Antitrust Law Daily Wrap Up, ANTITRUST—7th Cir.: Clorox’s sale of largest packages to discount warehouses was not unlawful price discrimination, (Aug 15, 2016)

By E. Darius Sturmer, J.D.

Consumer products manufacturer Clorox did not engage in price discrimination in violation of federal antitrust law by deciding to sell the largest-sized containers of its products only to discount warehouses such as Costco and Sam’s Club, rather than to what it deemed ordinary retailers, the U.S. Court of Appeals in Chicago has held. Because Clorox’s largest packages did not constitute “promotional services or facilities” covered by Sec. 13(e) the Robinson-Patman Act, the court stated, Clorox’s refusal to sell them to some customers did not violate that statute. A federal district court’s refusal to dismiss claims brought by Midwestern grocery chain Woodman’s Food Market, Inc., was therefore reversed and remanded (Woodman’s Food Market, Inc. v. Clorox Company, August 12, 2016, Wood, D.).

Woodman’s, an employee-owned corporation that operates 15 retail grocery stores in Wisconsin and Illinois, had been a customer of Clorox for many years. Clorox produces and sells a wide range of consumer goods, including salad dressing, food storage bags, personal care products, cleaning supplies, cat litter, and charcoal. For a time, it sold large packs of some of these products to many grocery stores, including Woodman’s. The large packs tend to have a lower unit price than smaller versions of the same product. In September 2014, however, Clorox announced that Woodman’s would thereafter be reclassified as a general market retailer and placed in a different channel than Costco and Sam’s Club., leaving it unable to purchase the large packs of those products and to compete with the discount clubs. Woodman’s filed suit the next month.

In February 2015, the federal district court in Madison, Wisconsin, concluded that Clorox’s large-packs could be considered a promotional service, in that they amounted to special packaging that helped Clorox’s retail customers resell those products to the general public. The lower court noted that the FTC had, in prior decisions and its revised guidelines, recognized “special packaging or package sizes” as promotional services under the Act.

Package size as “promotional service.” The appellate court disagreed with Woodman’s portrayal of the large packs as “services or facilities” covered by subsection 13(e) of the Act on the basis of unit discounts and convenience to shoppers.

First, the higher court explained, to the extent that Clorox’s bulk packaging was viewed as a quantity discount, it had to be analyzed under subsection 13(a) of the Act, a straightforward price discrimination argument that Woodman’s had previously abandoned, rather than subsection 13(e). Subsection 13(e) “target[ed] only a narrow band of conduct that Congress [had] identified as a problem: the provision of advertiser-related perks to purchasers as a way around subsection 13(a)’s prohibition on price discrimination.”

Second, Woodman’s argument that the convenience of large packs was a “service or facility” failed because the history of the Robinson-Patman Act and the reasoning of the FTC and prior judicial opinions “demonstrate[d] that only promotional “services or facilities” fell within the subsection 13(e). Package size alone was not a promotional “service or facility,” the appellate court concluded. Every other circuit to consider the issue, the court observed, referred only to the terms “services or facilities” in subsection 13(e) in the context of advertising services--of “promoting the product, rather than sweeping in any attribute of the product that [made] it more desirable to consumers.”

The appellate court noted that FTC itself had confirmed in an amicus brief that it now viewed subsection 13(e) of the Act as pertaining only to promotional services or facilities and did not consider package size alone to be a promotional service or facility. A pair of Commission decisions relied on by Woodman’s in support of its position were inapposite, the appellate court added, because the agency had expressly repudiated them, in light of intervening Supreme Court decisions and developments in antitrust policy.

The case is No. 15-3001.

Attorneys: John Alan Kassner, III (Von Briesen & Roper, SC) for Woodman’s Food Market, Inc. Joshua H. Soven (Gibson, Dunn & Crutcher, LLP) for Clorox Co. and Clorox Sales Co.

Companies: Woodman’s Food Market, Inc.; Clorox Co.; Clorox Sales Co.

Cases: Antitrust IllinoisNews IndianaNews WisconsinNews