Court Opinion

ID: 4023985
Source: CourtListenerOpinion
Date Created: 2016-08-12 21:01:01.111979+00
Date Added: 2024-06-11T12:16:11.604872
License: Public Domain

In the

       United States Court of Appeals
                     For the Seventh Circuit
                         ____________________
No. 15-3001
WOODMAN’S FOOD MARKET, INC.,
                                                         Plaintiff-Appellee,

                                       v.

CLOROX COMPANY AND CLOROX SALES COMPANY,
                                 Defendants-Appellants.
                         ____________________

           Appeal from the United States District Court for the
                      Western District of Wisconsin.
         No. 14-cv-734-slc — Stephen L. Crocker, Magistrate Judge.
                         ____________________

   ARGUED FEBRUARY 12, 2016 — DECIDED AUGUST 12, 2016
                         ____________________

   Before WOOD, Chief Judge, ROVNER, Circuit Judge, and
BLAKEY, District Judge. *
   WOOD, Chief Judge. Does size matter? Not always, as this
case illustrates. The dispute before us arose when Clorox de-
cided to sell the largest-sized containers of its products only

   *   Of the Northern District of Illinois, sitting by designation.
2                                                    No. 15-3001

to discount warehouses such as Costco and Sam’s Club. Ordi-
nary grocery stores, including plaintiff Woodman’s Food Mar-
ket, had to content themselves with smaller packages. Taking
the position that package size is a promotional service, Wood-
man’s sued Clorox for unlawful price discrimination under
subsection 2(e) of the Robinson-Patman Act, 15 U.S.C. § 13(e).
The district court denied Clorox’s motion to dismiss for fail-
ure to state a claim. Later it rejected Clorox’s motion to dismiss
the case on mootness grounds. After that, the district court
certified both rulings for interlocutory appeal under 28 U.S.C.
§ 1292(b). We accepted the appeal, and we now reverse.
                                I
    The facts are simple and undisputed. The defendants, The
Clorox Sales Company and The Clorox Company (collectively
“Clorox”) produce and sell a range of consumer goods. The
plaintiff, Woodman’s Food Market, Inc., is a local grocery
store with 15 locations in Wisconsin and Illinois; it purchases
goods from Clorox and sells them to its customers. Clorox
sells some of its products in “large packs,” such as 40-ounce
salad dressing bottles, 460-count plastic food-storage bags,
and 42-pound cat litter containers. The large packs tend to
have a lower unit price than smaller versions of the same
product. They also provide consumers with the convenience
of needing to shop less frequently.
    For a time, Clorox sold large packs to many grocery stores,
including Woodman’s. But in 2014 Clorox announced that ef-
fective October 1 it would sell large packs only to wholesale
discount clubs. Clorox believed that “simplify[ing] its go to
market strategy” would let it “streamline operations” and
maximize sales. What was good for Clorox, however, was not
necessarily good for Woodman’s and its ilk, who were forced
No. 15-3001                                                      3

to offer their customers only the less convenient and more ex-
pensive (measured by unit price) items.
    Woodman’s responded with this lawsuit, in which it al-
leged that Clorox’s refusal to sell it large packs amounts to un-
lawful price discrimination under the Robinson-Patman Act,
15 U.S.C. §§ 13(a), (d), (e). Subsection 13(a) prohibits price dis-
crimination where the effect of that discrimination “may be
substantially to lessen competition or tend to create a monop-
oly in any line of commerce, or to injure, destroy, or prevent
competition with any person” who itself or whose customers
benefit from the discrimination. Any price discrimination that
is concealed as promotional “services or facilities” (provided
directly or reimbursed) is also prohibited, see id. § 13(d), (e),
whether or not it interferes with competition, unless the pay-
ments or the actual services are available on proportionally
equal terms to all. Woodman’s alleges that the size of Clorox’s
large packs is a promotional “service,” and therefore that
Clorox’s refusal to sell large packs to Woodman’s is prohibited
by subsections 13(d) and (e). It seeks only injunctive relief.
     Woodman’s claims were sharpened as the litigation pro-
gressed. First it abandoned its straightforward price-discrim-
ination claim under subsection 13(a). The district court then
ruled that its promotional-service claim arose under subsec-
tion 13(e), which covers the direct provision of services or fa-
cilities, rather than under subsection 13(d), which covers pay-
ments for services or facilities. The difference was immaterial,
the court thought, because the two subsections traditionally
have been analyzed identically. Woodman’s claims, it
thought, fit better under subsection (e). Woodman’s accepted
that interpretation, and so on appeal it relies exclusively on
subsection 13(e).
4                                                     No. 15-3001

    Clorox moved to dismiss Woodman’s complaint for failure
to state a claim, arguing that product size is not a “service” or
“facility” for purposes of subsection 13(e). See FED. R. CIV. P.
12(b)(6). The district court denied the motion, relying on ad-
ministrative materials from the Federal Trade Commission
(FTC, or Commission) and two old FTC decisions—one from
1940 and one from 1956—holding that product size can be a
promotional service under subsections 13(d) and (e). The
court noted that the FTC has never renounced these decisions.
    After the motion to dismiss was denied, Clorox stopped
selling any products to Woodman’s. It then filed a motion to
dismiss Woodman’s complaint as moot; the court construed
this as a motion to dismiss for lack of subject-matter jurisdic-
tion. See FED. R. CIV. P. 12(b)(1). Clorox argued that because
Woodman’s no longer purchased any products from Clorox, it
was no longer a “purchaser” within the meaning of subsec-
tion 13(e). The court, citing FTC v. Fred Meyer, Inc., 390 U.S. 341
(1968), denied the motion because Woodman’s could still pur-
chase Clorox products from other suppliers (and allegedly
was doing so indirectly). The district court then certified its
two orders denying Clorox’s motions to dismiss as appropri-
ate for interlocutory appeal under 28 U.S.C. § 1292(b). Clorox
filed a timely petition to this Court for permission to appeal,
which we granted. (The district court also granted Wood-
man’s motion to amend its complaint to invoke section 1 of
the Sherman Act, 15 U.S.C. § 1, but it stayed further proceed-
ings on that claim pending this appeal).
                                II
    “Interbrand competition … is the ‘primary concern of an-
titrust law.’” Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC,
Inc., 546 U.S. 164, 180 (2006) (quoting Continental T.V., Inc. v.
No. 15-3001                                                    5

GTE Sylvania Inc., 433 U.S. 36, 51–52 n.19 (1997)). “Primary”
concern does not mean “exclusive” concern, however, and so
we find in the antitrust laws some doctrines that address in-
trabrand competition—that is, competition within a single
brand. The Robinson-Patman Act is one such statute. Its fit
with antitrust policy is awkward, as it was principally de-
signed to protect small businesses, but the Supreme Court has
told us that the Act should not be understood as an exception
from the consumer-welfare norm that animates the antitrust
laws. See id. at 180–81; see also Brooke Group Ltd. v. Brown &
Williamson Tobacco Corp., 509 U.S. 209, 221 (1993) (“the Robin-
son-Patman Act should be construed consistently with
broader policies of the antitrust laws” (internal quotation
marks omitted)).
    The Robinson-Patman Act was passed in 1936 as an
amendment to the Clayton Act of 1914. The Clayton Act ini-
tially banned price discrimination—by which it meant the
practice of selling the same product at a different price to dif-
ferent purchasers—when such discrimination harmed com-
petition or was based on a different quantity sold. FTC v. Sim-
plicity Pattern Co., 360 U.S. 55, 68–69 (1959). The Robinson-Pat-
man Act was designed to tighten these rules. Id. First, while it
retained the Clayton Act’s prohibition on differential pricing
when that pricing would “substantially lessen competition,”
it went further, by prohibiting differential pricing based on
quantity except when different price levels were justified by
“differences in the cost of manufacture, sale or delivery result-
ing from the different methods or quantities” purchased. 15
U.S.C. § 13(a).
   Second, the Robinson-Patman Act introduced a per se ban
on one method that manufacturers had used to circumvent
6                                                     No. 15-3001

subsection 13(a): concealing price discrimination as a promo-
tional service provided to the purchaser. Congress found that
manufacturers had been providing valuable services, such as
paying for the purchaser’s advertisements, to preferred pur-
chasers (usually large chain stores) as a way to provide a dis-
count without running afoul of subsection 13(a). Simplicity
Pattern Co., 360 U.S. at 69; Fred Meyer, Inc., 390 U.S. at 351 (not-
ing that purchasers were able to “shift to [the manufacturer]
substantial portions of [their] own advertising cost[s]”). In or-
der to close that perceived loophole, the Robinson-Patman
Act categorically forbids any manufacturer from “discrimi-
nat[ing] in favor of one purchaser against another purchaser
… by … furnishing … any services or facilities connected with
the processing, handling, sale, or offering for sale” of the
product, without making the same terms available to all pur-
chasers. 15 U.S.C. § 13(e). Subsection 13(d) goes hand-in-hand
with subsection 13(e) by forbidding reimbursement for the
same. Moreover, under subsections 13(d) and (e), unlike sub-
section 13(a), a plaintiff need not show that providing these
“services or facilities” “substantially lessen[ed] competition.”
    Woodman’s advances two arguments for why Clorox’s
large packs are “services or facilities” covered by subsection
13(e): first, because of the unit discount that goes along with
the larger package size, and second, because of the conven-
ience to shoppers of purchasing a larger product. We consider
these in turn.
                                 A
     The Supreme Court regularly reminds us that the antitrust
laws protect competition, not competitors. E.g., Atlantic Rich-
field Co. v. USA Petroleum Co., 495 U.S. 328, 338 (1990). We
must therefore interpret subsections 13(d) and (e) in that light.
No. 15-3001                                                         7

The relation between these two subsections and subsection
13(a) also informs our understanding of the latter two subsec-
tions. Subsections 13(d) and (e) exclude claims that could fall
within subsection 13(a). See Kirby v. P.R. Mallory & Co., 489
F.2d 904, 910 (7th Cir. 1973) (rejecting the “theory that
§§ [13(d)] and [13(e)] proscribe acts which are themselves pro-
hibited by § [13(a)]”); Chicago Spring Prods. Co. v. U.S. Steel
Corp., 371 F.2d 428, 429 (7th Cir. 1966). If that were not the
case, the requirement of a substantial lessening of competition
in subsection 13(a) could be avoided in every case that also
fits the criteria of subsections 13(d) and (e). And that require-
ment is essential to the overall operation of the statute: with-
out it, the Act could “give rise to a price uniformity and rigid-
ity in open conflict with the purposes of other antitrust legis-
lation.” Automatic Canteen Co. of Am. v. FTC, 346 U.S. 61, 63
(1953) (with respect to § 13(f), which prohibits a buyer from
inducing or receiving unlawful price discrimination). Subsec-
tions 13(d) and (e) target only a narrow band of conduct that
Congress identified as a problem: the provision of advertis-
ing-related perks to purchasers as a way around subsection
13(a)’s prohibition on price discrimination.
   To the extent that Clorox’s bulk packaging is viewed as a
quantity discount, it must be analyzed under subsection 13(a),
not 13(e) as Woodman’s urges. See Centex-Winston Corp. v. Ed-
ward Hines Lumber Co., 447 F.2d 585, 588 n.5 (7th Cir. 1971). As
we explained in Centex-Winston “[i]t would be incongruous to
hold such price differentials also to be within [subsection
13(e)] for ‘Congress intended to strike down freight discrimi-
nations which are an element of ‘price’ only when those dis-
criminations have an adverse effect on competition … as pro-
vided for in [subsection 13(a)].’” Id. (quoting Chicago Spring
Prods. Co. v. U.S. Steel Corp., 254 F. Supp. 83, 85 (N.D. Ill. 1966)).
8                                                     No. 15-3001

And while the Supreme Court has not said this in so many
words, it has analyzed claims relating to bulk-purchasing dis-
counts only under subsection 13(a), not under 13(d) or (e).
See, e.g., Brooke Grp. Ltd., 509 U.S. at 216–17 (1993); United
States v. Borden Co., 370 U.S. 460, 463 (1962); FTC v. Morton Salt
Co., 334 U.S. 37, 39–41 (1948).
                                 B
    Woodman’s second argument—that the convenience of
large packs is a “service or facility”—fails as well, but for dif-
ferent reasons. The history of the Act and the reasoning of our
sister circuits and the Commission demonstrate that only pro-
motional “services or facilities” fall within subsection 13(e).
And the logic of the Act as a whole convince us that package
size alone is not a promotional “service or facility.”
    As we have already noted, Congress’s purpose in enacting
subsection 13(e) was to close off the possibility of circumvent-
ing subsection 13(a) by concealing price discrimination as ad-
vertising benefits. See Fred Meyer, Inc., 390 U.S. at 350–51. As
the Supreme Court recognized in Fred Meyer, Congress found
that manufacturers would, for example, pay the advertising
costs of preferred purchasers in order to given them a de facto
discount without running the risk of violating subsection
13(a). Id. (citing S. Rep. No. 1502, 74th Cong., 2d Sess., 7 (1936);
H.R. Rep. No. 2287, 74th Cong., 2d Sess., 15–16 (1936)). Heed-
ing this context, every other circuit to consider the issue has
held that the terms “services or facilities” in subsection 13(e)
refer only to those services or facilities connected with pro-
moting the product, rather than sweeping in any attribute of
the product that makes it more desirable to consumers. For
example, the Fourth Circuit reads the word “services” in sub-
section 13(e) “as advertising, promotional, or merchandising
No. 15-3001                                                      9

services.” Hinkleman v. Shell Oil Co., 962 F.2d 372, 379 (4th Cir.
1992) (internal quotation marks omitted); see also Purdy Mo-
bile Homes, Inc. v. Champion Home Builders, Co., 594 F.2d 1313,
1317 (9th Cir. 1979); Skinner v. U.S. Steel Corp., 233 F.2d 762,
765–66 (5th Cir. 1956); cf. L & L Oil Co. v. Murphy Oil Corp., 674
F.2d 1113, 1118–19 (5th Cir. 1982) (noting that most courts and
commentators consider § 13(e) limited to “promotional” ac-
tivities, arrangements, or favors).
    Our cases point in the same direction. In Kirby v. P.R. Mal-
lory & Co., we said that subsections 13(d) and (e) govern “pro-
motional allowances,” while subsection 13(a) addresses direct
price discrimination. 489 F.2d at 909–10. We commented fur-
ther that “Congress carefully considered the deficiency in the
original law proscribing price discrimination in the supplier-
customer sale and drafted [subsections 13(d)] and [13(e)] to
apply exclusively to promotional discriminations like those
alleged in this case.” Id. at 910–11.
     Centex-Winston also supports interpreting “services or fa-
cilities” to refer only to promotional services or facilities, alt-
hough some dicta in that opinion could be interpreted other-
wise. We held there that a plaintiff stated a claim under sub-
section 13(e) when he alleged that a manufacturer routinely
delivered products to his competitors on time, while its deliv-
eries to him were late. 447 F.2d at 587. We said that “consist-
ently faster deliveries by defendant to plaintiff’s competitors
would obviously promote and facilitate their resales of lum-
ber. [Subection 13(e)] should not be confined to the conven-
tional type of promotional services such as window displays,
demonstrators, exhibits and prizes.” Id. We reasoned that be-
cause the Supreme Court held in Simplicity Pattern Co., 360
U.S. at 60, that paying for delivery to some purchasers and not
10                                                    No. 15-3001

others violated subsection 13(e), providing on-time delivery
to some purchasers and not others must also violate that part
of the Act. While we also commented that services or facilities
for purposes of subsection 13(e) “are not confined solely to
promotional matters,” that was an unnecessary aside and was
based on an interpretation of FTC materials that the FTC has
disclaimed. Centex-Winston, 447 F.2d at 588.
    The Commission now takes the view that subsections
13(d) and (e) pertain only to promotional services or facilities.
Package size alone, it urges in an amicus curiae brief in this
case, “is not a promotional service or facility.” Its reasoned
opinions deserve our respectful consideration. See United
States v. Mead Corp., 533 U.S. 218, 226–27 (2001) (citing Skid-
more v. Swift & Co., 323 U.S. 1345 (1944)); 16 C.F.R. § 240.1 (stat-
ing that FTC interpretations of the Act “do not have the force
of law”). This is so even though its interpretation of the Rob-
inson-Patman Act is not entitled to deference under Chevron,
U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).
     Beginning in 1960, the Commission has released nonbind-
ing guidelines to help businesses comply with subsections
13(d) and (e). See 16 C.F.R. §§ 240.1–240.15. These became
known as Fred Meyer Guides following the Supreme Court’s
decision in Fred Meyer, Inc., supra, 390 U.S. 341. The current
version of these Guides states that subsection 13(e) prohibits
only “promotional” services or facilities, that is, those “used
primarily to promote the resale” of the manufacturer’s prod-
uct to the consumer, as opposed to the original sale from the
manufacturer to the purchaser. See 16 C.F.R. § 240.7; see also
id. § 240.2 (subsections 13(d) and (e) apply only “in connection
with the resale” of manufacturer’s products). The Guides pro-
No. 15-3001                                                   11

vide examples of such promotional services or facilities, in-
cluding, as relevant here, “special packaging, or package
sizes.” But, as the Commission states in its amicus curiae brief,
these references in the Guides to packaging do not mean that
the Commission views package size alone as a “service or fa-
cility” within the meaning of section 13(e).
     The Commission’s position is a logical one: if the conven-
ience 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 facil-
ities” covered by subsection 13(e). It is hard to think of an as-
pect of a product that is not designed to appeal to consum-
ers—the point of a consumer product, after all, is to be bought
and sold. If any product attribute that made the product more
desirable automatically became a promotional “service or fa-
cility” by virtue of that fact, then subsection 13(e) would cover
all products. This would undermine the balance that Con-
gress has struck 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.
Moreover, such an interpretation of section 13(e) would wipe
out the seller’s discretion to choose which products to sell to
whom. See United States v. Colgate & Co., 250 U.S. 300 (1919).
No court has ever held that the Robinson-Patman Act goes
that far, and we have no inclination to be the first.
    Woodman’s relies on two opinions from the Commission
that express a view contrary to the one the Commission ad-
vances today: Luxor, Ltd., 31 F.T.C. 658, 664 (1940), in which
the Commission held that a manufacturer violated subsection
13(e) when it sold “junior-sized” cosmetics to some purchas-
ers but not others; and General Foods Corp., 52 F.T.C. 798, 826
12                                                  No. 15-3001

(1956), in which it followed Luxor with respect to coffee pack-
ages of different sizes. These decisions would support Wood-
man’s position, if they were still good law. But the Commis-
sion has expressly repudiated them, in light of intervening
Supreme Court decisions and developments in antitrust pol-
icy. It now believes, consistently with the cases we cited ear-
lier, that subsections 13(d) and (e) must be narrowly con-
strued so as to be consistent with the purposes of the Act and
antitrust law as a whole.
     This leaves Woodman’s without a leg to stand on. Size
alone is not enough to constitute a promotional service or fa-
cility for purposes of subsection 13(e); any discount that goes
alone with size must be analyzed under subsection 13(a); and
the convenience of the larger size is not a promotional service
or facility. This is 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, the Commission distinguishes football
shaped packages offered just before the Superbowl, or Hal-
loween-branded “fun-size” individually wrapped candies
near Halloween, from Clorox’s large packs. These examples
could fall within subsection 13(e), but they are not before us
today. Only Clorox’s refusal to sell large packs to Woodman’s
is before us, and that, we decide, is not forbidden by subsec-
tion 13(e).
                               III
    Clorox also argues that Woodman’s complaint must be
dismissed because Woodman’s no longer buys any products
from Clorox and therefore is not a “purchaser” under subsec-
tion 13(e). Woodman’s responds that it is an indirect pur-
chaser under Fred Meyers. Although Clorox raised this claim
No. 15-3001                                                       13

as a jurisdictional argument below, it does not do so here. That
was a wise choice: as the Supreme Court has recently held, the
question of who is authorized to bring an action under a stat-
ute is one of statutory interpretation; it does not implicate Ar-
ticle III standing or jurisdiction. See Lexmark Int’l, Inc. v. Static
Control Components, Inc., 134 S. Ct. 1377 (2014). The district
court rejected Clorox’s motion to dismiss on mootness
grounds. Understood as a ruling under Rule 12(b)(6), this too
must be reconsidered on remand.
    We REVERSE the district court’s denial of Clorox’s motion
to dismiss for failure to state a claim and its order rejecting
Clorox’s argument that Woodman’s no longer has any rights
under the statute and REMAND for further proceedings con-
sistent with this opinion.