Court Opinion

ID: 9853213
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:44:32.057365+00
Date Added: 2024-06-11T09:22:42.897010
License: Public Domain

JORDAN, Circuit Judge,
dissenting.
To prove its case under the Robinson-Patman Act, Feesers has tried to show that it is in actual competition with Sodex-*217ho. Feesers has argued at length about customers switching from self-operation to outsourcing and back again. Those arguments, however, start with the premise that Feesers and Sodexho sell the same products. The evidence is to the contrary, and, in my view, Feesers has failed to raise a genuine issue of material fact on this crucial point. Because summary judgment for Michael Foods and Sodexho is proper on that basis alone, I respectfully dissent.
I
The undisputed evidence in this case demonstrates that Sodexho’s business is of a very different character than Feesers’s. Feesers buys unprepared food from suppliers, such as Michael Foods, and resells that unprepared food to its institutional clients. Feesers’s involvement ends there. Its clients then take the unprepared foods and prepare meals for their individual customers. Sodexho, on the other hand, is a food management company that contracts with institutions to manage food service operations. Its institutional clients do not themselves provide food service. Instead, Sodexho buys the unprepared food, prepares meals, and sells the prepared meals to individual customers. Unlike Feesers, Sodexho does not sell unprepared food.12
Feesers inaccurately claims the contrary is true. Relying on a contortion of terms in Sodexho’s contracts with some of its institutional clients, Feesers says that So-dexho does distribute unprepared foods. More specifically, because Sodexho is sometimes reimbursed by its customers for certain operating expenses, including the cost of food, Feesers contends that Sodexho is selling unprepared food products to its clients. The District Court agreed, stating that Sodexho sells food to its institutional clients, because “[t]he So-dexho proposals and contracts that Fees-ers has provided as evidence establish that Sodexho, at least in some cases, accounts for food costs as a separate line item within operating costs when billing accounts.” Feesers’s argument and the District Court’s conclusion, which, I regret, my colleagues in the majority have accepted, confuses cost accounting with actual business transactions. There is a world of difference between the two. Cf. Creque v. Texaco Antilles Ltd., 409 F.3d 150, 154 (3d Cir.2005) (holding that a conveyance of property was not actually a sale despite the use of accounting formalities, because “we must look beyond formalities and accounting entries to the true nature of the conveyance”).
Sodexho and its clients agree to allocate costs and profits in various ways. For some of its clients, Sodexho operates the food service and assumes all responsibility for either making a profit or losing money. (Appx. at A1545, 12:5-8.) If sales are less than costs for those accounts, Sodexho bears the loss. (Id. at A1545, 12:9-11.) For other clients, Sodexho is reimbursed for operating costs and charges a management fee, with the remaining profit or loss either going to the client or being shared between the client and Sodexho. (Id. at A1546-48, 13:10-15:21.) In those cases, Sodexho invoices the client for specified operating expenses, including software, in*218formation systems, decorations, delivery services, unprepared food stuffs, and salaries for Sodexho employees. {Id. at A2160-61, A2177-78, A2195-96, A2215-16, A2233-34; see also id. at A1256-66.)
Sodexho’s receiving reimbursement of such expenses according to these contracts is nothing more than an accounting method that allows Sodexho and its clients to allocate potential profits or losses. The accounting method does not mean that So-dexho is in the business of selling unprepared food, any more than it means Sodex-ho is a seller of computer software, or of accounting services, or decorations, or any other specifically listed operating expenses. If Microsoft tried to claim Sodex-ho was competing with it for software sales, it would be only marginally more of a stretch than Feesers’s claim. There is no evidence supporting the notion that any Sodexho client calls and asks for a hundred bags of frozen potatoes, as they might when calling Feesers. They call Sodexho when they want prepared french fries and other ready-to-eat food for their customers. The cost accounting provisions in the Sodexho contracts simply do not support the conclusion that Sodexho sells unprepared food products in competition with Feesers.13
We are left, then, with the following facts. Feesers buys and resells unprepared food. Sodexho buys unprepared food, prepares meals, and then sells the prepared meals. The precise legal issue presented is whether those facts raise a genuine issue as to “actual competition” between Feesers and Sodexho, as that requirement is properly understood under the Robinson-Patman Act. As discussed below, I do not believe they do.
II
Some historical perspective is in order. The Robinson-Patman Act has been called the “Wrong Way Corrigan” of antitrust, because it “often operates to harm consumers for the benefit of weaker or less efficient dealers. It moves antitrust policy in precisely the wrong direction.” Herbert Hovenkamp, The Antitrust Enterprise 192 (2005). That this case is now moving forward for trial highlights both the misguided policy behind the Robinson-Patman Act and the blunt mechanisms used to enforce it. Summing up the virtually uniform disdain which antitrust experts have long had for the Act, Judge Robert Bork wrote almost thirty years ago that “[although [the Act] does not prevent much price discrimination, at least it has stifled a great deal of competition.” Robert H. Bork, The Antitrust Paradox 382 (1978). This case demonstrates the Act’s exceedingly counter-productive character.
First of all, as a theoretical matter, there is no reason to presume that price discrimination poses a threat to competition. Price discounts are generally good for consumers. The theory behind the Act is that one competitor may use a price *219difference to drive its (presumably smaller and weaker) competitors out of the market. In the absence of market power, however, such a scheme is highly unlikely to succeed. A manufacturer like Michael Foods generally has no interest in shutting down efficient distribution channels for its products, because it is locked in competition with other food suppliers. Distributors like Feesers that are unhappy with the prices charged by Michael Foods have the option, in a competitive market, to get eggs and potatoes elsewhere. Thus, any real threat to competition requires monopolistic market power and could be dealt with under the Sherman Act, with the accompanying requirement for proof of such power.
That difference in required proof is crucial, and highlights why, even if price discrimination were a real threat to competition, the Robinson-Patman Act is not a good means to stop it. The Morton Salt inference discussed by the majority, Maj. Op. at Sec. Ill, allows plaintiffs to proceed to trial in a Robinson-Patman case without any proof that competition has been or will be harmed. Instead, such plaintiffs rely on the threat of harm to themselves as a proxy for threatened harm to competition. The difficulty is that a competitor will also be harmed by vigorous competition, if that competitor cannot adjust by becoming more efficient. The Act provides- no way of distinguishing between an inefficient competitor and one that is harmed by an actual threat to competition itself.
These logical flaws in the Act have led to considerable academic criticism of it and have recently prompted the Antitrust Modernization Commission, which was created by statute and appointed by the President and the leadership of Congress, to recommend that Congress repeal the Act in its entirety. Antitrust Modernization Commission, Report and Recommendations, April 2007, at iii, 317-26. According to the Commission, the Act is “antithetical to core antitrust principles,” because it “protects competitors over competition and punishes the very price discounting and innovation in distribution methods that the antitrust laws otherwise encourage.” Id. at iii.
Now, I readily acknowledge that these policy concerns cannot override the will of Congress, and I do not suggest that this Court should attempt to repeal the Act by construing it into the oblivion it so richly deserves. But, given the threat that an overly broad reading of the Act poses to desirable competition, this Court certainly should not read the Act to cover factual situations where only a tenuous argument can support its application.
That the Act should be construed relatively narrowly is not a radical approach. On the contrary, the Supreme Court has recently emphasized that the Act should be construed “consistently with broader policies of the antitrust laws.” Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164, 126 S.Ct. 860, 873, 163 L.Ed.2d 663 (2006) (internal quotation marks omitted). Because lower prices are generally good for consumers, applying the Act broadly threatens to dampen desirable price competition, forcing consumers to pay higher prices for goods. To avoid that threat, the Supreme Court has stated that it will “resist interpretation [of the Act] geared more to the protection of existing competitors than to the stimulation of competition.” Id. at 872 (emphasis in original). In particular, an interpretation of the Act that protects individual distributors rather than competition between brands ignores the “primary concern” of the antitrust laws with interbrand, rather than intrabrand, competition. Id.; see also Leegin Creative Leather Prods., Inc. v. PSKS, Inc., — U.S. ---, 127 *220S.Ct. 2705, 2715, 168 L.Ed.2d 623 (2007) (“[T]he primary purpose of the antitrust laws is to protect this type of [interbrand] competition.” (internal citation and quotation marks omitted)). We should be following the Supreme Court’s lead in resisting such an interpretation. Instead, the decision today goes beyond even the protection of competitors to the protection of non-competitors.
The requirement that a claimant show actual competition limits the Act to its proper scope. “Mindful of the purposes of the Act and of the antitrust laws generally,” the Supreme Court has explained that the Act “does not ban all price differences charged to different purchasers of commodities of like grade and quality.” Volvo Trucks, 126 S.Ct. at 870 (internal quotation marks omitted). “[R]ather, the Act proscribes price discrimination only to the extent that it threatens to injure competition.” Id. Therefore, while “a permissible inference of competitive injury may arise from evidence that a favored competitor received a significant price reduction over a substantial period of time,” such an inference only arises if the two purchasers are in “actual competition.” Id.; see also Stelwagon Mfg. Co. v. Tarmac Roofing Sys., Inc., 63 F.3d 1267, 1271 (3d Cir.1995).
The competitive injury inference was first discussed some sixty years ago in the Morton Salt case. 334 U.S. 37, 50-51, 68 S.Ct. 822, 92 L.Ed. 1196 (1948). There, small grocery stores were allegedly harmed by volume discounts on Morton brand salt that were given to large chain grocery stores. Id. at 41, 68 S.Ct. 822. That situation presented the paradigmatic set of facts that Congress was attempting to address with the Robinson-Patman Act. Congress sought to address the perceived evil of large chain stores securing volume discounts not available to small independently-owned stores. Volvo Trucks, 126 S.Ct. at 869 (“Congress responded to the advent of large chain stores ....”); see also Richard A. Posner, The Robinson-Patman Act 25-26 (1976) (calling the Act “the high-water mark of the anti-chain-store movement”). In Morton Salt, the competing stores purchased and resold the same commodity, table salt, to the same group of customers.
Last year, in Volvo Trucks, the Supreme Court declined to apply the Morton Salt inference, because the plaintiff, a Volvo dealer, had failed to show that it actually competed with the other dealers who allegedly received more favorable prices on trucks made by Volvo. 126 S.Ct. at 870-72. In a market that operates by bidding, the plaintiff could not show that it had ever directly competed on a bid with a favored dealer. Id. at 871. The Court compared the situation to the Morton Salt paradigm, stating that “there [was] no discrete ‘favored’ dealer comparable to a chain store or a large independent department store.” Id. Thus, the Act did not prohibit the different prices offered to the Volvo dealers.
Until now, we too have limited the Morton Salt competitive injury inference to cases like Morton Salt. In J.F. Feeser, Inc. v. Serv-A-Portion, Inc., we held that the plaintiffs, including the same Feesers we see here,14 competed with other distributors to buy and resell the same portion-controlled food products. 909 F.2d 1524, 1526-27 (3d Cir.1990). More recently, in Stelwagon Mfg. Co. v. Tarmac Roofing Sys., Inc., we held that the plaintiff, a distributor of roofing products, could be in *221actual competition with a company that, although it was known as a manufacturer, actually purchased the identical roofing products and resold them to the same group of customers as did the plaintiff. 63 F.3d 1267, 1271-72 (3d Cir.1995). In both cases, the “actual competition” arose from the resale of identical products to the same group of customers, just as in Morton Salt.
Similarly, the Court of Appeals for the Second Circuit has stated that “[dietermin-ing the presence or absence of functional competition between purchasers of a commodity is simply a factual process which focuses on whether these purchasers were directly competing for resales among the same group of customers.” George Haug Co. v. Rolls Royce Motor Cars Inc., 148 F.3d 136, 141-42 (2d Cir.1998) (citing FTC v. Fred Meyer, Inc., 390 U.S. 341, 349, 88 S.Ct. 904, 19 L.Ed.2d 1222 (1968)). In the George Haug case, a service station purchased and resold the same Rolls Royce automobile parts as a Rolls Royce dealer that allegedly received more favorable prices from the manufacturer. Id. at 141. Such direct competition for the resale of the same product to the same customers qualifies as “actual competition” under the Act.
In this case, Feesers has succeeded in removing the concept of “actual competition” from its foundations in Morton Salt. The undisputed facts show that Sodexho and Feesers do not sell the same products, not even some of the time. Feesers sells unprepared foodstuffs, while Sodexho prepares and sells meals. Sodexho does not provide unprepared food in addition to other services; it operates strictly in the separate market for prepared meals. The fact that clients may choose to switch between the market for unprepared food stuffs and the market for prepared meals does not make the markets the same and is, therefore, beside the point. To conclude that Feesers and Sodexho are in actual competition to sell to the same market, we would also have to conclude that grocery stores are in actual competition with restaurants because both types of businesses sell food. Even if, in the abstract, that could be called competition, the situation is far removed from the one in Morton Salt and should not be held to satisfy the requirement for “actual competition” under the Act. By sending this case back for trial, we wrongly give credence to a theory of “actual competition” so broad as to effectively read the requirement out of the Act.
Because the facts here fail to show actual competition, as required for Feesers to prove its case, I would affirm the grant of summary judgment for the defendants, and I therefore dissent.

. I agree with the majority, Maj. Op. at note 4, that we should not consider the activities of Entegra Procurement Services, LLC. While it is a wholly-owned subsidiary of Sodexho, Entegra is a separate legal entity. Feesers has not presented a sufficient basis for piercing the corporate veil and holding Sodexho liable for Entegra's actions. That leaves the question of whether Michael Foods could be liable for discriminating in favor of Entegra rather than Sodexho. However, Feesers has not made out a prima facie case of price discrimination based on sales made to Enteg-ra, because Feesers has failed to present any evidence of such sales.

. Likewise, Sodexho’s promotional materials, which tout its ability to negotiate low acquisition prices for unprepared foods, do not demonstrate that it sells unprepared food to its clients. Those materials do not change the fact that Sodexho buys unprepared food and, instead of reselling it, uses it in a business that changes it into a different product, namely prepared meals. That Sodexho is able to operate at lower cost is important to its institutional clients not because those clients have any interest in repurchasing unprepared food. They do not, since they are not self-operating cafeterias. It is important because lower operating costs translate into more profit to be shared by Sodexho and the clients. Thus, the majority opinion is, I believe, mistaken to rely on those promotional materials as showing that Sodexho is in the business of reselling the unprepared food stuffs it acquires from Michael Foods.

. By the time the J.F. Feeser case reached this Court, J.F. Feeser, Inc. had been renamed Feesers, Inc. 909 F.2d at 1526.