Wednesday, January 13, 2010

Price Discrimination Judgment Against Food Manufacturer, Food Service Vacated

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Because a complaining regional food distributor and the world’s largest food service management company were not “competing purchasers” for purposes of the Robinson-Patman Act, the U.S. Court of Appeals in Philadelphia has reversed a judgment in favor of the complaining distributor on its price discrimination claims against food manufacturer Michael Foods, Inc. and favored food service management company Sodexo, Inc.

The complaining distributor, Feesers, Inc., could not satisfy the competitive injury requirement of a prima facie case of price discrimination under Sec. 2(a) of the Robinson-Patman Act.

Because a prima facie case of price discrimination under Sec. 2(a) could not be established against Michael, Sodexo could not be held liable for inducement under Sec. 2(f) of the Act. The appellate court instructed the district court to enter judgment as a matter of law for
Michael and Sodexo.

Competing Purchasers

“[T]he timing of the competition and the nature of the market” compelled the appellate court to conclude that Feesers and Sodexo were not competing purchasers. The setting for the dispute was the food service industry.

The appellate court explained that the food service industry consists of a three-tier distribution system. Manufacturers sell products to distributors, who resell those products to operators, including self-operators, and food service management companies.

Feesers sold food to self-operator institutions and food service management companies. Sodexo sold food in conjunction with its food service management services. Feesers alleged that Michael Foods offered Sodexo egg and potato products at a discounted price that was unavailable to Feesers.

Inference of Competitive Injury

The district court had decided that Feesers was entitled to an inference of competitive injury, even though Sodexo sold food only to institutional customers in conjunction with its food management services, while Feesers primarily supplied institutional customers that self-operated their dining services programs. According to the district court, the defendants were
unable to rebut the presumption.

The appellate court held that any competition between Feesers and Sodexo occurred at the time a potential customer was deciding whether to self-operate or hire a food service management company. However, Michael did not make a sale until the institutional customer chose a particular distributor or food service management company.

Any resulting sale of Michael’s products would have occurred after that competition had ended. Therefore, Feesers and Sodexo were not competing purchasers.

The January 7 decision in Feesers, Inc. v. Michael Foods, Inc., will appear at 2010-1 Trade Cases ¶76,865.

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