Coca-Cola Co. v. Harmar Bottling Co.

• Decision Date: 20 October 2006
• Docket Number: No. 03-0737.,03-0737.
• Citation: 218 S.W.3d 671
• Parties: The COCA-COLA COMPANY et al., Petitioners, v. HARMAR BOTTLING COMPANY et al., Respondents.
• Court: Texas Supreme Court

218 S.W.3d 671

The COCA-COLA COMPANY et al., Petitioners, v. HARMAR BOTTLING COMPANY et al., Respondents.

No. 03-0737.

Supreme Court of Texas.

Argued November 9, 2004.

Decided October 20, 2006.

Rehearing Denied May 4, 2007.

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Robert Harrison Pemberton, Austin, Orrin L. Harrison III, David Ray McAtee, Akin Gump Strauss Hauer & Feld LLP, Tyler A. Baker, Jeffrey S. Levinger, Joshua A. Imhoff, Carrington Coleman Sloman & Blumenthal, LLP, Dallas, Kenneth L. Glazer, Bryan R. Henry, Albert C. Loebe, Atlanta, GA, Jonathan M. Jacobson, Akin Gump Strauss Hauer & Feld LLP, New York, NY, Kay Lynn Brumbaugh, Jerry L. Beane, Andrews Kurth LLP, and P. Michael Jung, Strasburger & Price, L.L.P., Dallas, for Petitioner.

Jeffrey J. Angelovich, Nix Patterson & Roach, Daingerfield, William A. Durham, Eastham, Watson, Dale & Forney, Warren W. Harris, Bracewell & Giuliani, LLP, Jacalyn Ann Hollabaugh, Karen Ann Lister, Bracewell & Patterson, L.L.P., Houston, C. Cary Patterson, Nelson J. Roach, Nix Law Firm, Daingerfield, and Thomas M. Stanley, Law Office of Thomas M. Stanley, Houston, for Respondent.

R. Glen Rigby, Pillsbury Winthrop LLP, Houston, David M. Gunn, David J. Beck, John Sidney Adcock, Beck, Redden & Secrest, L.L.P., Houston, TX, Kenneth W. Starr, Robert R. Gasaway, Elizabeth S. Petrela and Jennifer S. Atkins, Kirkland & Ellis LLP, Washington, DC, John J. Park, Jr., Office of Atty. Gen., Montgomery, AL, for Amicus Curiae.

Justice HECHT delivered the opinion of the Court, in which Justice WAINWRIGHT, Justice GREEN, Justice JOHNSON, and Justice WILLETT joined.

Five carbonated soft drink bottlers with franchises to distribute Royal Crown Cola in various territories within the Ark-La-Tex region (a four state region including parts of Arkansas, Louisiana, and Texas where the three borders meet, and also nearby southeast Oklahoma) sued The Coca-Cola Company and several distributers of both Coca-Cola and Dr Pepper in the same area for using calendar marketing agreements ("CMAs") with retailers to unreasonably restrain trade, monopolize the market, and attempt and conspire to monopolize the market in violation of the Texas Free Enterprise and Antitrust Act of 1983 ("TFEAA")¹ and the antitrust laws of the other three states. The district court rendered judgment on the jury's verdict for the plaintiffs, awarding damages incurred throughout the region and permanently enjoining, in specified counties in each of the four states, certain conduct that it determined to be anticompetitive. The court of appeals affirmed.²

We address two issues. One is whether Texas courts can adjudicate and remedy an anticompetitive injury occurring in another state, either under the TFEAA or the law of that state. We hold that the TFEAA will not support extraterritorial relief in the absence of a showing that such relief promotes competition in Texas or benefits Texas consumers. We also hold that Texas courts, as a matter of interstate comity, will not decide how another state's antitrust laws and policies apply to injuries confined to that state. The other issue is whether the plaintiffs have shown substantial harm, real or threatened, to competition in the relevant market as a result of the defendants' conduct. We conclude that there is no evidence of such harm and that the lack of evidence is fatal to all of the plaintiffs' claims. Accordingly, we reverse the judgment of the court of appeals, dismiss the plaintiffs' claims of injury occurring in other states, and render judgment that the plaintiffs take nothing on their claims of injury occurring in Texas.

I

Coca-Cola, Dr Pepper, Pepsi-Cola, Royal Crown Cola, and other carbonated soft drinks ("CSDs") are distributed wholesale by "bottlers" and sold retail to the public in supermarkets, convenience stores, small grocery stores, and other outlets. In the Ark-La-Tex region in the 1990s, the Coca-Cola bottler, Coca-Cola Enterprises, Inc., and five of its affiliates³ (collectively "CCE") also distributed Dr Pepper and held about 75-80 percent of the market for nationally branded CSDs.⁴ (Worldwide, Coca-Cola Enterprises, Inc. was responsible for 77 percent of Coca-Cola sales.) The Pepsi-Cola bottler had about 13-15 percent of the market, leaving five Royal Crown Cola franchisees with the remainder. Each of the five RCC franchisees was restricted to operating in an assigned territory,⁵ some of which overlapped: one, Harmar Bottling Company, in Texas and Oklahoma;⁶ two, O-Mc Beverages, Inc. and Bolls' Distributing Co., in Texas and Arkansas;⁷ one, Hackett Beverages, Inc., in Arkansas only;⁸ and one, Royal Crown Bottling Co., in Louisiana only.⁹ None of the five operated entirely within Texas, and two operated entirely outside Texas.

These five RCC franchisees sued CCE and The Coca-Cola Company, which manufactures Coca-Cola (collectively, "Coke"), complaining of their use of CMAs with CSD retailers in the territories plaintiffs served. (The RCC franchisees also sued the manufacturer of Pepsi-Cola, the Pepsi-Cola Company, its parent, Pepsico, Inc., and two bottlers, but these defendants settled before trial, and therefore we do not discuss the allegations against them.) Generally speaking, a CMA provides that during stated periods of time a retailer will promote a wholesaler's products in preference to competing products in exchange for payments and price discounts from the wholesaler.

For CSDs, price and prominent retail display are critical marketing factors. Thus, the promotional preferences called for in CMAs used by CSD wholesalers include outside and in-store advertising, prominently located displays in "impulse zones" such as near checkout stands where purchase decisions are often made, enlarged shelf and cooler space, and reduced prices. Typically, CMAs do not prohibit retailers from selling competing products but do require more favorable promotion of the wholesaler's products and limited or no promotion of competing products. CMAs may also require retailers to price the wholesaler's products below competing products, even if the differential is achieved by pricing competing products higher than they otherwise would be. CMAs typically cover only specific time periods during the year, not the entire year, and are terminable at will by either the retailer or the wholesaler. Retailers receive price discounts and direct payments and bonuses for their promotional efforts.

The RCC franchisees concede, as they must, that CMAs are used throughout the country and have repeatedly withstood antitrust challenges,¹⁰ and that CMAs, including CMAs previously used by Coke, are not in themselves anti-competitive. But they complain that Coke used CCE's dominant position in the Ark-La-Tex region aggressively to negotiate CMAs with terms that suppressed competition from other bottlers. Specifically, the RCC franchisees complain, and the evidence shows, that in the Ark-La-Tex region:

• Coke had CMAs with most retailers, including virtually every major retailer other than Wal-Mart, since most could not afford to refuse a CMA with Coke given the market dominance of Coca-Cola and Dr Pepper.

• Coke's CMAs generally covered 42-52 weeks per year, even though their CMAs in other areas often covered only 26 weeks.

• Coke's CMAs prohibited or limited retailer advertising of competing national brands during the covered periods.

• Coke's CMAs sometimes required retailers to price featured packages (six-pack cans, for example) below competing products during a promotional period, or to always price certain packages below competing products (sometimes requiring prices as much as 30 cents less per ounce), even when competitors' wholesale prices were below CCE's, so that retailers had to charge higher prices for competing products than they otherwise would have in order to comply with the CMAs.

• For a few retailers, Coke's CMAs paid bonuses for not carrying competitive flavors of root beer and orange and grape drinks at all, thus driving competing products from stores in some areas and allowing CCE to raise the prices of its drinks.

• CCE increased its prices at times in some locations, even though sales were increasing.

• Some of Coke's CMAs required that in refrigeration units its products be displayed in horizontal sets at thigh-to-eye level so as to be most easily seen by consumers, and that no other refrigerated products be located near a store check-out area.

• Although Coke did not require retailers to give its products more shelf space, refrigerated area, or floor displays than was commensurate with its 75-80 percent share of the CSD market, it sometimes required that part of that space be used for soft drinks sold by CCE that had no market share at all (like Barq's Root Beer (versus A & W), Minute Maid orange and grape drinks (versus Sunkist and Welch's), and Sprite (versus 7-Up)). This left little space for competing drinks.

• Because of the limited retail display space, the RCC franchisees could not introduce two other products, RC Edge and Diet Rite, into the market without diverting space already occupied by their other products.

• Bottlers had no difficulty getting shelf space at Wal-Mart, where there were no Coke CMAs, and Coca-Cola often sold for more than competing CSDs, reflecting the difference in the wholesale prices.

An economist testified for the RCC franchisees that Coke's use of CCE's market share to force retailers into CMAs inhibited competition and negatively impacted the RCC franchisees' sales.¹¹ He also testified that Coke was monopolizing or attempting to monopolize the CSD markets served by the parties and, if left unchecked, would succeed.¹² But he offered no opinion on how the CMAs affected price and output in any relevant market as a whole¹³ and made no attempt to quantify to what extent, if at all, Coke had foreclosed competition in the relevant markets.

Coke offered evidence that the promotional efforts encouraged by their CMAs...