On August 12, the Seventh Circuit issued its decision in Woodman’s Food Market v. Clorox Co., an appeal that we have been watching closely.  The Seventh Circuit’s ruling, which held that product package size is not a promotional “service,” is an important clarification of the scope of price discrimination liability under Section 2(e) of the Robinson-Patman Act (RP Act).

In this case, Woodman’s, a retail grocery store with fifteen locations in Wisconsin and Illinois, filed suit after Clorox announced it would only sell large packs of its products (including salad dressing, food storage bags, and cat litter) to wholesale discount clubs such as Costco.  Woodman’s brought claims under Section 2(e) of the RP Act, which prohibits sellers from furnishing “services or facilities” to promote the resale of products unless such services or facilities are offered to all customers on proportionally equal terms.  Woodman’s argued that the size of Clorox’s large packs constituted a promotional “service,” and therefore that Clorox’s refusal to sell large-pack items to Woodman’s constituted unlawful price discrimination.  In February 2015, the Western District of Wisconsin denied Clorox’s motion to dismiss, holding it was an open question whether Clorox’s conduct constituted a violation of Section 2(e).

The Seventh Circuit reversed, holding that product package size alone does not constitute a “service” falling within the purview of Section 2(e).  First, the Court noted that before the district court, Woodman’s had abandoned any claim of straightforward price discrimination under Section 2(a), and instead had opted to pursue only a promotional-service claim under Section 2(e).  This tactical decision was significant because Woodman’s argued on appeal that Clorox’s bulk packaging should be viewed as a quantity discount (since bulk packaging results in lower per-unit price).  However, the Court held, this quantity-discount theory was cognizable only under Section 2(a) and could not be analyzed under Section 2(e), as Woodman’s argued.  In contrast to Woodman’s reading of the statute, the Court held that Section 2(e) only regulates a “narrow band of conduct,” i.e., the “provision of advertising-related perks to purchasers as a way around subsection 13(a)’s prohibition on price discrimination.”

The Court then addressed and rejected Woodman’s argument that the convenience of large-pack items is a “service or facility” under Section 2(e).  While the Court acknowledged large-pack items undoubtedly offer convenience to the consumer (by, for instance, necessitating fewer shopping trips), it was swayed by the FTC’s amicus brief on this point.  As we previously reported, in a brief filed in November, the Federal Trade Commission disavowed two decades-old decisions, In the Matter of Luxor, Ltd. (1940) and In the Matter of General Foods Corp. (1956), which suggested that product size alone could give rise to Section 2(e) liability—and on which Woodman’s had principally relied in this appeal.  The FTC eschewed those decisions as outmoded and obsolete, and took the position that package size alone does not constitute a “service or facility” within the meaning of Section 2(e).

Noting that “respectful consideration” must be paid to the FTC’s “reasoned opinions” on interpretation of the Act, the Court agreed with the Commission’s conclusion.  The Court reasoned that, if product size constituted a “service” simply because the size made the product more attractive to consumers, “then nearly all product attributes would be ‘services or facilities’” within the meaning of the Act.  Such an interpretation of the RP Act, the Court emphasized, would eliminate the seller’s discretion to choose which products to sell to its customers, a right that the Supreme Court clearly articulated in United States v. Colgate & Co., 250 U.S. 300 (1919).

The Court was careful to state that it would not be impossible under different facts to imagine a package size as part of a “service or facility” when combined with other promotional content.  For instance, a manufacturer might violate Section 2(e) by discriminatorily selling “fun-size” individually wrapped candies around Halloween, especially if such a product were accompanied by other promotional content.  However, the Court concluded such facts were not present in the case before it.

As we have noted, Section 2(e) has not previously received much judicial commentary in prior cases.  Thus, Clorox stands as a noteworthy decision on the appropriate interpretation of this provision of the RP Act.