Michael Foods Wins |Round in Pricing Case

(CN) - The 3rd Circuit lifted an order barring Michael Foods from refusing to sell to a distributor that accused it of illegal price discrimination. The three-judge panel explained that the distributor does not actually compete with Sodexo, the food-service manager that purportedly got the better deal.

Food distributor Feesers claimed it paid nearly 60 percent more for Michael's egg and potato products than Sodexo, a multinational food-service manager for schools, hospitals, nursing homes and other institutions. Sodexo's services include planning menus, ordering food, and preparing and serving meals for institutions. It is the world's largest private food buyer.

Both companies try to recruit "self-op" customers, or institutions that manage their own food services. Feesers tries to distribute for self-ops, while Sodexo tries to convert them to food-service management.

In March 2004, Feesers accused Michael of engaging in illegal price discrimination by giving Sodexo better pricing on egg and potato products.

The district court dismissed the case, but the 3rd Circuit reversed, saying the lower court had applied the wrong standard in concluding that the two companies weren't in competition.

On remand, the lower court sided with Feesers, prompting Michael to stop all sales to Feesers. The court held Michael in contempt and permanently barred it from refusing to deal with Feesers.

The ruling was once again reversed on appeal, after a three-judge panel in Philadelphia closely examined whether the companies are competitors.

"[I]t is clear that Feesers never experienced a competitive injury from Sodexo's purchases and sales of Michael's products, because Feesers and Sodexo were not competing purchasers," Judge D. Brooks Smith wrote.

He noted that the companies' competition for self-op customers occurred before Michael sold food to either company.

"Thus, Feesers and Sodexo's competition at the early stage was irrelevant to the sales made by Michael after that competition was complete."

Smith also lifted the injunction, saying it was no longer necessary to protect Feesers, because the company "is not a competing purchaser vis-a-vis Sodexo."

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