Seventh Circuit Reverses Promotional Service Decision Under the Robinson-Patman Act

On August 12, 2016, the Seventh Circuit decided Woodman’s Food Market, Inc. v. Clorox Co., No. 15-3001, and held that Clorox’s refusal to sell bulk-sized packages of certain products to some retailers, like Woodman’s, when it sold bulk-sized items to “big box” retailers, like Costco and Sam’s Club, was not a violation of the Robinson-Patman Act’s prohibition on the disproportionate provision of promotional services under 15 U.S.C. § 13(e).

The Court held that size alone is not enough to constitute a promotional “service or facility,” though it did leave open the possibility that, under different facts, package size or design could constitute a “service or facility” when combined with other promotional content.

This decision provides some clarity for manufacturers (particularly in light of the district court’s interpretation of the Robinson-Patman Act), but businesses who offer different packaging sizes or other types of specialized packaging to different channels or to different resellers should still consider the potential risk for Robinson-Patman claims in light of Woodman’s.

This case began in 2014 when Woodman’s brought suit against Clorox in the U.S. District Court for the Western District of Wisconsin, alleging that Clorox had informed Woodman’s that it was changing its marketing strategy by placing the grocer into a different “channel” than Costco and Sam’s Club, and creating the “right assortment” of sizes and brands for different retailers based on their shoppers. Previously Woodman’s had been able to purchase large packages of Glad bags, cleaning products, and kitty litter at the same discounted rates offered to Sam’s Club and Costco. Clorox’s new strategy would prevent Woodman’s from purchasing those bulk packs.

The crux of the dispute on appeal hinged on whether the large (and likely cheaper-per-unit) bulk packages offered only to the “big box” stores could be considered a promotional “service or facility” under the Robinson-Patman Act. If so, the Act would require Clorox to make the bulk packages available on proportionally equal terms to all competing sellers.

Woodman’s made two arguments on appeal to prove that Clorox’s provision of larger packs were promotional “services or facilities”: (1) larger package sizes have a corresponding per unit discounted price; and (2) shoppers find a larger bulk product more convenient to purchase.

The Seventh Circuit disagreed on both fronts. As to Woodman’s first argument, the Court held that, to the extent that Clorox’s bulk packaging is viewed as a quantity discount due to the cheaper per unit price, the discount must be viewed as a straightforward price-discrimination claim under subsection 13(a), not a promotional-services claim under 13(e). As to Woodman’s second argument, the Court concluded that the convenience of large packs to consumers did not transform large packs into promotional “services or facilities” because 13(e) applies only to “those services or facilities connected with promoting the product.”

Despite finding that size alone is not enough to constitute a promotional “service or facility,” the Court did not exclude the possibility that, under different facts, package size or design could constitute a “service or facility” when combined with other promotional content. It distinguished, for example, football-shaped packages offered just before the Super Bowl or Halloween-branded “fun-size” individually wrapped candies.

Woodman’s leaves the door open, in our view, for future challenges under the Act where different-sized packages are offered as part of a promotion to assist in a product’s resale.