The Franchise Memorandum

Feeser’s, Inc. v. Michael Foods, Inc., 2010 U.S. App. LEXIS (3d Cir. Jan 7, 2010) involved alleged price discrimination under the Robinson-Patman Act (the “RPA”).  Ruling against the plaintiff, the Third Circuit construed strictly the RPA’s requirement that, to be actionable, a seller must discriminate in price between “competing purchasers.”  As reported in Issue No. 121 of The GPMemorandum (July 2009), the price discrimination claim arose in the supply of food products to institutional food service providers, such as schools and hospitals.  The defendant, Michael Foods, a large manufacturer of egg and potato products, utilized a pricing structure that resulted in drastic product discounts to Sodexo, a multi-national food management company (and a co-defendant), as compared to plaintiff Feeser’s, a distributor operating on a regional level and selling to self-operators of food service businesses.  As we previously reported, the district court found that institutions routinely switch between acting as self-operators and utilizing the services of food management companies. Thus, the district court found, Sodexo and Feeser’s competed for “the same portion of an institution’s food service budget,” and price discrimination between them violated the RPA. 

The Third Circuit disagreed.  Relying on its previous rulings as well as an admonition from the Supreme Court to construe RPA claims narrowly, the appellate court found that the relevant “sale” of food products, for purposes of the RPA “competing purchaser” analysis, does not occur until after an institution has chosen whether to engage a food management company or to act as a self-operator.  Thus, Sodexo and Feeser’s are never in direct competition for the institution’s food product dollars because, by the time a sale of food products to the institution, the customer has already decided whether to buy from a distributor (like Feeser’s) or through a food management company (like Sodexo).  The district court’s factual finding that institutions routinely switch between using food management companies and self-operating was of no import, given the strict requirement that two competitors be in actual competition with one another at the time of sale.