Does Size Matter Under Price Discrimination Laws? Seventh Circuit Says “Not Always”

Published by James Egle on

Late last week, the Seventh Circuit Court of Appeals rejected Woodman’s Food Markets’ claim that Clorox Company violated federal price discrimination laws when it ceased selling “large packs” of certain products to Woodman’s, while continuing to sell such large packs to discount warehouses such as Costco and Sam’s Club.   A three-judge panel of the Seventh Circuit reversed a ruling of the U.S. District Court for the Western District of Wisconsin that had denied the motion of Clorox Company and Clorox Sales Company (“Clorox”) to dismiss the lawsuit for failure to state a claim.

In its complaint, Woodman’s had sought injunctive relief only.   It initially alleged that Clorox had violated prohibitions against price discrimination under the Robinson-Patman Act, 15 U.S.C. §§ 13(a), (d) and (e), when Clorox ceased to sell “large packs” such as 40-ounce salad dressing bottles, 460-count plastic food storage bags and 42-pound cat litter containers to Woodman’s.  Large packs often have a lower unit price than smaller packages, and enable consumers to shop less often for frequently used products.

The Seventh Circuit’s reversal was based on a close review of the elements of claims based on those subsections of the Robinson-Patman Act.  The court noted that “[s]ubsection 13(a) prohibits price discrimination where the effect of that discrimination “may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person” who itself or whose customers benefit from the discrimination.”  During the court of the litigation, Woodman’s abandoned its claim under subsection 13(a).

Subsections 13(d) and (e) address price discrimination that is concealed as promotional “services or facilities” and prohibit providing such services or facilities unless the payments or actual services are available on proportionally equal terms to all. Subsection 13(d) covers payments for “services or facilities” from the seller; subsection 13(e) addresses the direct provision of services or facilities by the seller. Notably, the prohibitions in these subsections apply regardless of whether or not such “services or facilities” interfere with competition.  The District Court had ruled that only subsection 13(e) applied to Woodman’s claim, and on appeal Woodman’s relied exclusively on that subsection.   Woodman’s contended that both (a) the unit discount that goes along with a larger package size, and (b) the convenience of large packs, established a “service or facility” under subsection 13(e).

As to the unit discount argument, the Seventh Circuit held all unit discount claims must be brought under subsection 13(a), not subsection 13(e).  The court noted that subsections 13(d) and (e) exclude claims that could be brought under subsection 13(a); if that were not the case, “the requirement of a substantial lessening of competition in subsection 13(a) could be avoided in every case that also fits the criteria of subsections 13(d) and (e).”  Of course, Woodman’s had abandoned its subsection 13(a) claim.

In dismissing the argument as to convenience of large packs, the Seventh Circuit held that only “promotional” services of facilities are covered by subsection 13(e).  Woodman’s had cited two Federal Trade Commission decisions from 1940 and 1956 in support of its argument. The FTC, however, itself filed an amicus brief in the Woodman’s case, stating that in the FTC’s view, subsections 13(d) and (e) apply only to promotional services or facilities.  The court also deemed a statement found in a 1971 Seventh Circuit ruling that services or facilities for purposes of subsection 13(e) “are not confined solely to promotional matters” to be  an “unnecessary aside” and based on an FTC interpretation that the FTC has since disclaimed.  Held the court:  “Size alone is not enough to constitute a promotion service or facility under subsection 13(e); any discount that goes alone with size must be analyzed under subsection 13(a); and the convenience of a larger size is not a promotional service or facility.”  The court noted that the size of packaging could be considered a “promotional service or facility” in some circumstances, such as “fun-sized” individually wrapped candy at Halloween or football-shaped packages marketed in conjunction with the Super Bowl. 

Filed Under: price discrimination, Seventh Circuit, appeals

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