Woodman’s Food Market, Inc. recently filed a lawsuit
against The Clorox Company, alleging that Clorox’s policy of no longer selling
“large pack” – a.k.a. “club pack” – products outside of the club channel
violates the Robinson-Patman Act.
Alleged Facts
Woodman’s is a large-format grocery store that
competes against Sam’s Club and Costco. Clorox’s
club pack products are cheaper per unit compared to smaller pack products, and
Woodman’s had been purchasing the club pack products for years. In September 2014, Clorox informed Woodman’s
that, as of October 1, 2014, it would only sell its club pack products to club
stores – i.e. Costco, Sam’s Club, and
B.J’s. Woodman’s describes the
competitive consequence of Clorox’s new policy as follows:
As a consequence of this new policy, two of Woodman’s
primary competitors, Sam’s Club and Costco, will be able to buy and sell at
retail special large packs of Clorox products that Woodman’s will no longer be
able to sell giving a significant competitive advantage to these competitors of
Woodman’s. In addition, because the unit
price on these large pack items is significantly lower than the unit price
charged for small packs of these same products, Sam’s Club and Costco will
generally be able to buy and ultimately sell these large pack items at
significantly lower unit costs than will be available to Woodman’s and
ultimately its retail customers.
Complaint ¶ 36.
Alleged Robinson-Patman Act Violation and Relief Sought
Woodman’s alleges that Clorox’s new policy violates three
provisions of the Robinson-Patman Act, 15
U.S.C.A. §§ 13(a), (d), and (e).
Section 13(a) of the Robinson-Patman Act prohibits selling
products of “like grade and quality” at different prices, if the price
differences may injure competition. Woodman’s
alleges that Clorox’s new policy violates § 13(a) because Sam’s Club and
Costco will be able to purchase Clorox’s products for less per unit than
Woodman’s and thus resell the products for less per unit, which will diminish
Woodman’s ability to compete on price.
Sections 13(d) and (e) of the Robinson-Patman Act prohibit
a seller from granting advertising and promotional allowances or services to
customers unless they are available to all competing customers on
proportionally equal terms.[1] Woodman’s alleges that Clorox’s new policy
violates these sections – primarily § 13(e) – because Clorox is now
making available a special pack/package size to the club channel that is not
available to Woodman’s.
Woodman’s seeks declaratory and injunctive relief that
would prevent Clorox from selling its “club packs” only to the club channel and
prevent Clorox from providing services and prices to the club channel that are
not also proportionally made to Woodman’s.
Woodman’s also filed a preliminary injunction motion at the same time as
it filed its complaint, seeking an order from the Court (under §§ 13(d) and (e) of the Robinson-Patman Act) that would
require Clorox to continue to sell its “club packs” to Woodman’s during the
pendency of the lawsuit. On November 24, 2014, Clorox filed its response to the
motion for a preliminary injunction; this response was filed under seal and
therefore is not publicly available. A
decision on the preliminary injunction will likely be made in the first quarter
of next year. Among other things, the
court will likely address in its decision the likelihood of success of Woodman’s
argument that Clorox’s policy restricting the sale of club packs outside the
club channel violates §§ 13(d) and (e) of the
Robinson-Patman Act.
Implications of the Woodman’s Suit
Woodman’s
suit raises issues of increasing importance to consumer goods manufacturers and
retailers: whether a manufacturer can
lawfully treat retailers operating in different channels differently,
particularly club stores. Clorox’s club
pack policy was not tied to any performance criteria that would at least
arguably enable Woodman’s to make a business decision as to whether it would
continue to sell club packs. Clorox
simply informed Woodman’s (allegedly) that Clorox would no longer sell club
packs outside of the club channel without giving Woodman’s an option to
continue to distribute the packs. If
this is true, Woodman’s suit likely has merit.
The key to legally managing channels differently is to
develop viable performance criteria associated with packages (and trade
programs) that allow retailers to make business decisions as to the packs they
will distribute (and the trade they will receive). Clorox’s (alleged) failure to develop such performance
criteria could be a fatal flaw in its new club pack policy.
Industry participants interested in viable
performance criteria that avoid the pitfalls associated with Clorox’s new
policy should consult with legal counsel.
[1] Section 13(d) applies to
payments in connection with transactions involving “commodities”; §13(e) applies to services in connection with a “commodity.”
