16 June 2010
The US Third Circuit Court of Appeal’s January 2010 opinion in Feesers, Inc. v. Michael Foods, Inc. and Sodexho, Inc.,1 which overturned a bench verdict for the plaintiff Feesers and directed the district court to enter judgment for the defendants, represents yet another decision in a recent series of cases that have raised the bar for plaintiffs to bring and sustain price discrimination claims under the Robinson-Patman Act, 15 U.S.C. § 13(a) (RPA). The reversal in Feesers was particularly significant because this probably was the most prominent recent case in which a plaintiff had prevailed on the merits of an RPA claim.
Both the history of the case and the court’s decision provide guidance with respect to the proof required to establish the “competitive injury” element of a price discrimination claim under Section 2(a) of the RPA. At the same time, however, the decision leaves open a number of important questions raised by the case.
Case History 2004-2009
At the outset, the Third Circuit made the observation in a footnote that as long as the RPA remains on the books, it will continue to “flummox” and confuse the federal courts.2 This case arguably is a textbook example of such confusion, as demonstrated by the many twists and turns in its complicated procedural history.
Michael Foods manufactured processed egg and potato products that were sold to institutional customers such as schools, hospitals and nursing homes. Feesers was a regional distributor that served an area of approximately 200 miles around Harrisburg, Pennsylvania, and that purchased Michael Foods products and resold them to institutional customers who operated their own food services, also called “self-ops.” Sodexho (now “Sodexo”), on the other hand, was a food service management company that took over and ran food services for institutions that decided to outsource that function. As part of this service, Sodexo negotiated pricing with suppliers such as Michael Foods and then arranged for a distributor to purchase the food and resell it. Sodexo’s services typically were sold through a request for proposal (RFP) bidding process.3
Feesers claimed Michael Foods sold food products to Sodexo at discounts not made available to Feesers, which resulted in institutional customers choosing Sodexo, and Feesers losing institutional sales.4 In 2004, Feesers brought suit in the US District Court for the Middle District of Pennsylvania alleging Michael Foods had violated RPA Section 2(a) by engaging in price discrimination,5 and that Sodexo had violated RPA Section 2(f) by inducing that discrimination. Feesers sued solely for injunctive relief.6
In May 2006, the district court granted summary judgment to the defendants.7 The court found that Feesers had established three of the four elements of a prima facie price discrimination case under RPA Section 2(a): purchases by two different purchasers in interstate commerce; the product sold to the two purchasers was of the same grade and quality; and the defendants discriminated in price between the two purchasers.8 However, the district court found that Feesers had failed to establish the fourth element—that the discrimination resulted in competitive injury.9
In August 2007, the Third Circuit reversed, holding that the district court had applied the wrong standard in determining that Feesers and Sodexo were not in competition.10 In particular, the court of appeals ruled that the district court had erred by finding that Feesers and Sodexo were not at the same “functional level” in the chain of distribution, and by requiring Feesers to show proof of actual competitive injury in the form of lost sales to Sodexo based on the different prices the two companies were paying Michael Foods.11 The Third Circuit remanded the case with instructions that the district court apply the correct standard for competitive injury, which it defined as Feesers needing to prove “(a) that it competed with Sodexo to sell food and (b) that there was price discrimination over time by Michael Foods.”12
In April 2009, following a bench trial, the district court entered judgment for Feesers and enjoined Michael Foods from discriminating between Feesers and Sodexo.13 Among other things, the district court found that:
- Feesers and Sodexo competed for the same customers, and that customers switched between the two;
- There was a substantial difference in the prices Michael Foods charged Feesers and Sodexo — including a 59 percent difference for Michael Foods’ top 11 products — over a sustained period of time; and
- These price differences were a major element of Sodexo’s strategic planning and marketing efforts to convert self-op institutions into users of Sodexo’s food service management services.14
The district court also ruled that Michael Foods did not qualify for the “meeting competition” defense. That defense requires the seller to show that it reduced its price in a good faith effort to meet, but not beat, a competing offer.15 The court found that Michael Foods failed to meet this standard because, while it based its pricing on market intelligence as well as on Sodexo’s claims that Michael Foods’ prices were higher than competitors’ prices, it did not seek or obtain more detailed information about the prices competitors were offering.16
In response to the April 2009 injunction, Michael Foods terminated its sales to Feesers. As a result, the district court found Michael Foods in contempt and ordered it to sell to Feesers on the same terms as Sodexo. The defendants appealed, resulting in the Third Circuit’s January 2010 decision.
The Third Circuit’s January 2010 Decision
The Third Circuit reversed the district court’s judgment for Feesers, holding that Section 2(a)’s competitive injury requirement was not satisfied because Feesers and Sodexo were not competing purchasers at the time Michael Foods made the discriminatory sales to Sodexo. According to the court, the central question was whether Feesers and Sodexo were competing for the same sales from the same customer. In answering that question, the court relied heavily on the Supreme Court’s 2006 decision in Volvo Trucks,17 and the Third Circuit’s own 2008 decision in Toledo Mack.18
Both of those cases involved a bid market in which the claimed discrimination related to customer-specific discounts requested by a vehicle dealer from a manufacturer prior to the dealer winning the bid. On these facts, the courts in both cases held that the plaintiffs failed to prove competitive injury because the alleged price discrimination did not relate to the same customer. In particular, in Toledo Mack, no dealer actually purchased the vehicle from Mack Trucks until after winning the bid, at which point the “relevant market” was limited to the single, winning bidder.19
Under Volvo and Toledo Mack, a court determining whether the plaintiff has established competitive injury must look at both “the nature of the market and the timing of the competition.”20 According to the Third Circuit, in the bid markets at issue in those cases and in Feesers, the competition between the purchasers was complete before the sale of the product was made because there was no sale until the winning bidder was chosen. In particular, Feesers and Sodexo would compete to persuade a customer to use Feesers, a distributor, or Sodexo, a food service management company, but it was only after Sodexo was chosen that the customer would purchase Michael Foods products through Sodexo.21 As result, there were no competing purchasers at the time of sale, and Feesers' RPA claim failed.22
The Third Circuit also stressed that its ruling was consistent with the guidance in Volvo and Toledo Mack to interpret the RPA narrowly because it often has “anticompetitive effects” that are at odds with the “broader policies of the antitrust laws.”23 Toledo Mack was even cited for the proposition that the court will interpret the RPA narrowly, “even if doing so will result in “elevat[ing] form over substance.”24 On the other hand, the court appeared to limit the scope of its decision by stating in Footnote 18 of the opinion that, “[n]otably, we do not hold that the sales of products by the manufacturer to two purchasers must always occur prior to the competition between the two purchasers. Our holding is limited to bid markets that closely resemble the markets in this case, Volvo Trucks, and Toledo Mack.”25
Finally, the Third Circuit held that the injunction against Michael Foods for contempt did not survive its ruling, that there was no liability for Michael Foods under Section 2(a) or for Sodexo under Section 2(f), and that the case was remanded to the district court with instructions to enter judgment for the defendants.26 Because the court’s decision was based solely on the issue of competitive injury, it did not deal with several other issues raised by the defendants on appeal, including the district court’s ruling regarding the “meeting competition” defense.27
What Does the Feesers Case Mean for Compliance with the RPA?
There are a number of important takeaways from the Third Circuit’s opinion that counsel can use when advising clients about compliance with the RPA, including:
- The decision is part of a long-standing trend of opinions and commentary expressing hostility toward the RPA and calling for it to be repealed or narrowly construed.28 The court’s particularly harsh criticism of the RPA in this case is likely to reinforce this trend, notwithstanding the court’s attempt to limit the opinion to bid markets.
- With respect to bid markets, however, the opinion can be read as holding that the RPA has no application to such markets. At the very least, it provides greater latitude to parties participating in bid markets that resemble those in Volvo, Toledo Mack and this case, in which the competition has ended when the sale is made, with respect to the likelihood that the RPA will be applied to their discount programs.
- The case does not directly address sales made out of inventory acquired before the competition takes place between the parties. However, the author understands from Michael Foods’ counsel that products already in inventory were purchased by Sodexo’s distributor at a price similar to that charged to Feesers, and Sodexo’s discounted price was not applied until Sodexo was chosen as a winning bidder and the product was to be sold to its customer. If that is correct, the court’s reasoning that there was no discriminatory sale until after competition had ended would appear to apply.
- The Third Circuit did not address the district court’s ruling on the “meeting competition” defense, which appeared to require the seller to obtain verification of the competing offer, a ruling arguably at odds with the Supreme Court’s holding in Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69 (1979).29 The district court’s decision, if followed by other courts, could restrict the availability of the “meeting competition” defense.
- The circuit court’s statement in Footnote 18 (that it is not holding that sales by a manufacturer always must take place prior to competition by the purchasers) is difficult to reconcile with the rationale for the court’s decision. The result may be that those persons trying to interpret the case will be “flummoxed” as to the meaning of that statement.
The case is not over. Feesers petitioned for a rehearing and rehearing en banc but the petition was denied by the Third Circuit in a brief order issued March 4, 2010.30Feesers now plans to petition for a writ of certiorari in the US Supreme Court which, if granted, will give the Supreme Court an opportunity to provide further guidance regarding the RPA’s “competitive injury” requirement. Assuming that the current opinion survives, however, the Third Circuit’s January 2010 decision should be seen as yet another blow against the continued viability of the RPA. Nevertheless, as the court noted, the RPA remains on the books, and parties and their counsel must continue to wrestle with how best to comply with it to avoid lengthy and expensive litigation like that in the Feesers case.
1Feesers, Inc. v. Michael Foods, Inc. and Sodexho, Inc., 591 F.3d 191 (3d Cir. 2010).
2Id. at 206, n. 17.
3Id. at 193-96.
4Id. at 193, 196.
5Section 2(a) provides in part: “It shall be unlawful for any person engaged in commerce . . . to discriminate in price between different purchasers of commodities of like grade and quality, . . . where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them.” 15 U.S.C. § 13(a).
6591 F.3d at 196.
7Feesers, Inc. v. Michael Foods, Inc. & Sodexho, Inc., No. 04-Civ-576, slip op. (M.D. Pa. May 4, 2006).
8Id. at 10-18.
9Id. at 21-24.
10Feesers, Inc. v. Michael Foods, Inc., 498 F.3d 206, 208 (3d Cir. 2007).
11498 F.3d at 213-16.
12Id. at 213 (citing FTC v. Morton Salt Co., 334 U.S. 46 (1948)).
13Feesers, Inc. v. Michael Foods, Inc., 632 F. Supp. 2d 414 (M.D. Pa. 2009).
14632 F. Supp. 2d at 422-23, 434 and 451.
15Id. at 451.
16Id. at 452-59.
17Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006).
18Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc., 530 F.3d 204 (3d Cir. 2008).
19591 F.3d at 201-02.
20Id. at 197-98.
21Id. at 203-04.
22Id. at 203.
23Id. at 198-99, 204-05.
24Id. at 199 (citing Toledo Mack, 530 F.2d at 228). The court also argued that the RPA should not be applied to this case because “[t]he price discrimination identified by Feesers bears ‘little resemblance to [the] large independent department stores and chain operations’ the statute was originally intended to target.” Id. at 204-05 (citing Toledo Mack, 530 F.3d at 227 and Volvo, 546 U.S. at 181). This point seems debatable. The court’s opinion identifies Sodexo as the world’s largest private food purchaser, while Feesers is a regional distributer, suggesting this case presented the very kind of “David and Goliath” situation the statute was intended to address.
25Id. at 206, n. 18.
26Id. at 208-09.
27Id. at 194.
28See Id. at 198-99, n. 12, and the authorities cited therein. In addition, in its 2007 report, the Antitrust Modernization Commission appointed by President Bush called for the RPA to be repealed. Antitrust Modernization Commission, Report and Recommendations, http://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf, (April 2007), at 313.
29In A&P, the Supreme Court held the requirements of the “meeting competition” defense had been met where Borden, the seller, reduced prices to A&P based on A&P’s claim that Borden’s first bid was “not even in the ballpark,” notwithstanding that Borden asked for, but was not able to obtain the details of the competing bid from A&P. 440 U.S. at 82-84.
30Feesers, Inc. v. Michael Foods, Inc. and Sodexho, Inc., Nos. 09-2548, 09-2952, 09-2993, order (3d Cir. Mar. 4, 2010).