Originally published January 2010
The Third Circuit recently reversed a district court's judgment in favor of a plaintiff under the federal price discrimination statute, the Robinson-Patman Act (RPA), 15 U.S.C. § 13, concluding that the RPA does not apply where any competition between the plaintiff and the purportedly favored purchaser occurred before the allegedly discriminatory sale by the manufacturer took place. Feesers, Inc. v. Michael Foods, Inc., Nos. 09-2548, 09- 2952, 09-2993, Slip. Op. at 6 (3d Cir. Jan. 7, 2010). This decision continues the trend in the Third Circuit and other jurisdictions of limiting the RPA to the situations it was "originally intended to target," in which dealers first "purchase products from manufacturers and then compete with other" dealers in the resale of those products. Slip Op. at 29-30. According to the Third Circuit in Feesers, the RPA was never intended to apply in the very different context of bid markets, "where a product subject to special order is sold through a customer specific bidding process." Slip Op. at 33. In this setting, while two dealers may compete with one another when submitting their respective bids to the same customer, no purchase actually takes place until after a particular bid has been accepted. By that point, the dealers by definition are no longer competing for the same customer and therefore are not "competing purchasers" for purposes of the RPA. Id.
The Third Circuit reached this conclusion through an analysis of the RPA's command that a manufacturer may not "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." 15 U.S.C. § 13(a). The Supreme Court has made clear that a purchaser seeking relief under this Section must be "in actual competition" with a purchaser who allegedly received a more favorable price from the seller. Volvo Trucks North Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164, 177 (2006). The Third Circuit concluded that plaintiff Feesers, Inc. ("Feesers") did not satisfy this requirement.
Feesers was a regional distributor that sold food products directly to institutions such as schools and nursing homes with their own in-house food service operations ("self-op institutions") and to food service management companies that provided such services for institutions that chose to contract out these operations. Feesers alleged that defendant Michael Foods, Inc. ("Michaels") sold food products to Feesers' putative competitor, defendant Sodexo, Inc. ("Sodexo"), a food service management company, at lower prices than it sold to Feesers. Slip Op. at 10.
The district court originally granted summary judgment in favor of the defendants, concluding that Feesers and Sodexo were not in competition because they were not at the same "functional level" in the distribution chain. Slip Op. at 12. The Third Circuit reversed this determination in a previous opinion, concluding that Feesers could show that it competed with Sodexo if the two companies were "each directly after the same dollar." Slip Op. at 14 (quoting Feesers, Inc. v. Michael Foods, Inc., 430 F.3d 206, 214 (3d Cir. 2007)). The court labeled this "afterthe- same-dollar" standard the "competing purchaser requirement." Id. The Third Circuit ruled that Feesers had provided enough evidence to survive summary judgment on this issue because Feesers sold to self-op institutions while Sodexo sought to convert self-ops to food service management, making it reasonable for a fact finder to conclude that these companies competed for the "same dollar" a given institution spends on food service. Id.
The district court held a bench trial on remand, concluded that Michaels had engaged in unlawful price discrimination, and entered a permanent injunction requiring that Michaels sell products to Feesers on the same terms as Sodexo. Slip Op. at 13.
Back on appeal, the Third Circuit reversed the district court's judgment and vacated the injunction. Based on the facts developed at the bench trial, the Third Circuit concluded that Feesers and Sodexo were not "competing purchasers" after all. Slip Op. at 36-37. Specifically, the evidence at trial showed that Feesers and Sodexo competed only at an "early stage," in which Sodexo attempted to convince a given institution to switch to managed food service. Slip Op. at 27. If the institution decided to make the switch, it typically would solicit bids from a number of food service management companies, including Sodexo, but not including distributors like Feesers. Slip Op. at 11. Thus, "[i]f an institution chose to self-operate, Sodexo would be eliminated from the competition, and if an institution chose to contract with a food service management company, Feesers would be eliminated from the competition." Slip Op. at 27. But, importantly, Michaels, the allegedly discriminating manufacturer, "does not make a sale until the institution chooses a particular distributor or food service management company and then begins purchasing Michaels's products through that company." Slip Op. at 27-28.
The Third Circuit determined that these facts brought Feesers' claim within the scope of a decision issued by the court after its first Feesers decision, Toledo Mack Sales & Service, Inc. v. Mack Trucks, Inc., 530 F.3d 204 (3d Cir. 2008). In Toledo Mack, the plaintiff truck dealer submitted bids to prospective customers for custom built trucks. In creating a bid, the plaintiff would solicit "sales assistance" from the manufacturer in the form of a "transaction- specific discount" tailored to the particular prospective customer. The plaintiff claimed that the manufacturer violated the RPA because it consistently gave the plaintiff less sales assistance than other dealers. Slip Op. at 21 (citing Toledo Mack, 530 F.3d at 209). The Third Circuit held that there could be no RPA claim on these facts because "the competition between Mack dealers occurred during the bidding process, and not at the time of the actual sale," which occurred only after the customer had selected the successful bidder, and eliminated all others from competition. Slip Op. at 22 (citing Toledo Mack, 530 F.3d at 228).
Hence, the plaintiff and other dealers, while they were competing bidders, never were competing purchasers, as the RPA requires. Slip Op. at 23.
Applying this reasoning in the Feesers decision, the Third Circuit concluded that, in exactly the same way, Feesers and Sodexo were never competing purchasers, because by the time Michaels actually made a sale, all competition had been eliminated: "The relevant market at the time of the sale of Michaels's products will have already been narrowed to one—the company that won the institution's business." Slip Op. at 28. Since the successful bidder in essence constituted a "market of one," buying from Michaels in order to resell to the institution awarding the contract, the successful bidder was not competing with any other purchaser in that unique "market." The Third Circuit found this fatal to Feesers' RPA claim.
The lesson of Feesers is two-fold. First, potential plaintiffs operating in bid markets should be extremely wary of attempting to bring RPA claims if they and their competing bidders make no purchases from an allegedly discriminating supplier until after a contract has been awarded by the customer. Second, and more generally, the decision is an apt illustration of federal courts' increasing suspicion of the policies underlying the RPA and the corresponding desire to limit its reach as much as possible. Indeed, the Third Circuit noted in Feesers the inherent tension involved in applying a statute as "fundamentally inconsistent with the antitrust laws" as the RPA "in a fashion that is consistent with the broader policies of the antitrust laws." Slip Op. at 32 n.17 (internal quotation marks omitted). The court concluded that "[t]his conundrum is bound to create confusion for judges called upon to apply the RPA in a host of settings." Id.
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