Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Cal.: Wholesalers' price discrimination claims failed against 5-Hour ENERGY® maker for lack of antitrust injury, (May 29, 2025)

By Martin A. Steinberg, J.D.

The wholesaler plaintiffs were unable to demonstrate competitive harm resulting from the manufacturer's higher promotional allowances provided to Costco.

In its amended findings of fact and conclusions of law following a remand from the Ninth Circuit, the federal court in Los Angeles rejected claims by seven California-based wholesalers alleging that Living Essentials, the maker of 5-Hour ENERGY®, violated Section 2(d) of the Robinson-Patman Act (RPA) and California’s Unfair Competition Law (UCL). Although the court found that Living Essentials provided Costco with significantly greater promotional allowances than it gave to the plaintiffs, despite the parties operating at the same functional level and within the same geographic markets, it held that the plaintiffs failed to prove the required element of antitrust injury. Specifically, the wholesalers did not establish that the promotional disparities harmed their ability to compete or caused diversion of sales. As a result, the court denied all requested relief, including injunctive remedies, and dismissed the UCL claim as derivative of the failed antitrust claim (U.S. Wholesale Outlet & Distribution, Inc. v. Living Essentials, No. 2:18-cv-01077-CBM-E (C.D. Cal. May 28, 2025)).

Background. This case concerns claims by U.S. Wholesale Outlet & Distribution, Inc. and six other California-based wholesalers against Living Essentials, LLC and Innovation Ventures, LLC (collectively, “Living Essentials”). The plaintiffs are wholesalers of the product in California. Living Essentials is the product’s exclusive manufacturer and distributor, and uses brokers to sell to both Costco and the plaintiffs. The plaintiffs alleged that Living Essentials violated Section 2(d) of the RPA and California's UCL by providing disproportionate promotional allowances to Costco Wholesale Corporation (Costco) without making such benefits available on proportionally equal terms. Costco operated both regular warehouses and Costco Business Centers (CBCs), which catered to small businesses in the same geographical areas where the plaintiffs operated. CBCs thus competed directly with the plaintiffs.

On August 5, 2021, the district court entered findings of fact and conclusions of law consistent with its adjudication of the plaintiffs’ claims under section 2(d) of the RPA and section 17200 of the UCL and entered judgment consistent with its adjudication of those claims and with the jury’s verdict on the plaintiffs’ section 2(a) RPA claim. The plaintiffs appealed the judgment.

On January 2, 2024, the Ninth Circuit issued its mandate, which affirmed the lower court’s jury instructions regarding reasonably contemporaneous sales and functional discounts. Still, it vacated the court’s adjudication of the section 2(d) claim. It remanded for reconsideration whether Costco and the Wholesalers purchased 5-Hour Energy from Living Essentials within approximately the same period or whether the plaintiffs have otherwise proved their section 2(d) claim. U.S. Wholesale Outlet & Distribution, Inc. v. Innovation Ventures, LLC, 89 F.4th 1126, 1147—48 (9th Cir. 2023). On July 29, 2024, the plaintiffs filed a motion for entry of findings of fact and conclusions of law, as well as a motion for permanent injunction.

Findings of fact. Living Essentials uses independent brokers to sell 5-Hour Energy to Costco. At various times during the relevant period, the brokers involved were Level One Marketing, Advantage Sales & Marketing, and Innovative Club Partners. Living Essentials also uses an independent broker, Paramount Sales Group, to sell 5-Hour Energy to the plaintiffs and other wholesalers in California.

Evidence confirmed that both CBCs and the plaintiffs purchased 5-Hour Energy bottles of like grade and quality within the same periods, satisfying the temporal proximity required under the RPA. The plaintiffs paid $1.45 per bottle (regular) and $1.60 per bottle (extra strength), while Costco paid $1.35 per bottle (regular) and $1.50 per bottle (extra strength). Costco also received over $9.74 million in promotional payments from Living Essentials, with approximately $6.57 million allocated to non-Instant Rebate Coupons (non-IRCs), such as endcaps, advertising, and merchandising. However, the plaintiffs received only $161,000 in similar promotions. Even when accounting for other claimed promotions (approx. $860,000), Costco received a significantly higher per-bottle value in promotional benefits (14.7¢ vs. 9.4¢ max for the plaintiffs).

Functional equivalence: The court reaffirmed the Ninth Circuit’s conclusion that CBCs and the plaintiffs operated at the same functional level and were in geographical proximity, qualifying as competitors under Section 2(d). Under this section, a plaintiff must demonstrate: (1) sales in interstate commerce; (2) like-grade commodities sold; (3) direct competition between favored and disfavored buyers; (4) unequal promotional allowances not made available on proportionally equal terms; and (5) antitrust injury attributable to the challenged practice.

The Supreme Court noted that the RPA does not ban all price differences charged to different purchasers of commodities of like grade and quality; rather, it forbids price discrimination only to the extent that it threatens to injure competition. Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006). The Ninth Circuit identified four requirements for antitrust injury: (1) unlawful conduct, (2) causing an injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and (4) that is of the type the antitrust laws were intended to prevent. Ellis v. Salt River Project Agric. Improvement & Power Dist., 24 F.4th 1262, 1273 (9th Cir. 2022). To show the threat of antitrust injury, the plaintiffs needed to prove that Living Essentials’ conduct threatened the plaintiffs’ ability to compete with Costco for sales of the product by offering evidence that their failure to receive an advertising allowance enabled Costco to lower its prices and divert sales, or that the plaintiffs were required to lower their prices to an unprofitable level in response to such low prices.

While the court found elements (1) through (4) satisfied, the plaintiffs failed to meet the antitrust injury requirement under the fifth element. While the plaintiffs showed promotional disparity, they did not prove actual or threatened harm to their ability to compete. There was no evidence of diverted sales, unprofitably lowered prices, or any competitive harm attributable directly to the non-IRC promotional allowances. The plaintiffs’ expert testimony failed to segregate the impact of IRC-related injuries, which were legally estopped, from non-IRC damages.

The evidence did not establish that the lack of proportionally equal, non-IRC promotions caused or threatened to cause injury to the plaintiffs’ ability to compete with Costco. Furthermore, the plaintiffs have not proved, by a preponderance of the evidence, the threatened antitrust injury necessary to prevail on their Section 2(d) claim. The court pointed out that the plaintiffs were not able to rely on evidence of injury caused by IRC promotions to prove antitrust injury under section 2(d) because they did not challenge on appeal the district court’s holding that they were judicially estopped from seeking an injunction on the ground that the IRCs are promotional services in connection with resale under section 2(d). Therefore, any challenge to this finding was waived, and potential injunctive relief under section 2(d) excluded relief related to IRCs.

Further, the plaintiffs’ evidence that Costco received a sales lift from the non-IRC allowances and that the plaintiffs expected to receive a similar sales lift had Defendant offered them the same promotions did not establish that the sales lift caused or threatened to cause the plaintiffs competitive harm, the evidence did not show that the allowance enabled Costco to lower its prices and divert sales from the plaintiffs, or that they were required to lower their prices to an unprofitable level in response to such low prices.

UCL claims. Because the plaintiffs’ unfair competition claim under the UCL is predicated on the same conduct that caused the plaintiffs’ price discrimination claims under the RPA, and the plaintiffs have not prevailed on their RPA claims, the plaintiffs’ UCL claim similarly failed. To succeed on a UCL claim, the plaintiffs must prove “unfair competition,” which “shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.” Cal. Bus. & Prof. Code § 17200. The law is clear that where the same underlying conduct is alleged to underlie a UCL claim and an RPA claim, the claims will rise and fall together.

Injunctive relief. The Court denied the motion for injunctive relief because the plaintiffs failed on their substantive claims under the RPA and UCL, and there was no evidence to support the issuance of a permanent injunction. Injunctive relief, being an extraordinary remedy, is not automatically granted.

The Case is No. 2:18-cv-01077-CBM-E.

Judge: Marshall, C.

Attorneys: Mark W. Poe (Gaw Poe LLP) for U.S. Wholesale Outlet and Distribution, Inc. Alexander R. Safyan (Michelman & Robinson, LLP) for Living Essentials, LLC.

Companies: U.S. Wholesale Outlet and Distribution, Inc.; Living Essentials, LLC

Cases: Antitrust FranchisingDistribution CaliforniaNews