On August 12, 2016, the U.S. Court of Appeals for the Seventh Circuit issued an opinion in Woodman's Farm Market, Inc. v. The Clorox Co., No. 15-3001 (7th Cir. August 12, 2016), in which it held that a plaintiff cannot state a claim under the Robinson-Patman Act based solely on differences in the size of the package offered for sale. The decision should provide comfort to suppliers that may wish to provide their products in different-sized packages to some but not all of their resellers.

Woodman's, a local grocery chain, claimed that Clorox violated Section 2(e) of the Robinson-Patman Act when it stopped allowing Woodman's to purchase large-sized packaged goods, which Clorox decided to reserve for wholesale discount clubs. The lower court had denied Clorox's motion to dismiss because dated Federal Trade Commission (FTC) administrative decisions suggested that promotional services under Section 2(e) could include package sizes. The Seventh Circuit reversed, finding that Clorox did not violate the price discrimination law when it stopped selling bulk packages of its consumer products to a grocery chain. In an opinion by Judge Diane Wood, the court rejected the older FTC decisions, and agreed with the Commission's amicus brief in the case, which took the position that package size differences, without more, do not violate Section 2(e).

Section 2(e) categorically prohibits any manufacturer from "discriminat[ing] in favor of one purchaser against another purchaser... by furnishing... any services or facilities in connection with the processing, handling, sale or offering for sale" of the product, without making the same terms available for all purchasers. On appeal, the Seventh Circuit addressed whether a large package size should be considered a promotional service.

Woodman's argued that the large packs should be considered a "service or facility" under Section 2(e) for two reasons. Woodman's pointed first to the unit discount that goes along with the larger package size, i.e., that the price per unit is typically lower as package size increases. The court rejected this argument, finding that to the extent that Clorox's bulk packaging is viewed as a quantity discount, it must be analyzed not under Section 2(e), but instead under Section 2(a) of the Robinson-Patman Act as a bulk-purchasing discount.

Section 2(a) prohibits direct or indirect price discrimination that causes competitive injury. Under Section 2(a), offering bulk-purchasing or volume discounts to some buyers and not others could violate 2(a) unless the discount is "functionally available" to all buyers. To be "functionally available," most buyers must have known that the lower price was available and have been able to obtain the lower price. So, a volume discount policy could violate 2(a) even if the discounts are made available to all customers if, for example, smaller customers—like Woodman's—could not afford to qualify for the discounts. Successful 2(a) cases, however, have been quite rare over the past 20 years. Section 2(a), moreover, allows defenses—mainly meeting competition and cost justification—that 2(e) does not.

Woodman's second argument—that the convenience of the large packs is a "service or facility"—also failed. Referring to the logic of the position that the FTC had urged in its amicus brief, the Seventh Circuit reasoned that "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)." Section 2(e) would apply to virtually all products and "would wipe out the seller's discretion to choose which products to sell to whom." Id. (citing United States v. Colgate & Co., 250 U.S. 300 (1919)).

While this decision clearly holds that size alone is not enough for purposes of a Section 2(e) promotional services claim, it explicitly noted—again deferring to the FTC—that it would not be impossible to imagine package size as part of a "service or facility" when combined with other promotional content, such as Halloween-branded fun-size candies near Halloween. Suppliers who are considering offering certain packaging options to some resellers but not others should keep in mind that special packaging with a theme or other promotional element may still be found subject to Section 2(e)'s prohibitions.

For more information on the Seventh Circuit's decision or potential sources of liability under the Robinson-Patman Act, please contact Jonathan Jacobson or any member of the antitrust practice at Wilson Sonsini Goodrich & Rosati.

Lisa Davis and Tiffany Lee contributed to the preparation of this Wilson Sonsini Alert.