The Franchise Memorandum

A manufacturer can sell its largest packs of products only to discount club chains without engaging in illegal price discrimination, according to the United States Court of Appeals for the Seventh Circuit in Woodman’s Food Market, Inc. v. Clorox Co., 833 F.3d 743 (7th Cir. 2016). The case concerned Clorox’s practice of selling its largest-sized containers of products only to discount warehouses such as Sam’s Club or Costco. Woodman’s, a small grocery chain based in Wisconsin and Illinois, sued Clorox seeking injunctive relief for unlawful price discrimination under Section 13(e) of the RPA, which forbids any manufacturer from “discriminat[ing] in favor of one purchaser against another purchaser,” by furnishing “services or facilities” not available to all purchasers.

Woodman’s argued that packaging size is a type of promotional service because (1) large packs tend to have a lower per-unit cost than smaller packs, and (2) large packs provide the customer with the added convenience of having to shop less frequently. The Seventh Circuit found the first argument unpersuasive, holding that the subsection of the RPA at issue only prohibited the provision of advertising perks to purchasers as a way around the statute’s prohibition on price discrimination. The court also rejected the second argument, finding that the RPA only addresses “promotional” services or facilities, rather than any product attribute a customer might find appealing, such as fewer trips to the store. The court also noted that according to the Federal Trade Commission’s current guidance, the RPA prohibits only “promotional” services or facilities used primarily to promote the resale of the manufacturer’s product to the consumer, as opposed to the original sale from the manufacturer to the purchaser.