The U.S. Circuit Court of Appeals upheld a finding against U.S. Tobacco, the No. 1 competitor in the smokeless category, that said it used its category-management program to injure the No. 2 marketer in the segment, privately held Conwood Sales Co. (marketers of such brands as Kodiak and Cougar). Some lawyers suggested the high court's refusal to intervene could trigger more antitrust complaints to be filed in other categories where a dominant marketer aggressively seeks to control its retail marketplace through category-management programs.
UST itself already faces another antitrust suit. Separately, R.J. Reynolds Tobacco Co. said it will buttress its own challenge to a category-management program run by Philip Morris USA by citing the U.S. Tobacco decision.
The Federal Trade Commission has acknowledged that category-management plans can improve efficiencies, but critics have complained that the practice aids the selected category manager at the expense of competitors and can also hurt new competitors trying to win shelf space.
Conwood contended that, under U.S. Tobacco's category-management plan tactics, which included slotting payments to retailers, its in-store display racks were removed by U.S. Tobacco employees, sometimes without retailers' permission, and that adequate retail space wasn't provided for its discount brands-sometimes based on flawed profitability data.
The Supreme Court's decision not to take the U.S. Tobacco case under review sets no legal precedent, but antitrust lawyers last week said the verdict's size could prompt more lawsuits to be brought in the states overseen by the 6th U.S. Circuit Court of Appeals: Michigan, Ohio, Kentucky and Tennessee. "It's unfortunate. The rules in this area aren't crystal clear. Now, because of this, it becomes murkier," said David Balto, a former FTC official who now practices law in this area. "It's really going to embolden unhappy competitors to use the antitrust laws. The decision is unprecedented."
The American Wholesale Marketers Association, which represents convenience-store marketers, filed a friend-of-the-court brief in the case warning that many of the practices Conwood cited are regularly used by wholesalers. "The decision not to hear it left some question marks about some of the legitimate trade practices," said Scott Ramminger, its president. "We are just going to advise [association members] that they need to be cognizant about what courts consider legitimate practices. Where the question comes is where is the line? I don't think you will see companies immediately giving up, but it is going to make the environment a little trickier to deal with."
The Food Marketing Institute, which represents grocers, had no immediate comment.
UST said the Supreme Court's refusal to hear its appeal "will have profound negative implications for antitrust policy and competition."