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The U.S. Supreme Court on Monday declined to hear a petition from Living Essentials, the maker of 5-Hour Energy, challenging a Ninth Circuit decision regarding price discrimination claims under the Robinson-Patman Act. The ruling allows a lawsuit brought by seven wholesalers against Living Essentials to proceed, with allegations that the company provided Costco Wholesale with illegal promotional funding, enabling it to sell 5-Hour Energy at a discounted price.

Ninth Circuit Ruling and Price Discrimination Claims

The case centers around whether the seven wholesalers are in direct competition with Costco Wholesale, a key requirement for price discrimination claims under the Robinson-Patman Act. The Ninth Circuit reversed a lower court decision, which had ruled that the wholesalers did not compete with Costco because they did not operate "at the same functional level."

In reviving the suit, a Ninth Circuit panel applied a three-pronged test from its 1964 Tri-Valley Packing Association v. FTC decision, instructing the trial court to reconsider whether the wholesalers and Costco were indeed competitors. The appellate panel found that, economically, both Costco and the wholesalers function as distributors of 5-Hour Energy, and the district court erred in ruling otherwise.

"As a matter of 'economic reality,' both Costco and the wholesalers were wholesalers of 5-hour Energy," the Ninth Circuit panel stated in its ruling. This decision allows the wholesalers to continue pursuing their claim that Costco's promotional pricing amounted to unfair price discrimination.

5-Hour Energy Unfair Pricing Test : Living Essentials' Supreme Court Petition

Living Essentials petitioned the Supreme Court, arguing that the Ninth Circuit’s use of the Tri-Valley Packing test in price discrimination cases was flawed. They claimed the wholesalers were not direct competitors of Costco, and the appeals court's decision misinterpreted the relationship between the plaintiffs and Costco.

The wholesalers countered that Living Essentials’ petition was premature, as the Ninth Circuit’s ruling was not a final order. They also argued that the company was effectively asking the Supreme Court to engage in fact-finding, a role typically reserved for lower courts.

Case Moving Forward

With the Supreme Court’s refusal to intervene, the case will return to the district court for further proceedings. The wholesalers are represented by attorneys Randolph Gaw, Victor Meng, and Mark Poe of Gaw Poe LLP. Living Essentials is represented by a team from The Miller Law Firm and Kellogg Hansen Todd Figel & Frederick PLLC.

The Supreme Court's decision to decline review leaves the Ninth Circuit’s test for determining competition between companies in price discrimination cases intact, ensuring that the wholesalers’ claims against Living Essentials and Costco move forward in court.