district court had denied a motion to dismiss a complaint filed against Clorox by Woodman’s Food Market, a regional chain of 15 grocery stores, alleging that Clorox violated section 2(e) by refusing to sell Woodman’s the same large packs of products that Clorox sold to certain “big box” stores.[2]

In its amicus brief, the FTC disputes the correctness of the court’s decision and clarifies its position regarding discrimination based on special packaging or package sizes. The FTC argues unequivocally that not all discriminations in special packaging or package size violate section 2(e). Rather, to trigger section 2(e), a seller must offer a special package size primarily to convey a promotional message, not simply to meet demand from retailers or consumers for desirable product attributes or a lower per unit price. As the FTC concludes, “[p]roperly understood, Section 2(e) does not generally require manufacturers to sell the same package sizes to all buyers who demand them; instead, it prohibits discrimination only in genuinely promotional services or facilities distinct from the product itself. The FTC explains that this narrow reading of Section 2(e) is justified by the fact that, unlike Section 2(a), which prohibits price discrimination only if it injures competition, Section 2(e) requires no evidence of competitive injury for a violation.

The FTC criticizes two old administrative decisions on which the district court had relied because they had found a violation based on the reasoning that different sized packaging could by itself stimulate public demand, and a retailer who was denied certain package sizes might lose sales and customers.[3] In the FTC’s view, those cases were wrongly decided and are no longer good law because Section 2(e) requires a plaintiff to demonstrate that the seller provided a promotional service distinct from the product itself. In reaching this conclusion, the FTC notes that, since “bedrock antitrust principles” make it clear that manufacturers ordinarily may choose the retailers to whom they sell specific products, Section 2(e) does not prevent a manufacturer from selling certain product lines to only a subset of its customers, or from providing some customers with a more desirable product mix than other customers.

The FTC also addresses the district court’s reliance on the fact that the FTC’s Fred Meyer Guides have always listed “special packaging or package sizes” among the examples of promotional services that could be the subject of a violation, despite suggestions that this example should be deleted.[4] The FTC notes that, in issuing the latest version of the Fred Meyer Guides in 2014, the FTC underscored that special packaging or package sizes are covered by Sections 2(d) and 2(e) “only insofar as they primarily promote a product’s resale.” According to the FTC, this means that special packaging or package sizes must convey a promotional message to consumers rather than merely satisfying market demand for lower unit prices or desirable product attributes like larger quantities.

The FTC’s amicus brief provides three examples of special packaging or package sizes that may meet the requirement of conveying a promotional message to consumers.

  • During the Halloween season, offering to provide multi-packs of individually wrapped candy bars in Halloween-themed packaging, the primary purpose of which would be to promote resale based on the premise that the themed packaging would appeal to consumers during the Halloween season.
  • Offering a promotional service by providing retailers with “sample size” versions of a product to give away to customers, the primary purpose of which would be to advertise the products while relieving retailers of the cost of opening standard size packages and dividing their contents to give away as samples.
  • Offering retailers chocolates in large, football-shaped packages featuring statements like “Super Bowl Size” or “Official Chocolate of the National Football League.

The FTC contrasts these examples with the specially sized packages of which the plaintiff was complaining—e.g., large bags of kitty litter, 120-ounce containers of bleach and big bottles of salad dressing—and concludes that they do not, without more, convey any promotional message. Finally, the FTC concludes that, because the plaintiff’s primary grievance was that these large packages were sold at a lower per unit price than the smaller packages it was offered, the plaintiff’s claim was really one for overt price discrimination under Section 2(a).

While hardly certain, it is likely that the Seventh Circuit Court of Appeals will adopt the FTC’s view and reverse the district court on that basis. If the Seventh Circuit does so, it will probably be safe for manufacturers to rely on the FTC’s interpretation of Section 2(e) rather than the district court opinion in deciding whether they can discriminate based on package size.

  1. Section 2(e) of the Robinson-Patman Act, 15 U.S.C. §13 (“RPA”) prohibits discrimination by suppliers in the provision of 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., 2015 U.S. Dist. LEXIS 11656 (W.D. WI, February 2, 2015).  The District Court subsequently granted Clorox the right to an interlocutory appeal, and the United States Court of Appeals for the Seventh Circuit agreed to hear the appeal.  [Back to reference]
  3. See In the Matter of General Foods Corp., 52 F.T.C. 798 (1956) and In the Matter of Luxor, Ltd., 31 F.T.C. 658 (1940). [Back to reference]
  4. The FTC’s Fred Meyer Guides, originally published in 1969 and last updated in 2014, are an effort by the FTC to assist business in complying with Sections 2(d) and 2(e) of the Robinson-Patman Act. [Back to reference]

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