U.S. Wholesale Outlet & Distr. v. Innovation Ventures, LLC
Slip Opinion (Forthcoming) (2023)
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Rule of Law:
The Robinson-Patman Act prohibits sellers from discriminating in price between competing purchasers of like grade and quality commodities (§ 2(a)) and from providing promotional payments unless available on proportionally equal terms to all competing customers (§ 2(d)). To establish competition under § 2(d), courts must assess the 'functional level' of customers based on economic reality, and a jury's finding of no competitive injury for a § 2(a) claim does not implicitly negate competition.
Facts:
- Living Essentials, LLC (Living Essentials) produces and sells 5-hour Energy, a caffeinated drink, to various purchasers.
- Costco Wholesale Corporation (Costco) purchases 5-hour Energy for resale at its Costco Business Centers, which primarily cater to businesses and other retailers.
- Seven California wholesale businesses (the Wholesalers) purchase 5-hour Energy from Living Essentials for resale to convenience stores and grocery stores.
- Living Essentials charged the Wholesalers higher list prices for 5-hour Energy ($1.45/$1.60 per bottle) compared to Costco ($1.35/$1.50 per bottle).
- Living Essentials provided various rebates and discounts to the Wholesalers (e.g., 7-cent everyday discount, 2% prompt payment, display rack discounts).
- Living Essentials also provided different rebates and discounts to Costco (e.g., 1% prompt-pay, spoilage discount, 2% annual rebate, payments for endcap displays and advertising).
- Living Essentials participated in Costco’s Instant Rebate Coupon (IRC) program, reimbursing Costco for customer-redeemed coupons for 5-hour Energy.
Procedural Posture:
- In February 2018, U.S. Wholesale Outlet & Distribution, Inc. and other California wholesale businesses (the Wholesalers) sued Living Essentials, LLC, and its parent company, Innovation Ventures, LLC, in the United States District Court for the Central District of California, alleging violations of the Robinson-Patman Act under Sections 2(a) and 2(d).
- The District Court granted summary judgment, finding that the Wholesalers had proved the first three elements of their Section 2(a) claim (interstate commerce, like grade and quality, and price discrimination).
- The Section 2(a) claim's fourth element (competitive injury) was subsequently tried to a jury, which returned a verdict in favor of Living Essentials (defendants).
- The Section 2(d) claim for injunctive relief was tried to the court in a bench trial, where the district court ruled in favor of Living Essentials.
- The Wholesalers (Plaintiffs-Appellants) appealed the district court's judgment to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Did the district court abuse its discretion in its jury instructions for a Robinson-Patman Act Section 2(a) claim regarding 'reasonably contemporaneous' sales and 'functional discounts,' and did it err by denying injunctive relief under Section 2(d) through legal and factual errors in its determination of whether the favored and disfavored purchasers were in competition?
Opinions:
Majority - Judges Miller and Ikuta (Miller authored Parts I and II; Ikuta authored Part III)
No, the district court did not abuse its discretion regarding the Section 2(a) jury instructions, but yes, it did err in denying injunctive relief under Section 2(d). Regarding the Section 2(a) claim, the court affirmed the district court's decision to instruct the jury on 'reasonably contemporaneous' sales and 'functional discounts.' Authors Miller and Ikuta held that the district court did not abuse its discretion in instructing the jury that the Wholesalers needed to prove 'reasonably contemporaneous' sales, as the Wholesalers, despite asserting clear proof, failed to adequately identify specific contemporaneous sales from their voluminous evidence during trial. The court is not required to 'comb the record' for a party. The court also held that the district court did not abuse its discretion in instructing the jury on 'functional discounts,' which allow a seller to provide a reasonable reimbursement to a purchaser for marketing or promotional functions performed. This doctrine is available regardless of whether purchasers are at the same distribution level, and there was sufficient evidence that Costco performed such services (e.g., prime placement, advertising, IRC program, spoilage assumption) for which the discounts could be reasonable compensation. Regarding the Section 2(d) claim, author Ikuta held that the district court committed both legal and factual errors in finding no competition between Costco and the Wholesalers. First, the district court legally erred by concluding that the jury's verdict in favor of Living Essentials on the Section 2(a) claim implicitly found no competition, because Section 2(a) requires a showing of competitive injury, not just competition. The jury could have found competition but no injury. Second, the district court factually erred by finding that Costco and the Wholesalers operated at different functional levels and competed for different customers. The evidence showed that Costco Business Centers primarily sold 5-hour Energy in 24-packs to businesses, effectively functioning as a wholesaler, similar to the Wholesalers. The court rejected arguments that operational differences or expert testimony about buyer non-substitution negated competition under Section 2(d), asserting that such differences are irrelevant to determining functional level competition and that customer switching relates to injury, not the existence of competition itself. The court distinguished Volvo Trucks as inapposite, stating this case represents a typical 'chainstore-paradigm' scenario. Consequently, the court vacated the denial of injunctive relief under Section 2(d) and remanded the case for the district court to determine whether the purchases were made 'within approximately the same period of time' or if competition was otherwise proven.
Partial concurrence and partial dissent - Ronald Lee Gilman
Judge Gilman concurred with the majority that the district court did not abuse its discretion in giving the 'functional discount' jury instruction and agreed that the district court abused its discretion in finding that Costco and the Wholesalers operated at different functional levels for the Section 2(d) claim. However, he dissented from the majority's finding on the 'reasonably contemporaneous' instruction for the Section 2(a) claim, believing the district court abused its discretion by giving it. He argued that the Wholesalers presented extensive, 'self-explanatory' spreadsheet evidence (Trial Exhibit 847) documenting thousands of sales to both Costco and the Wholesalers over seven years, many on the same day, which clearly established 'reasonably contemporaneous' sales without dispute. He asserted that the district court's rationale regarding declining overall sales or market fluctuations did not account for consistent price differentials over seven years or for transactions occurring on the same day. Judge Gilman would have reversed and remanded for a new trial on the Section 2(a) claim due to this instructional error.
Partial dissent - Eric D. Miller
Judge Miller concurred with the majority's affirmance of the district court's jury instructions on the Section 2(a) claims (on both 'reasonably contemporaneous' sales and 'functional discounts'), but dissented from the majority's reversal on the Section 2(d) claims, stating he would affirm the judgment in its entirety. Judge Miller argued that the district court did not clearly err in finding that the Wholesalers failed to establish competition under Section 2(d). He contended that the Tri-Valley Packing framework for inferring competition is not irrebuttable and that Volvo Trucks requires evidence that buyers compete 'for the same customer,' not just that they share a functional level or geographic area. He pointed to evidence of 'substantial differences in operations' between the Wholesalers and Costco (e.g., in-store credit, negotiated pricing, online sales, product variety, accessories) and expert testimony showing a lack of customer switching and price sensitivity, which suggested they did not compete for the same customers. Judge Miller emphasized that markets can be segmented by more than simple functional level, geography, and goods, and that the 'presence or absence of competition must be assessed based on the facts' rather than a categorical rule.
Analysis:
This Ninth Circuit decision refines the application of the Robinson-Patman Act, particularly by clarifying the 'competition' standard for Section 2(d) claims. It establishes that a jury's finding of no competitive injury for a Section 2(a) claim does not automatically negate competition for a Section 2(d) claim, reinforcing the distinct elements of each section. The ruling emphasizes that functional level should be assessed based on 'economic reality,' indicating that operational differences alone do not preclude a finding of competition if the parties effectively serve the same role in the distribution chain. This interpretation underscores the Act's purpose to protect smaller businesses from discriminatory practices by larger entities, even if their operational models vary.
