Last Friday, the Seventh Circuit Court of Appeals overturned the district court’s decision in Woodman’s Food Market, Inc. v. Clorox Company, holding that Clorox’s refusal to continue selling large pack versions of its products to Woodman’s did not state a claim under Section 2(e) of the Robinson-Patman Act. As a result, consumer goods manufacturers now have a more narrowly-defined risk in selling large packs exclusively through club stores.
A brief recap of the facts: In 2014, Clorox informed Woodman’s that it would no longer be supplying large pack products to Woodman’s. Clorox continued to sell the large packs to club stores like Costco and Sam's Club. Woodman’s sued, and the Western District of Wisconsin decided that Woodman’s alleged, as a matter of law, a violation of Section 2(e) of the Robinson-Patman Act. (For more details, see our prior alert here.)
The district court was the first federal court to consider whether a specially packaged good was a promotional service under Section 2(e). In denying Clorox's motion to dismiss, the court relied on two old FTC decisions and the FTC’s “Fred Meyer Guidelines” to conclude that a specially packaged good that is offered to only some customers was sufficient to state a claim under 2(e). The FTC had revised those guidelines in 2014 and had specifically rejected a suggestion from the ABA Antitrust Section to remove “special packaging” and “package sizes” from the list of promotional services.
Clorox requested and received an interlocutory appeal to the Seventh Circuit on the question of whether the large packs of Clorox products are promotional services meant to promote the resale of the Clorox product, or were completely different products that need not be offered to all retailers.
The FTC filed an amicus brief in which it disavowed its two decades-old decisions relied upon by Woodman’s and the district court in support of the position that a large pack is a “promotional service or facility.” The FTC didn't completely agree with Clorox's position that packaging could never be a “promotional service or facility” but instead reiterated its point from the Fred Meyer Guidelines that packaging could, in limited circumstances, constitute a promotional service if, for example, the packaging conveyed a promotional message.
At oral argument, the panel (Chief Judge Diane Wood, Judge Ilana Diamond Rovner, and Judge Robert Blakey, sitting by designation) focused the parties on the FTC’s comment in the Fred Meyer Guidelines that individually wrapped Halloween candy sold in a multipack in Halloween-themed packaging is “special packaging” that is a “promotional service or facility” covered by section 2(e). Clorox’s counsel distinguished the large packs that Clorox sells from the Halloween candy by pointing out that the Clorox large packs do not have a promotional message on the package—the package is the same as any other Clorox package.
Judge Wood, when discussing this same point with Woodman’s counsel, suggested that labeling a bleach bottle with pictures of Elsa and Anna of Disney's blockbuster Frozen may place the product in the “promotional service or facility” category, but without a promotional aspect, large packs by themselves may not qualify.
Judge Rovner pressed Woodman’s about the cases holding that manufacturers of goods have the right to choose who to sell to. Woodman’s responded that it was its position that 2(e) requires a manufacturer who chooses to sell a particular product to a retailer to sell all of the sizes of that product that are available to that retailer.
The panel suggested a number of times that Woodman’s claims may fit better within 2(a) of the Robinson-Patman Act, which prohibits price discrimination, rather than 2(e). Unlike a 2(e) claim, a 2(a) claim requires a showing of injury to competition. Woodman’s originally made such a claim but later abandoned it.
In an opinion authored by Judge Wood, the Seventh Circuit decided that size does not always matter. Specifically, package size alone is not a promotional service under the Robinson Patman Act. The Court concluded that sections 2(e) and (d) “target only a narrow band of conduct that Congress identified as a problem: the provision of advertising-related perks to purchasers as a way around subsection (a)’s prohibition on price discrimination,” and to the extent that Clorox’s bulk packaging is a discount, it falls within the ambit of 2(a). The Seventh Circuit seemed to agree with the FTC’s position and left open the door for cases in which package attributes do promote the product. For example, the court’s opinion uses the FTC’s example of fun size candy bars sold in Halloween-themed packages in October.
Consumer goods manufacturers are breathing a little easier, as this decision upholds a common distribution practice. Still, the case shows that manufacturers and retailers alike need to keep the requirements of Robinson-Patman in mind as they develop distribution strategies.
Members of the Schiff Hardin Antitrust and Trade Regulation Group stand ready to help clients through Robinson-Patman’s many intricacies.
For more information on Robinson-Patman issues, check out Corporate Counsel’s Guide to the Robinson-Patman Act by Schiff Hardin’s Bill Hannay. For more background on antitrust issues in distribution generally, check out Antitrust in Distribution and Franchising by Schiff Hardin’s Steve Cernak.