Copper Liquor, Inc. v. Adolph Coors Co.

• Decision Date: 17 January 1975
• Docket Number: No. 73-3913,73-3913
• Citation: 506 F.2d 934
• Parties: 1975-1 Trade Cases 60,128 COPPER LIQUOR, INC., and Harold Letcher (Robert Earl Basham, Jr., H. A. Anthony and Willis Ray Loving, as the personal representative of Appellee, Harold Letcher, substituted in the place and stead of Appellee, Harold Letcher, Deceased), Plaintiffs-Appellees, v. ADOLPH COORS COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 934

506 F.2d 934

1975-1 Trade Cases 60,128

COPPER LIQUOR, INC., and Harold Letcher (Robert Earl Basham Jr., H. A. Anthony and Willis Ray Loving, as the personal representative of Appellee, Harold Letcher, substituted in the place and stead of Appellee, Harold Letcher, Deceased) Plaintiffs-Appellees, v. ADOLPH COORS COMPANY, Defendant-Appellant.

No. 73-3913.

United States Court of Appeals, Fifth Circuit.

Jan. 17, 1975, Rehearing and Rehearing En Banc Denied March

17, 1975, See 509F.2d 758.

Leo N. Bradley, Golden, Colo., William B. Browder, Jr., Midland, Tex., for defendant-appellant.

Vann Culp, Midland, Tex., James R. Warncke, San Antonio, Tex., for plaintiffs-appellees.

Appeal from the United States District Court for the Western District of Texas.

Before TUTTLE, WISDOM and GEE, Circuit Judges.

WISDOM, Circuit Judge:

On May 14, 1970, the plaintiff, Harold Letcher, ¹ a retail liquor-store owner in Brownwood, Texas, brought this action under the Sherman Anti-Trust Act of 1890, 1 and 2, ² against the Adolph Coors Company. Letcher contended that Coleman Distributing Company, a Coors distributor, had refused to deliver Coors beer to him. At trial Letcher abandoned the claim under section two of the Sherman Act, and the court submitted the case to the jury only under section one. The jury found liability and assessed damages of $101,011. The trial court trebled the damages to $303,033, as it was required to do under 15 U.S.C. 15, ³ and awarded attorneys' fees of $75,000.

The plaintiff's theory under section one of the Sherman Act is based on two interrelated contentions. First, Letcher contends that Coors conspired or combined with its distributors to fix the retail price of its beer and caused its distributor, servicing the plaintiff's retail liquor store, to discontinue the supply of Coors beer to the plaintiff when he sold below the suggested retail price and declined to give assurances that he would not do so in the future. Second, Letcher contends that Coors conspired or combined with its distributors to create and enforce exclusive territories within which each distributor was to conduct his business, making it impossible for the plaintiff to obtain a supply of Coors beer from another distributor once his original supply had been cut off. We hold that the plaintiff adduced sufficient evidence to show a violation of section one of the Sherman Act, but we remand the case for further proceedings (1) to determine whether the violation caused Letcher injury and, (2) if so, to determine damages in the light of the principles stated in this opinion.

I.

The Adolph Coors Company, founded in 1873, an entirely family-owned business, is the fourth largest brewer of beer in the United States. All its brewing is done at a single plant at Golden, Colorado, a small town in a little valley in the foothills of the Rocky Mountains. The plant is the largest single brewery in the world. Coors is a 'regional' brewer that markets its beer only in ten western states and half of Texas, unlike its three larger competitors, which have established 'branch' breweries at various locations throughout the country and sell in all fifty states. Coors restricted its market area, in large part because of the process by which its beer is brewed. Coors is expanding its capacity at a rate of ten percent a year, all of it internally financed.

William Coors, the chief executive officer of the firm, testified as to the care taken in the brewing technique. The water used is nearby Rocky Mountain spring water that is remarkably free of microorganisms and organic matter. The flavoring agent for beer is hops; Coors imports a special German hop. There is no accounting for taste. But it is undisputed that this German hop imparts a flavor to Coors beer that, as Coors's witnesses testified, is 'very characteristic and very delicate'. The firm has developed its own variety of brewing barely, and maintains a staff of about fifty persons, some of whom are geneticists and agronomists, to supervise the production of the barley crop. To impart lightness to the beer, Coors dilutes the barley ingredients in the brew with a form of neutral starch obtained from a short-grain variety of rice of Asiatic origin that is twice as expensive as other varieties of rice available for that purpose. Mr. Coors concluded, 'Coors beer is by a wide margin the most expensive beer made from the standpoint of the raw materials and the processing.' According to his testimony, the brewing process at Coors takes about eighty days, as compared with forty days at the breweries of one of its three largest national competitors and twenty days at the breweries of another of the three national competitors.

Mr. Coors testified that Coors beer is brewed in an 'aseptic' process, rather than by a technique employing pasteurization. In this process the firm employs refrigeration and rotation of stock so that beer past a certain age is removed from the marketplace. Special refrigerated railroad cars or other refrigerated vehicles are used in transporting the beer from Golden to the distributors, who must maintain the Coors beer in refrigerated warehouses and vehicles until it is delivered to the retailers. The retailers, in turn, are urged to keep it refrigerated until the ultimate consumer purchases it. Coors, its distributors, and its outlets maintain substantial efforts to reduce the exposure of the beer to light, heat, and agitation, for these factors have an adverse effect upon the flavor of the beer. Distributors have heavy responsibilities to maintain Coors's standards in this regard.

Coors limits its market to the states of California, Arizona, Nevada, Utah, Idaho, Wyoming, Colorado, New Mexico, Kansas, and Oklahoma, and to roughly the northern half of the state of Texas. This is about the same market Coors has enjoyed since the 1930's, after the repeal of Prohibition. Expansion of the firm is directed more toward increasing market penetration within areas already serviced than toward expanding the geographical area serviced. This policy is dictated by the centralization of Coors's brewing facilities. For example, the average shipment to the California market for Coors is thirteen hundred miles, while the average shipment of Budweiser in California is around one hundred miles. Coors beer is sold to the distributors at one price, f.o.b. Golden. Since the distributor pays the freight, the cost of shipment works a substantial practical limitation on the expansion of the market area. Moreover, Coors has experienced for many years a shortage of production capacity to meet the existing demand within the geographical area currently serviced by its distributors. Mr. Coors characterized market penetration within that area as crucial to the firm's survival. Since the beer is sold only in a limited area, a large amount of advertising expense is saved, so that per barrel the firm spends on advertising only a quarter of what its major competitors spend. In part, this saving is made possible, as Professor Cundiff, Coors's marketing expert, testified, because Coors beer enjoys a high degree of customer loyalty and brand identification unusual, if not unique, in the beer market in the United States; and the savings, of course, help offset the transportation disadvantage.

Coors enters into distributorship agreements for certain geographical territory granting to the distributor a 'non-assignable, non-exclusive, personal right to engage in the wholesale distribution of the company's beer products' within the described territory. The distributor promises to conduct his wholesale distribution exclusively within the prescribed territory. The agreement provides that either party may cancel the agreement without cause with thirty days' written notice, and that Coors may cancel the agreement 'for any breach by the distributor' upon five days' written notice. Coors has such agreements with 160 distributors within its market area. A Coors distributorship is highly sought after; the company has about 7,000 applications on file. Mr. Coors testified that without the territorial restrictions imposed in the agreements, it would be difficult if not impossible to maintain the efficiency of the distribution system. Although one entering into a distribution agreement with Coors pays nothing for the right granted him, the distributor must make a substantial capital expenditure to establish refrigerated facilities for warehouses, trucks, and related equipment. Mr. Coors stated that unless the distributor could be assured that he would not be confronted with competition from another Coors distributor within his territory-- assured that there would be no intrabrand competition-- the distributor would be unwilling to make the necessary capital expenditure, and lending institutions would be unwilling to extend credit to him. Aside from difficulties intrabrand competition among distributors would create in attracting capital, Mr. Coors indicated that such competition, if permitted, would eventually erode the firm's market penetration. In the short run, so he said, intrabrand competition among distributors would primarily manifest itself in wholesale price competition and perhaps lower retail prices in competition in service. However, as time passed, the weaker of those who had been able to make the capital expenditure to undertake a non-exclusive distributorship would be eliminated from the competition, the 'price' of competition would decline, and there would be a rise in the level of wholesale prices. In the long run, the effect of such competition on the smaller retail accounts would, he thought, be highly undesirable. Because there is almost always a shortage of Coors for the market area, the company allocates the supply with two primary goals: maintaining retail price stability and servicing the maximum number of retail outlets within the area with a supply as dependable as possible, so that consumer...