Court Allows Price Discrimination Lawsuit Over Bulk Sales To Survive

On February 2, 2015, a federal judge denied a motion to dismiss a claim that Clorox's proposed policy of providing only large bulk-size packages of products to warehouse clubs, like Sam's Club and Costco, and not to competing grocery stores violated the Robinson-Patman Act's prohibition on the disproportionate provision of promotional services. 15 U.S.C. § 13(e). The court held that special packaging includes offering certain customers but not others the opportunity to buy unique sizes of products. The court specifically rejected the argument by Clorox that a seller has the right to refuse to sell certain product sizes to some customers. If the plaintiff prevails on this theory after discovery, manufacturers may need to undertake a review of their distribution and channel strategies.

The Lawsuit

Woodman's Food Market, Inc. (Woodman's) brought suit against The Clorox Company and The Clorox Sales Company (Clorox) in the Western District of Wisconsin in October 2014. See Woodman's Food Market, Inc. v. Clorox Co. et al., 3:14-cv-00734-SLC (W.D. Wis. Oct. 28, 2014). The lawsuit alleges that Clorox informed Woodman's 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. Woodman's claims that it had previously been able to purchase large packages of Clorox products, including items like Glad bags, cleaning products, and kitty litter, at the same discounted rates offered to Sam's Club and Costco. Clorox's new marketing strategy, however, would mean that Woodman's could no longer purchase the bulk packs.

Woodman's argues that the practice would hurt its ability to compete with its nearby wholesale club rivals. According to the lawsuit, Woodman's has the appearance of a wholesale store, with 15 locations in the Midwest, but it does not operate on the same membership model. Woodman's claims that its customers could not afford to purchase memberships at Costco and Sam's Club and, as a result, these customers would have no choice but to pay the higher prices for non-bulk items when shopping at Woodman's. On the other hand, those that could afford the memberships would simply stop shopping at Woodman's and purchase the products at competing stores.

Bulk Packaging as a Promotional Service Under FTC Guidelines

The crux of the dispute hinges on whether the large (and likely cheaper per unit)...

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