Seventh Circuit Rules that Offering Different Product Package Sizes Does Not Constitute Unlawful Price Discrimination

pricing discrimination

On August 12, 2016, the Seventh Circuit ruled that a manufacturer’s decision to sell large package products to some retailers but not others does not constitute price discrimination under Section 13(e) of the Robinson-Patman Act.  Woodman’s Food Market, Inc. v. Clorox Co. and Clorox Sales Co. (7th Cir. Aug. 12, 2016) (opinion available here). The decision harmonizes Seventh Circuit law with that of other circuits and clarifies that manufacturers do not violate the promotional services or facilities requirements of the Act when they offer bulk products to some but not all purchasers.

Woodman’s Food Market is a small grocery store chain in Wisconsin and Illinois.  Clorox manufactures a number of consumer products, including salad dressing, plastic food-storage bags, and cat litter.  In 2014, Clorox announced that it would sell “large packs” of these products only to wholesale discount clubs, and not to small chains or stores, including Woodman’s.

Woodman’s brought suit for price discrimination under the Robinson-Patman Act, 15 U.S.C. § 13.  Section 13(a) of the Robinson-Patman Act prohibits discrimination in actual prices where the effect may be substantially to lessen competition or tend to create a monopoly in a line of commerce.  Woodman’s did not press a Section 13(a) claim, but instead focused on Section 13(e), which prohibits price discrimination concealed as promotional “services or facilities,” whether or not it interferes with competition, unless the payments or services are available on proportionally equal terms to all buyers.

In holding that Woodman’s claim should have been dismissed, the Seventh Circuit first addressed Woodman’s argument that Clorox was essentially offering an unlawful quantity discount.  To the extent Clorox’s bulk packaging policy could be viewed as a quantity discount, the court held, it must be analyzed under Section 13(a), not 13(e) – and Woodman’s had abandoned a Section 13(a) claim.

The court then rejected Woodman’s argument that the convenience of larger packs is a “service” or “facility” under Section 13(e), because that section only reaches services or facilities connected with promoting the product, rather than any attribute of the product that makes it more desirable to consumers.  The court noted that every other circuit to have considered the question had reached a similar conclusion, and that the Federal Trade Commission had repudiated its contrary statements in administrative actions from the 1940s and 1950s.

In the Seventh Circuit’s view, the Commission’s current position is a logical one: “if the convenience of a large pack were a promotional ‘service or facility’ simply because the size made it more attractive to customers, then nearly all product attributes would be ‘services or facilities’ covered by subsection 13(e) . . . . If any product attribute that made the product more desirable automatically became a promotional ‘service or facility’ by virtue of that fact, then subsection 13(e) would cover all products.”  That result would undermine the balance struck by Congress between subsection 13(a)’s broad prohibition (which is limited by the need to show harm to competition) and subsection 13(e)’s narrow but categorical prohibition, and would wipe out the seller’s discretion to choose which products to sell to whom.

The above considerations, the Seventh Circuit noted, are not to say that it would be impossible under different facts to imagine package size or design as part of a “service or facility” when combined with other promotional content – for example, football-shaped packages offered just before the Superbowl, or Halloween-branded “fun-size” individually-wrapped candies around the time of Halloween.  Those examples “could fall within subsection 13(e), but they are not before us today,” the court stated.