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From Antitrust Law Daily, February 3, 2015

Clorox unable to wipe out price discrimination claims

By Greg Hammond, J.D.

Claims that Clorox Co. engaged in price discrimination by selling “large pack” products exclusively to “club” retailers like Costco and Sam’s Club, but not to “general market” stores like Woodman’s Food Market, were allowed to proceed. The federal district court in Madison determined that Woodman’s sufficiently alleged that Clorox used special packaging and package sizes to benefit only certain customers (Woodman’s Food Market, Inc. v. The Clorox Co., February 2, 2015, Crocker, S.).

Background. Woodman’s is an employee-owned corporation that operates 15 retail grocery stores in Wisconsin and Illinois. Clorox manufactures and sells a number of consumer and professional products, such as bleach, cat litter, charcoal, cleaning supplies, containers, personal care products, sandwich bags, water filtration products, and wraps.

Although Woodman’s has been a customer of Clorox for many years, in October 2014, Clorox announced that Woodman’s would be reclassified as a “general market retailer” and would be placed in a different “channel” than Sam’s Club and Costco. As a result, Woodman’s no longer could purchase large packs of any Clorox product, which are typically bought and sold at a lower unit cost than smaller packs of the same products. The only exception was that Woodman’s could still purchase large packs of Kingsford charcoal. Woodman’s filed suit against Clorox, alleging price discrimination in violation of the Robinson Patman Act. Clorox moved to dismiss for failure to state a claim.

Promotional services. The crux of the suit, according to the court, was whether the large packs offered by Clorox only to club stores can be considered a promotional service, prohibited under the Robinson Patman Act. Woodman’s asserted that the large packs are special packaging that help Clorox’s retail customers resell the products to the general public. Conversely, Clorox claimed that package size is not a service, and that Woodman’s complaint failed because Clorox cannot be responsible for merely refusing to sell products to a particular retailer.

The court found that two “old-but-never-revoked” FTC decisions were directly on point in this case. In the first, In the matter of Luxor, Ltd. (31 FTC 658 (1940)), the Commission determined that because the “junior” size cosmetic products offered by Luxor were more convenient to carry, reduced waste, and promoted freshness, the special packaging size facilitated the resale of the products and constituted a promotional service or facility under the Robinson Patman Act. In the second, In The Matter of General Foods Corp. (52 FTC 798 (1956)), the FTC found that General Foods’ decision to offer an institutionalized size package of Maxwell House Coffee to only some of its customers violated the Robinson Patman Act. The court also noted that the FTC’s revised guidelines recognize that “special packaging or package sizes” are considered promotional services under the Act.

The court determined that it is reasonable to conclude that the special size of Clorox’s large-packs is connected to the resale of those products. Woodman’s sufficiently alleged that it is more convenient for customers to purchase and carry home large-pack products, and the large-packs can be and are offered to customers at a lower cost per unit than the smaller packs of the same product. Woodman’s allegations were therefore sufficient to state a claim under the Robinson Patman Act, and the motion to dismiss was denied.

The case number is 14-cv-734-slc.

Attorneys: John Alan Kassner, III (Von Briesen & Roper, SC) for Woodman's Food Market, Inc. Joshua H. Soven (Gibson Dunn & Crutcher LLP) for The Clorox Co. and The Clorox Sales Co.

Companies: Woodman’s Food Market, Inc.; The Clorox Co.; The Clorox Sales Co.

MainStory: TopStory Antitrust WisconsinNews

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